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<SEC-DOCUMENT>0000927016-03-000196.txt : 20030121
<SEC-HEADER>0000927016-03-000196.hdr.sgml : 20030120
<ACCEPTANCE-DATETIME>20030121165335
ACCESSION NUMBER:		0000927016-03-000196
CONFORMED SUBMISSION TYPE:	N-2
PUBLIC DOCUMENT COUNT:		3
FILED AS OF DATE:		20030121

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NICHOLAS APPLEGATE CONVERTIBLE & INCOME FUND
		CENTRAL INDEX KEY:			0001214935
		STATE OF INCORPORATION:			MA

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-102624
		FILM NUMBER:		03519807

	MAIL ADDRESS:	
		STREET 1:		1345 AVE OF THE AMERICAS
		STREET 2:		47TH FL
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10105

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NICHOLAS APPLEGATE CONVERTIBLE INCOME FUND
		DATE OF NAME CHANGE:	20030121

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NICHOLAS APPLEGATE CONVERTIBLE & INCOME FUND
		CENTRAL INDEX KEY:			0001214935
		STATE OF INCORPORATION:			MA

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-21284
		FILM NUMBER:		03519808

	MAIL ADDRESS:	
		STREET 1:		1345 AVE OF THE AMERICAS
		STREET 2:		47TH FL
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10105

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NICHOLAS APPLEGATE CONVERTIBLE INCOME FUND
		DATE OF NAME CHANGE:	20030121
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2
<SEQUENCE>1
<FILENAME>dn2.txt
<DESCRIPTION>NICHOLAS APPLEGATE CONVERTIBLE & INCOME FORM N-2
<TEXT>
<PAGE>


    As filed with the Securities and Exchange Commission on January 21, 2003

================================================================================

                                                     1933 Act File No. 333-
                                                     1940 Act File No. 811-


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form N-2

[X]      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_]      Pre-Effective Amendment No.
[_]      Post-Effective Amendment No.
                  and
[X]      REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[_]      Amendment No.


                  Nicholas-Applegate Convertible & Income Fund
         (Exact Name of Registrant as Specified in Declaration of Trust)

                     c/o PIMCO Advisors Fund Management LLC
                           1345 Avenue of the Americas
                            New York, New York 10105
                    (Address of Principal Executive Offices)
                     (Number, Street, City, State, Zip Code)

                                 (212) 739-3369
              (Registrant's Telephone Number, including Area Code)

                              Newton B. Schott, Jr.
                       c/o PIMCO Advisors Distributors LLC
                              2187 Atlantic Street
                           Stamford, Connecticut 06902
(Name and Address (Number, Street, City, State, Zip Code) of Agent for Service)

                         Copies of Communications to:
                         Joseph B. Kittredge, Jr., Esq.
                                  Ropes & Gray
                             One International Place
                          Boston, Massachusetts 02110


                  Approximate Date of Proposed Public Offering:

As soon as practicable after the effective date of this Registration Statement

                           ---------------------------

<PAGE>

     If any of the securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [_]

     It is proposed that this filing will become effective (check appropriate
box)

     [X]  when declared effective pursuant to section 8(c)

                           ---------------------------

<TABLE>
<CAPTION>

                           CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------------------------------------------------
                                                              Proposed Maximum     Proposed Maximum
                                         Amount Being        Offering Price Per       Aggregate             Amount of
Title of Securities Being Registered      Registered                Unit           Offering Price/1/   Registration Fee
- ------------------------------------     ------------        ------------------    ----------------    -------------------
<S>                                    <C>                 <C>                   <C>                 <C>
Common Shares, par value $0.00001        1,000 Shares             $ 15.00               $ 15,000             $ 1.38
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

/1/ Estimated solely for the purpose of calculating the registration fee.


    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 this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================

<PAGE>

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.

PRELIMINARY PROSPECTUS           Subject to Completion                    , 2003

     Shares
[LOGO]

Nicholas-Applegate Convertible & Income Fund

Common Shares
- --------------------------------------------------------------------------------
Investment Objective. The Fund is a newly organized, diversified,
closed-end management investment company. The Fund's investment objective is to
provide total return through a combination of capital appreciation and current
income.

Portfolio Contents. Under normal circumstances, the Fund will invest at least
80% of its total assets in a diversified portfolio of convertible securities and
non-convertible income-producing securities. The Fund may invest up to 20% of
its total assets in other types of securities, including equity securities. The
portion of the Fund's assets invested in convertible securities, on the one
hand, and non-convertible income-producing securities, on the other, will vary
from time to time consistent with the Fund's investment objective, although the
Fund will normally invest at least 50% of its total assets in convertible
securities. In making allocation decisions, NACM will consider factors such as
changes in equity prices, changes in interest rates and other economic and
market factors. The Fund may invest without limit in securities that are below
investment grade quality and ordinarily expects to invest a substantial portion
of its assets in these securities. Securities of below investment grade quality
are regarded as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal, and are commonly referred to as
"junk bonds" or "high yield" securities. They involve greater risk of loss, are
subject to greater price volatility and are less liquid, especially during
periods of economic uncertainty or change, than higher rated securities. Due to
the risks involved in investing in high yield securities, an investment in the
Fund should be considered speculative. There can be no assurance that the Fund
will achieve its investment objective.

No Prior History. Because the Fund is newly organized, its common shares have no
history of public trading. Shares of closed-end investment companies frequently
trade at a discount from their net asset value. The common shares have been
authorized for listing on the New York Stock Exchange, subject to notice of
issuance. The trading or "ticker" symbol of the common shares is expected to be
"   ."

The Fund presently intends to use leverage by issuing shares of preferred stock
representing approximately 38% of the Fund's capital immediately after their
issuance. By using leverage, the Fund will seek to obtain a higher return for
holders of common shares than if the Fund did not use leverage. Leveraging is a
speculative technique and there are special risks involved. There can be no
assurance that a leveraging strategy will be used or that it will be successful
during any period in which it is employed. See "Preferred Shares and Related
Leverage" and "Risks--Leverage Risk."

Before buying any common shares you should read the discussion of the material
risks of investing in the Fund in "Risks" beginning on page   . Certain of these
risks are summarized in "Prospectus Summary--Special Risk Considerations"
beginning on page   .

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.

                                 Price to Public    Sales Load  Proceeds to Fund
  Per share                              $15.000        $0.675           $14.325
  Total

In addition to the sales load, the Fund will pay organizational and offering
expenses of up to $0.03 per share, estimated to total $    , which will reduce
the "Proceeds to Fund" (above). PIMCO Advisors Fund Management LLC has agreed to
pay the amount by which the aggregate of all of the Fund's organizational
expenses and all offering costs (other than the sales load) exceeds $0.03 per
share.

The underwriters expect to deliver the common shares to purchasers on or about
        , 2003.

                                 [UNDERWRITERS]

<PAGE>

(continued from previous page)

You should read this prospectus, which contains important information about the
Fund, before deciding whether to invest, and retain it for future reference. A
Statement of Additional Information, dated         , containing additional
information about the Fund, has been filed with the Securities and Exchange
Commission and is incorporated by reference in its entirety into this
prospectus, which means that it is part of the prospectus for legal purposes.
You can review the table of contents of the Statement of Additional Information
on page     of this prospectus. You may request a free copy of the Statement of
Additional Information by calling (877) 819-2224 or by writing to the Fund, or
obtain a copy (and other information regarding the Fund) from the Securities and
Exchange Commission's web site (http://www.sec.gov).

The Fund's common shares do not represent a deposit or obligation of, and are
not guaranteed or endorsed by, any bank or other insured depository institution,
and are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other government agency.

The underwriters named in this prospectus may purchase up to          additional
common shares from the Fund under certain circumstances.

You should rely only on the information contained or incorporated by reference
in this prospectus. The Fund has not, and the underwriters have not, authorized
anyone to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. The Fund is
not, and the underwriters are not, making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any date other than
the date on the front of this prospectus. The Fund's business, financial
condition, results of operations and prospects may have changed since that date.

Until         (25 days after the date of this prospectus), all dealers that buy,
sell or trade the common shares, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.

TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Prospectus Summary ......................................................     1
Summary of Fund Expenses ................................................     9
The Fund ................................................................    10
Use of Proceeds .........................................................    10
The Fund's Investment Objective and Strategies ..........................    10
Preferred Shares and Related Leverage ...................................    18
Risks ...................................................................    19
How the Fund Manages Risk ...............................................    24
Management of the Fund ..................................................    25
Net Asset Value .........................................................    26
Distributions ...........................................................    27
Dividend Reinvestment Plan ..............................................    27
Description of Shares ...................................................    28
Anti-Takeover and Other Provisions in the Declaration of Trust ..........    30
Repurchase of Common Shares; Conversion to Open-End Fund ................    31
Tax Matters .............................................................    31
Underwriting ............................................................    33
Custodian and Transfer Agent ............................................    34
Legal Matters ...........................................................    34
Table of Contents for the Statement of Additional Information ...........    35
Appendix A--Description of Securities Ratings ...........................   A-1

<PAGE>

                               PROSPECTUS SUMMARY

     This is only a summary. This summary may not contain all of the information
that you should consider before investing in the common shares. You should
review the more detailed information contained in this prospectus and in the
Statement of Additional Information.

The Fund ........................   Nicholas-Applegate Convertible & Income Fund
                                    (the "Fund") is a newly organized,
                                    diversified, closed-end management
                                    investment company. See "The Fund."

The Offering ....................   The Fund is offering         common shares
                                    of beneficial interest, with a par value of
                                    $0.00001 per share, at $15.00 per share
                                    through a group of underwriters (the
                                    "Underwriters") led by                  .
                                    The common shares of beneficial interest are
                                    called "Common Shares" in the rest of this
                                    prospectus. You must purchase at least 100
                                    Common Shares. The Fund has given the
                                    Underwriters an option to purchase up to
                                    additional Common Shares to cover orders in
                                    excess of                Common Shares. See
                                    "Underwriting." PIMCO Advisors Fund
                                    Management LLC (the "Manager"), the Fund's
                                    investment manager, has agreed to pay the
                                    amount by which the aggregate of all of the
                                    Fund's organizational expenses and all
                                    offering costs (other than the sales load)
                                    exceeds $0.03 per Common Share.

Investment Objective
   and Strategies ...............   Investment Objective. The Fund's investment
                                    objective is to provide total return through
                                    a combination of capital appreciation and
                                    current income. The Fund attempts to achieve
                                    this objective by investing in a diversified
                                    portfolio of convertible securities and
                                    non-convertible income-producing securities
                                    described under "Portfolio Contents" below.
                                    The Fund cannot assure you that it will
                                    achieve its investment objective.

                                    Portfolio Management Strategies. In
                                    selecting investments for the Fund,
                                    Nicholas-Applegate Capital Management LLC
                                    ("NACM"), the Fund's portfolio manager, uses
                                    traditional credit analysis combined with a
                                    disciplined, fundamental bottom-up research
                                    process that facilitates the early
                                    identification of issuers demonstrating an
                                    ability to improve their fundamental
                                    characteristics. See "Independent Credit
                                    Analysis" below. NACM attempts to identify
                                    potential investments that it expects will
                                    exceed minimum credit statistics and exhibit
                                    the highest visibility of future expected
                                    operating performance. NACM's sell
                                    discipline is clearly defined and designed
                                    to drive the Fund's portfolio continually
                                    toward strength, taking into account factors
                                    such as a change in credit fundamentals, a
                                    decline in relative attractiveness to other
                                    issues and a decline in industry
                                    fundamentals.

                                    In selecting convertible securities for
                                    investment by the Fund, NACM evaluates each
                                    convertible security's investment
                                    characteristics as an income-producing
                                    security, using the techniques described
                                    above, as well as its potential for capital
                                    appreciation, using techniques that focus on
                                    the security's equity characteristics. NACM
                                    seeks to capture approximately 70-80% of the
                                    upside performance of the underlying
                                    equities with 50% or less of the downside
                                    exposure. In analyzing specific companies
                                    for possible investment, NACM ordinarily
                                    looks for several of the following
                                    characteristics: above-average per share
                                    earnings growth; high return on invested
                                    capital; a healthy balance sheet; sound
                                    financial and accounting policies and
                                    overall financial strength; strong
                                    competitive advantages; effective research
                                    and product development and marketing;
                                    development of new technologies; efficient
                                    service; pricing flexibility; strong
                                    management; and general operating
                                    characteristics that will enable the
                                    companies to compete successfully in their
                                    respective markets. NACM will consider
                                    selling a particular convertible security
                                    when any of those factors materially
                                    changes.

                                    Independent Credit Analysis. NACM relies
                                    heavily on its own analysis of the credit
                                    quality and risks associated with individual
                                    securities considered for the Fund, rather
                                    than relying exclusively on rating agencies
                                    or third-party research. The team managing
                                    the Fund utilizes this information in an
                                    attempt to minimize credit risk and identify
                                    issuers, industries or sectors that are
                                    undervalued or that offer attractive capital

                                       1

<PAGE>

                                    appreciation potential or current income
                                    relative to NACM's assessment of their
                                    credit characteristics.

                                    Portfolio Contents. Under normal
                                    circumstances, the Fund invests at least 80%
                                    of its total assets in a diversified
                                    portfolio of convertible securities and
                                    non-convertible income-producing securities.
                                    The portion of the Fund's assets invested in
                                    convertible securities, on the one hand, and
                                    non-convertible income-producing securities,
                                    on the other, will vary from time to time
                                    consistent with the Fund's investment
                                    objective, although the Fund will normally
                                    invest at least 50% of its total assets in
                                    convertible securities. In making allocation
                                    decisions, NACM will consider factors such
                                    as changes in equity prices, changes in
                                    interest rates and other economic and market
                                    factors. The Fund may invest without limit
                                    in convertible securities and
                                    non-convertible income-producing securities
                                    that are below investment grade quality, and
                                    ordinarily expects to invest a substantial
                                    portion of its assets in these securities.
                                    The Fund invests in securities with a broad
                                    range of maturities. The weighted average
                                    maturity of the Fund will typically range
                                    from five to ten years, although the
                                    weighted average maturity of obligations
                                    held by the Fund may be shorter or longer at
                                    any time or from time to time depending on
                                    market conditions. The Fund may invest up to
                                    20% of its total assets in other types of
                                    securities, including equity securities. The
                                    principal types of securities in which the
                                    Fund will invest are described below. For
                                    more detailed descriptions, see "The Fund's
                                    Investment Objective and
                                    Strategies--Portfolio Contents and Other
                                    Information."

                                       Convertible Securities. The Fund may
                                    invest without limit in convertible
                                    securities, and these securities will
                                    ordinarily constitute a principal component
                                    of the Fund's investment program. Under
                                    normal circumstances, the Fund will invest
                                    at least 50% of its total assets in
                                    convertible securities. Convertible
                                    securities are bonds, debentures, notes,
                                    preferred stocks or other securities that
                                    may be converted or exchanged (by the holder
                                    or by the issuer) into shares of the
                                    underlying common stock (or cash or
                                    securities of equivalent value) at a stated
                                    exchange ratio or predetermined price (the
                                    "conversion price"). A convertible security
                                    may also be called for redemption or
                                    conversion by the issuer after a particular
                                    date and under certain circumstances
                                    (including a specified price) established
                                    upon issue. Depending upon the relationship
                                    of the conversion price to the market value
                                    of the underlying security, a convertible
                                    security may trade more like an equity
                                    security than a debt instrument. See "The
                                    Fund's Investment Objective and
                                    Strategies--Convertible Securities."

                                       Synthetic Convertible Securities. The
                                    Fund also may invest without limit in
                                    "synthetic" convertible securities, which
                                    combine separate securities that possess the
                                    two principal characteristics of a true
                                    convertible security, i.e., a fixed-income
                                    security ("fixed-income component") and the
                                    right to acquire an equity security
                                    ("convertible component"). The fixed-income
                                    component is achieved by investing in
                                    non-convertible, fixed-income securities
                                    such as bonds, preferred stocks and money
                                    market instruments. The convertible
                                    component is achieved by investing in
                                    warrants or options to buy common stock at a
                                    certain exercise price, or options on a
                                    stock index. The Fund may also purchase
                                    synthetic securities created by other
                                    parties, typically investment banks,
                                    including convertible structured notes. The
                                    fixed-income and convertible components of a
                                    synthetic convertible security may be issued
                                    separately by different issuers and at
                                    different times. The Fund's holdings of
                                    synthetic convertible securities are
                                    considered convertible securities for
                                    purposes of the Fund's policy to invest at
                                    least 50% of its total assets in convertible
                                    securities and 80% of its total assets in a
                                    diversified portfolio of convertible
                                    securities and non-convertible
                                    income-producing securities. See "The Fund's
                                    Investment Objective and
                                    Strategies--Synthetic Convertible
                                    Securities."

                                       Non-Convertible Income-Producing
                                    Securities. The Fund will also invest in
                                    non-convertible income-producing securities,
                                    including, but not limited to, corporate
                                    bonds, debentures, notes and other similar
                                    types of corporate debt instruments, as well
                                    as non-convertible preferred stocks, bank
                                    loans and loan participations, commercial
                                    paper, commercial and other mortgage-related
                                    and asset-backed securities, payment-in-kind

                                       2

<PAGE>

                                    securities, zero-coupon bonds, bank
                                    certificates of deposit, fixed time
                                    deposits, bankers' acceptances, U.S.
                                    Government securities and real estate
                                    investment trusts ("REITs"). The Fund's
                                    investments in non-convertible
                                    income-producing securities may have fixed
                                    or variable principal payments and all types
                                    of interest rate and dividend payment and
                                    reset terms, including fixed rate,
                                    adjustable rate, zero coupon, contingent,
                                    deferred, payment-in-kind and auction-rate
                                    features. See "The Fund's Investment
                                    Objective and Strategies--Non-Convertible
                                    Income-Producing Securities."

                                       High Yield Securities. The Fund may
                                    invest without limit in convertible
                                    securities and non-convertible
                                    income-producing securities that are below
                                    investment grade quality, and ordinarily
                                    expects to invest a substantial portion of
                                    its assets in these securities. Investment
                                    grade securities are securities rated, at
                                    the time of investment, within the four
                                    highest grades (Baa or higher by Moody's
                                    Investors Service, Inc. ("Moody's") or BBB
                                    or higher by Standard & Poor's (" S&P")) or
                                    securities that are unrated but judged to be
                                    of comparable quality by NACM. Below
                                    investment grade securities are sometimes
                                    referred to as "high yield" securities or
                                    "junk bonds." The Fund may invest in high
                                    yield securities of any rating. Securities
                                    of below investment grade quality are
                                    regarded as having predominantly speculative
                                    characteristics with respect to capacity to
                                    pay interest and repay principal. Securities
                                    in the lowest investment grade category also
                                    may be considered to possess some
                                    speculative characteristics. The Fund may
                                    purchase distressed securities that are in
                                    default or the issuers of which are in
                                    bankruptcy. See "The Fund's Investment
                                    Objective and Strategies--High Yield
                                    Securities."

                                       Foreign (Non-U.S.) Investments. The Fund
                                    may invest up to 25% of its total assets in
                                    U.S. dollar- or foreign currency-denominated
                                    securities of foreign issuers, and may
                                    invest a portion of those assets in
                                    securities of issuers based in or securities
                                    denominated in the currencies of developing
                                    or "emerging market" countries. For this
                                    purpose, foreign securities include, but are
                                    not limited to, both U.S. dollar- or foreign
                                    currency-denominated securities of foreign
                                    issuers, including foreign convertible
                                    securities and non-convertible
                                    income-producing securities, foreign equity
                                    securities (including preferred securities
                                    of foreign issuers), foreign bank
                                    obligations, and U.S. dollar- or foreign
                                    currency-denominated obligations of foreign
                                    governments or their subdivisions, agencies
                                    and instrumentalities, international
                                    agencies and supranational entities. For
                                    this purpose, foreign securities do not
                                    include American Depository Receipts
                                    ("ADRs") or securities guaranteed by a
                                    United States person, but may include
                                    foreign securities in the form of European
                                    Depository Receipts ("EDRs"), Global
                                    Depository Receipts ("GDRs"), or other
                                    securities representing underlying shares of
                                    foreign issuers. See "The Fund's Investment
                                    Objective and Strategies--Foreign (Non-U.S.)
                                    Investments and Currencies."

                                       Rule 144A Securities. The Fund may invest
                                    without limit in securities that have not
                                    been registered for public sale, but that
                                    are eligible for purchase and sale by
                                    certain qualified institutional buyers
                                    ("Rule 144A Securities"). See "The Fund's
                                    Investment Objective and Strategies--Rule
                                    144A Securities."

 Proposed Offering of Preferred
   Shares and Other Forms of
   Leverage .....................   Subject to market conditions, approximately
                                    one to three months after completion of this
                                    offering, the Fund presently intends to
                                    offer preferred shares of beneficial
                                    interest ("Preferred Shares") representing
                                    approximately 38% of the Fund's capital
                                    immediately after their issuance. The
                                    issuance of Preferred Shares will leverage
                                    your investment in Common Shares. Leverage
                                    involves special risks. There is no
                                    assurance that the Fund will issue Preferred
                                    Shares or that, if Preferred Shares are
                                    issued, the Fund's leveraging strategy will
                                    be successful. See "Risks--Leverage Risk."
                                    The net proceeds the Fund obtains from
                                    selling the Preferred Shares will be
                                    invested in accordance with the Fund's
                                    investment objective and policies as
                                    described in this prospectus. The Preferred
                                    Shares will pay dividends based on
                                    short-term interest rates, which will be
                                    reset frequently. So long as the rate of
                                    return, net of applicable Fund expenses, on
                                    the convertible securities,

                                       3

<PAGE>

                                    non-convertible income-producing securities
                                    and other investments purchased by the Fund
                                    exceeds Preferred Share dividend rates as
                                    reset periodically, the investment of the
                                    proceeds of the Preferred Shares will
                                    generate more income than will be needed to
                                    pay dividends on the Preferred Shares. If
                                    so, the excess will be used to pay higher
                                    dividends to holders of Common Shares
                                    ("Common Shareholders") than if the Fund
                                    were not so leveraged through the issuance
                                    of Preferred Shares. The Fund cannot assure
                                    you that the issuance of Preferred Shares
                                    will result in a higher yield on your Common
                                    Shares. Once Preferred Shares are issued,
                                    the net asset value and market price of the
                                    Common Shares and the yield to Common
                                    Shareholders will be more volatile. See
                                    "Preferred Shares and Related Leverage,"
                                    "Description of Shares--Preferred Shares"
                                    and "Risks--Leverage Risk." In addition,
                                    fees and expenses paid by the Fund are borne
                                    entirely by the Common Shareholders (and not
                                    by Preferred Shareholders, if any). These
                                    include costs associated with any offering
                                    of Preferred Shares by the Fund (which costs
                                    are estimated to be approximately % of the
                                    total dollar amount of a Preferred Share
                                    offering), which will be borne immediately
                                    by Common Shareholders and result in a
                                    reduction of the net asset value of the
                                    Common Shares.

Investment Manager ..............   The Manager serves as the investment manager
                                    of the Fund. Subject to the supervision of
                                    the Board of Trustees, the Manager is
                                    responsible for managing, either directly or
                                    through others selected by it, the
                                    investment activities of the Fund and the
                                    Fund's business affairs and other
                                    administrative matters. The Manager will
                                    receive an annual fee, payable monthly, in
                                    an amount equal to 0.75% of the Fund's
                                    average daily net assets (including assets
                                    attributable to any Preferred Shares that
                                    may be outstanding). The Manager is located
                                    at 1345 Avenue of the Americas, New York,
                                    New York 10105. Organized in 2000, the
                                    Manager provides investment management and
                                    advisory services to several closed-end and
                                    open-end investment company clients. As of
                                    December 31, 2002, the Manager had
                                    approximately $        in assets under
                                    management. Allianz Dresdner Asset
                                    Management of America L.P. is the direct
                                    parent company of PIMCO Advisors Retail
                                    Holdings LLC, of which the Manager is a
                                    wholly-owned subsidiary. As of December 31,
                                    2002, Allianz Dresdner Asset Management of
                                    America L.P. and its subsidiary
                                    partnerships, including NACM, had
                                    approximately $      billion in assets under
                                    management.

                                    The Manager has retained its affiliate,
                                    NACM, as a sub-adviser to manage the Fund's
                                    portfolio investments. See "--Portfolio
                                    Manager" below.

Portfolio Manager ...............   NACM will serve as the Fund's sub-adviser
                                    responsible for managing the Fund's
                                    portfolio investments, and is sometimes
                                    referred to herein as the "portfolio
                                    manager." Subject to the supervision of the
                                    Manager, NACM has full investment discretion
                                    and makes all determinations with respect to
                                    the investment of the Fund's assets.

                                    NACM is located at 600 West Broadway, Suite
                                    2900, San Diego, California 92101. Founded
                                    in 1984, NACM currently manages
                                    approximately $     billion in discretionary
                                    assets for numerous clients, including
                                    investment companies, employee benefit
                                    plans, corporations, public retirement
                                    systems and unions, university endowments,
                                    foundations, and other institutional
                                    investors and individuals.

                                    The Manager (and not the Fund) will pay a
                                    portion of the fees it receives to NACM in
                                    return for NACM's services.

Distributions ...................   Commencing with the Fund's first dividend,
                                    the Fund intends to make regular monthly
                                    cash distributions to you at a level rate
                                    based on the projected performance of the
                                    Fund. The dividend rate that the Fund pays
                                    on its Common Shares will depend on a number
                                    of factors, including dividends payable on
                                    any Preferred Shares and the expenses of any
                                    other leveraging transactions. As portfolio
                                    and market conditions change, the rate of
                                    dividends on the Common Shares and the
                                    Fund's dividend policy could change. Over
                                    time, the Fund will distribute substantially
                                    all of its net investment income (after it
                                    pays accrued dividends on any outstanding
                                    Preferred Shares). In addition, at least
                                    annually, the Fund intends to distribute to
                                    you your pro rata share of any available net
                                    capital

                                       4

<PAGE>

                                    gain. Your initial distribution is expected
                                    to be declared approximately 45 days, and
                                    paid approximately 60 to 90 days, from the
                                    completion of this offering, depending on
                                    market conditions. Unless you elect to
                                    receive distributions in cash, all of your
                                    distributions will be automatically
                                    reinvested in additional Common Shares under
                                    the Fund's Dividend Reinvestment Plan. See
                                    "Distributions" and "Dividend Reinvestment
                                    Plan."

Listing .........................   The Common Shares have been authorized for
                                    listing on the New York Stock Exchange,
                                    subject to notice of issuance. The trading
                                    or "ticker" symbol of the Common Shares is
                                    expected to be "         ." See "Description
                                    of Shares--Common Shares."

Custodian and Transfer Agent ....   ________________________________ will serve
                                    as custodian of the Fund's assets. PFPC Inc.
                                    will serve as the Fund's transfer and
                                    dividend disbursement agent. See "Custodian
                                    and Transfer Agent."

Market Price of Shares ..........   Shares of closed-end investment companies
                                    frequently trade at prices lower than net
                                    asset value. Shares of closed-end investment
                                    companies like the Fund that invest
                                    predominantly in convertible securities and
                                    non-convertible income-producing securities
                                    have during some periods traded at prices
                                    higher than net asset value and during other
                                    periods traded at prices lower than net
                                    asset value. The Fund cannot assure you that
                                    Common Shares will trade at a price higher
                                    than net asset value in the future. Net
                                    asset value will be reduced immediately
                                    following the offering by the sales load and
                                    the amount of organization and offering
                                    expenses paid by the Fund. See "Use of
                                    Proceeds." In addition to net asset value,
                                    market price may be affected by such factors
                                    relating to the Fund or its portfolio
                                    holdings as dividend levels (which are in
                                    turn affected by expenses), dividend
                                    stability, portfolio credit quality and
                                    liquidity and call protection and market
                                    supply and demand. See "Preferred Shares and
                                    Related Leverage," "Risks," "Description of
                                    Shares," and "Repurchase of Common Shares;
                                    Conversion to Open-End Fund" in this
                                    prospectus, and the Statement of Additional
                                    Information under "Repurchase of Common
                                    Shares; Conversion to Open-End Fund." The
                                    Common Shares are designed primarily for
                                    long-term investors, and you should not view
                                    the Fund as a vehicle for trading purposes.

Special Risk Considerations .....   No Operating History. The Fund is a newly
                                    organized, diversified, closed-end
                                    management investment company with no
                                    history of operations.

                                    Market Discount Risk. As with any stock, the
                                    price of the Fund's shares will fluctuate
                                    with market conditions and other factors. If
                                    shares are sold, the price received may be
                                    more or less than the original investment.
                                    Net asset value will be reduced immediately
                                    following the initial offering by a sales
                                    load and organizational and selling expenses
                                    paid by the Fund and immediately following
                                    any offering of Preferred Shares by the
                                    costs of that offering paid by the Fund. The
                                    Common Shares are designed for long-term
                                    investors and should not be treated as
                                    trading vehicles. Shares of closed-end
                                    management investment companies frequently
                                    trade at a discount from their net asset
                                    value. The Fund's shares may trade at a
                                    price that is less than the initial offering
                                    price. This risk may be greater for
                                    investors who sell their shares relatively
                                    shortly after completion of the initial
                                    offering.

                                    Convertible Securities Risk. The Fund may
                                    invest without limit in convertible
                                    securities, and these securities will
                                    ordinarily constitute a principal component
                                    of the Fund's investment program. Under
                                    normal circumstances, the Fund will invest
                                    at least 50% of its total assets in
                                    convertible securities. Convertible
                                    securities generally offer lower interest or
                                    dividend yields than non-convertible
                                    securities of similar quality. The market
                                    values of convertible securities tend to
                                    decline as interest rates increase and,
                                    conversely, to increase as interest rates
                                    decline. However, a convertible security's
                                    market value tends to reflect the market
                                    price of the common stock of the issuing
                                    company when that stock price is greater
                                    than the convertible security's "conversion
                                    price." The conversion price is defined as
                                    the predetermined price at which the
                                    convertible security could be exchanged for
                                    the associated stock. As the market price of

                                       5

<PAGE>

                                    the underlying common stock declines, the
                                    price of the convertible security tends to
                                    be influenced more by the yield of the
                                    convertible security. Thus, it may not
                                    decline in price to the same extent as the
                                    underlying common stock. In the event of a
                                    liquidation of the issuing company, holders
                                    of convertible securities would be paid
                                    before the company's common stockholders.
                                    Consequently, the issuer's convertible
                                    securities generally entail less risk than
                                    its common stock. See "Risks--Convertible
                                    Securities Risk."

                                    Synthetic Convertible Securities Risk. The
                                    Fund may invest without limit in synthetic
                                    convertible securities. The value of a
                                    synthetic convertible security will respond
                                    differently to market fluctuations than a
                                    true convertible security because a
                                    synthetic convertible is typically composed
                                    of two or more separate securities, each
                                    with its own market value. Because the
                                    convertible component is achieved by
                                    investing in warrants or options to buy
                                    common stock at a certain exercise price, or
                                    options on a stock index, synthetic
                                    convertible securities are subject to the
                                    risks associated with warrants and options.
                                    See "Risks--Convertible Securities Risk" and
                                    "Risks--Risks of Warrants and Options." In
                                    addition, if the value of the underlying
                                    common stock or the level of the index
                                    involved in the convertible component falls
                                    below the exercise price of the warrant or
                                    option, the warrant or option may lose all
                                    value. See "Risks--Synthetic Convertible
                                    Securities Risk."

                                    Credit Risk/High Yield Risk. Credit risk is
                                    the risk that one or more securities in the
                                    Fund's portfolio will decline in price, or
                                    fail to pay interest or principal when due,
                                    because the issuer of the obligation
                                    experiences a decline in its financial
                                    status. The Fund may invest without limit in
                                    securities that are below investment grade
                                    quality, and ordinarily expects to invest a
                                    substantial portion of its assets in these
                                    securities. Securities of below investment
                                    grade quality (commonly referred to as "high
                                    yield" securities or "junk bonds") are
                                    predominantly speculative with respect to
                                    the issuer's capacity to pay interest and
                                    repay principal when due, and therefore
                                    involve a greater risk of default. The
                                    prices of these lower grade obligations are
                                    more sensitive to negative developments,
                                    such as a decline in the issuer's revenues
                                    or a general economic downturn, than are the
                                    prices of higher grade securities. The Fund
                                    may purchase distressed securities that are
                                    in default or the issuers of which are in
                                    bankruptcy. Securities in the lowest
                                    investment grade category also may be
                                    considered to possess some speculative
                                    characteristics by certain rating agencies.
                                    See "The Fund's Investment Objective and
                                    Strategies--High Yield Securities,"
                                    "Risks--Credit Risk" and "Risks--High Yield
                                    Risk" for additional information. Due to the
                                    risks involved in investing in high yield
                                    securities, an investment in the Fund should
                                    be considered speculative.

                                    Interest Rate Risk. Generally, when market
                                    interest rates fall, the prices of
                                    convertible and non-convertible
                                    income-producing obligations rise, and vice
                                    versa. Interest rate risk is the risk that
                                    the securities in the Fund's portfolio will
                                    decline in value because of increases in
                                    market interest rates. Because market
                                    interest rates are currently near their
                                    lowest levels in many years, there is a
                                    greater risk that the Fund's portfolio will
                                    decline in value. The prices of longer-term
                                    obligations generally fluctuate more than
                                    prices of shorter-term obligations as
                                    interest rates change. Because the average
                                    term to maturity of the Fund's securities
                                    typically will range from five to ten years,
                                    the Common Share net asset value and market
                                    price per share will tend to fluctuate more
                                    in response to changes in market interest
                                    rates than if the Fund invested mainly in
                                    short-term obligations. The Fund's use of
                                    leverage, as described below, will tend to
                                    increase Common Share interest rate risk.
                                    See "Risks--Interest Rate Risk" for
                                    additional information.

                                    Issuer Risk. The value of securities in the
                                    Fund's portfolio may decline for a number of
                                    reasons which directly relate to the issuer,
                                    such as management performance, financial
                                    leverage and reduced demand for the issuer's
                                    goods and services.

                                    Equity Securities Risk. The Fund will often
                                    have substantial exposure to equity
                                    securities by virtue of the equity component
                                    of the convertible securities in which the
                                    Fund invests. The Fund may also hold equity
                                    securities in its portfolio upon conversion

                                       6

<PAGE>

                    of a convertible security or through direct investment in
                    these securities. The market price of equity securities may
                    go up or down, sometimes rapidly or unpredictably. Equity
                    securities may decline in value due to factors affecting
                    equity securities markets generally, particular industries
                    represented in those markets or the issuer itself, including
                    the historical and prospective earnings of the issuer and
                    the value of its assets. Equity securities generally have
                    greater price volatility than debt and other
                    income-producing securities.

                    Leverage Risk. The Fund's use of leverage through the
                    issuance of Preferred Shares creates the opportunity for
                    increased Common Share net income, but also creates special
                    risks for Common Shareholders. There is no assurance that
                    the Fund's leveraging strategy will be successful. It is
                    anticipated that dividends on Preferred Shares will be based
                    on short-term rates of return (which would be redetermined
                    periodically, pursuant to an auction process), and that the
                    Fund will invest the net proceeds of the Preferred Shares
                    offering principally in convertible securities and
                    non-convertible income-producing securities. So long as the
                    Fund's securities portfolio provides a higher rate of return
                    (net of Fund expenses) than the Preferred Share dividend
                    rate, as reset periodically, the leverage will allow Common
                    Shareholders to receive a higher current rate of return than
                    if the Fund were not leveraged. If, however, long- and/or
                    short-term rates rise, which may be more likely because
                    market interest rates are currently near their lowest levels
                    in many years, the Preferred Share dividend rate could
                    approach or exceed the rate of return on the investments
                    held by the Fund that were acquired during periods of
                    generally lower interest rates, reducing returns to Common
                    Shareholders. Preferred Shares are expected to pay
                    cumulative dividends, which may tend to increase leverage
                    risk. Leverage creates two major types of risks for Common
                    Shareholders:

                    .  the likelihood of greater volatility of net asset value
                       and market price of Common Shares, because changes in
                       the value of the Fund's portfolio securities (including
                       securities bought with the proceeds of the Preferred
                       Shares offering) are borne entirely by the Common
                       Shareholders; and

                    .  the possibility either that Common Share income will
                       fall if the Preferred Share dividend rate rises, or
                       that Common Share income will fluctuate because the
                       Preferred Share dividend rate varies.

                    Because the fees received by the Manager and NACM are based
                    on the total net assets of the Fund (including assets
                    attributable to any Preferred Shares that may be
                    outstanding), the Manager and NACM each have a financial
                    incentive for the Fund to issue Preferred Shares, which may
                    create a conflict of interest between the Manager/NACM and
                    the holders of the Common Shares.

                    Liquidity Risk. The Fund may invest up to 20% of its total
                    assets in securities which are illiquid at the time of
                    investment (determined using the Securities and Exchange
                    Commission's standard applicable to open-end investment
                    companies, i.e., securities that cannot be disposed of
                    within seven days in the ordinary course of business at
                    approximately the value at which the Fund has valued the
                    securities). Illiquid securities may trade at a discount
                    from comparable, more liquid investments, and may be subject
                    to wide fluctuations in market value. Also, the Fund may not
                    be able to dispose of illiquid securities when that would be
                    beneficial at a favorable time or price.

                    Foreign (Non-U.S.) Investment Risk. The Fund's investments
                    in foreign issuers and in securities denominated in foreign
                    currencies involve special risks. For example, the value of
                    these investments may decline in response to unfavorable
                    political and legal developments, unreliable or untimely
                    information, or economic and financial instability. The
                    value of securities denominated in foreign currencies may
                    fluctuate based on changes in the value of those currencies
                    relative to the U.S. dollar, and a decline in applicable
                    foreign exchange rates could reduce the value of such
                    securities held by the Fund. Foreign settlement procedures
                    also may involve additional risks. Foreign

                                       7

<PAGE>

                    investment risk may be particularly high to the extent that
                    the Fund invests in securities of issuers based in or
                    securities denominated in the currencies of developing or
                    "emerging market" countries. These heightened risks include:
                    (i) greater risks of expropriation, confiscatory taxation,
                    nationalization, and less social, political and economic
                    stability; (ii) the smaller size of the market for such
                    securities and a lower volume of trading, resulting in lack
                    of liquidity and in price volatility; and (iii) certain
                    national policies which may restrict the Fund's investment
                    opportunities, including restrictions on investing in
                    issuers or industries deemed sensitive to relevant national
                    interests.

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

                    Risks of Warrants and Options. The Fund will be subject to
                    the risks of warrants and options to the extent it invests
                    in synthetic convertible securities that use warrants or
                    options on common stock or stock indexes as their
                    convertible components. Warrants and options are subject to
                    a number of risks associated with derivative instruments
                    generally and described elsewhere in this prospectus, such
                    as liquidity risk, equity securities risk, issuer risk,
                    management risk and, if applicable, smaller company risk.
                    They also involve the risk of mispricing or improper
                    valuation, the risk of ambiguous documentation, and the risk
                    that changes in the value of a warrant or option may not
                    correlate perfectly with its underlying common stock or
                    stock index.

                    REITs and Mortgage-Related Risk. Investing in REITs involves
                    certain unique risks in addition to investing in the real
                    estate industry in general. REITs are subject to interest
                    rate risks (especially mortgage REITs) and the risk of
                    default by lessees or borrowers. An equity REIT may be
                    affected by changes in the value of the underlying
                    properties owned by the REIT. A mortgage REIT may be
                    affected by the ability of the issuers of its portfolio
                    mortgages to repay their obligations. REITs whose underlying
                    assets are concentrated in properties used by a particular
                    industry are also subject to risks associated with such
                    industry. REITs may have limited financial resources, may
                    trade less frequently and in a limited volume and may be
                    subject to more abrupt or erratic price movements than
                    larger company securities.

                    In addition to REITs, the Fund may invest a variety of other
                    mortgage-related securities, including commercial mortgage
                    securities and other mortgage-backed instruments. Rising
                    interest rates tend to extend the duration of
                    mortgage-related securities, making them more sensitive to
                    changes in interest rates, and may reduce the market value
                    of the securities. In addition, mortgage-related securities
                    are subject to prepayment risk--the risk that borrowers may
                    pay off their mortgages sooner than expected, particularly
                    when interest rates decline. This can reduce the Fund's
                    returns because the Fund may have to reinvest that money at
                    lower prevailing interest rates. The Fund's investments in
                    other asset-backed securities are subject to risks similar
                    to those associated with mortgage-backed securities, as well
                    as additional risks associated with the nature of the assets
                    and the servicing of those assets.

                    Reinvestment Risk. Income from the Fund's portfolio will
                    decline if and when the Fund invests the proceeds from
                    matured, traded or called obligations at market interest
                    rates that are below the portfolio's current earnings rate.
                    A decline in income could affect the Common Shares' market
                    price or their overall return.

                                       8

<PAGE>

                    Inflation Risk. Inflation risk is the risk that the value of
                    assets or income from the Fund's investments will be worth
                    less in the future as inflation decreases the value of
                    payments at future dates.

                    Management Risk. The Fund is subject to management risk
                    because it is an actively managed portfolio. NACM and the
                    portfolio management team will apply investment techniques
                    and risk analyses in making investment decisions for the
                    Fund, but there can be no guarantee that these will produce
                    the desired results.

                    Anti-Takeover Provisions. The Fund's Amended and Restated
                    Agreement and Declaration of Trust (the "Declaration")
                    includes provisions that could limit the ability of other
                    entities or persons to acquire control of the Fund or
                    convert the Fund to open-end status. See "Anti-Takeover and
                    Other Provisions in the Declaration of Trust." These
                    provisions in the Declaration could have the effect of
                    depriving the Common Shareholders of opportunities to sell
                    their Common Shares at a premium over the then current
                    market price of the Common Shares.

                    Market Disruption. As a result of the terrorist attacks on
                    the World Trade Center and the Pentagon on September 11,
                    2001, some of the U.S. securities markets were closed for a
                    four-day period. These terrorist attacks and related events
                    have led to increased short-term market volatility and may
                    have long-term effects on U.S. and world economies and
                    markets. A similar disruption of the financial markets could
                    impact interest rates, auctions, secondary trading, ratings,
                    credit risk, inflation and other factors relating to the
                    Common Shares.

                                       9

<PAGE>

                            SUMMARY OF FUND EXPENSES

     The following table and the expenses shown assume the issuance of Preferred
Shares in an amount equal to 38% of the Fund's capital (after their issuance),
and show Fund expenses as a percentage of net assets attributable to Common
Shares. Footnote 2 to the table also shows Fund expenses as a percentage of net
assets attributable to Common Shares, but assumes that no Preferred Shares are
issued or outstanding (such as will be the case prior to the Fund's expected
issuance of Preferred Shares).

<TABLE>
<CAPTION>
<S>                                                                                    <C>
Shareholder Transaction Expenses
     Sales Load (as a percentage of offering price) ............................              4.50%
     Dividend Reinvestment Plan Fees ...........................................             None(1)

<CAPTION>
                                                                                Percentage of Net Assets
                                                                                   Attributable to
                                                                                   Common Shares
                                                                                (assuming the issuance of
                                                                                  Preferred Shares)(2)
                                                                               --------------------------
<S>                                                                            <C>
Annual Expenses
     Management Fees ...........................................................                 %
     Other Expenses ............................................................                 %(3)
     Total Annual Expenses .....................................................                 %(4)
</TABLE>

- ------------
(1)  You will pay brokerage charges if you direct the plan agent to sell your
     Common Shares held in a dividend reinvestment account.

(2)  The table presented in this footnote estimates what the Fund's annual
     expenses would be stated as percentages of the Fund's net assets
     attributable to Common Shares but, unlike the table above, assumes that no
     Preferred Shares are issued or outstanding. This will be the case, for
     instance, prior to the Fund's expected issuance of Preferred Shares. In
     accordance with these assumptions, the Fund's expenses would be estimated
     to be as follows:

<TABLE>
<CAPTION>
                                                                                Percentage of Net Assets
                                                                                  Attributable to
                                                                                   Common Shares
                                                                                (assuming no Preferred
                                                                                  Shares are issued or
                                                                                     outstanding)
                                                                               ---------------------------
          <S>                                                                           <C>
          Annual Expenses
               Management Fees .................................................             0.75%
               Other Expenses ..................................................                 %
               Total Annual Expenses ...........................................                 %(4)
</TABLE>

(3)  If the Fund offers Preferred Shares, costs of that offering, estimated to
     be approximately      % of the total dollar amount of the Preferred Share
     offering, will be borne immediately by Common Shareholders and result in a
     reduction of the net asset value of the Common Shares. Assuming the
     issuance of Preferred Shares in an amount equal to 38% of the Fund's
     capital (after their issuance) these offering costs are estimated to be
     approximately $   or approximately $   per Common Share (  % of the
     offering price). These offering costs are not included among the expenses
     shown in this table.

(4)  The Manager has agreed to pay the amount by which the aggregate of all of
     the Fund's organizational expenses and all offering costs (other than the
     sales load) exceeds $0.03 per Common Share (0.2% of the offering price).
     The organizational expenses and offering costs to be paid by the Fund are
     not included among the expenses shown in the table. However, these expenses
     will be borne by Common Shareholders and result in a reduction of the net
     asset value of the Common Shares.

     The purpose of the table above is to help you understand all fees and
expenses that you, as a Common Shareholder, would bear directly or indirectly.
The Other Expenses shown in the table and related footnotes are based on
estimated amounts for the Fund's first year of operations and assume that the
Fund issues approximately      Common Shares. If the Fund issues fewer Common
Shares, all other things being equal, these expenses would increase. See
"Management of the Fund" and "Dividend Reinvestment Plan."

                                       10

<PAGE>

     As required by relevant Securities and Exchange Commission regulations, the
following example illustrates the expenses (including the sales load of $45,
estimated offering expenses of this offering of $   and the estimated offering
costs of issuing Preferred Shares assuming the Fund issues Preferred Shares
representing 38% of the Fund's capital (after their issuance) of $    ) that you
would pay on a $1,000 investment in Common Shares, assuming the sales load and
the offering expenses listed in the parenthetical above, and (a) total net
annual expenses of    % of net assets attributable to Common Shares (assuming
the issuance of Preferred Shares) in years 1 through 10, and (b) a 5% annual
return(1):

<TABLE>
<CAPTION>
                                               1 Year                3 Years              5 Years               10 Years
                                               -------               -------              -------               --------
<S>                                          <C>                    <C>                 <C>                    <C>
Total Expenses Incurred .................         $                     $                    $                      $
</TABLE>

- ---------------

(1)  The example above should not be considered a representation of future
     expenses. Actual expenses may be higher or lower than those shown. The
     example assumes that the estimated Other Expenses set forth in the Annual
     Expenses table are accurate and that all dividends and distributions are
     reinvested at net asset value. Actual expenses may be greater or less than
     those assumed. Moreover, the Fund's actual rate of return may be greater or
     less than the hypothetical 5% annual return shown in the example.

                                    THE FUND

     The Fund is a newly organized, diversified, closed-end management
investment company registered under the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder (the "1940 Act"). The Fund was
organized as a Massachusetts business trust on January 17, 2003, pursuant to the
Declaration, which is governed by the laws of The Commonwealth of Massachusetts.
As a newly organized entity, the Fund has no operating history. The Fund's
principal office is located at 1345 Avenue of the Americas, New York, New York
10105, and its telephone number is (800) 331-1710.

                                 USE OF PROCEEDS

     The net proceeds of the offering of Common Shares will be approximately
$     (or $     if the Underwriters exercise the over-allotment option in full)
after payment of the estimated organizational and offering costs. The Manager
has agreed to pay the amount by which the aggregate of all of the Fund's
organizational expenses and all offering costs (other than the sales load)
exceeds $0.03 per Common Share. The Fund will invest the net proceeds of the
offering in accordance with the Fund's investment objective and policies as
stated below. It is presently anticipated that the Fund will be able to invest
substantially all of the net proceeds in convertible securities and
non-convertible income-producing securities within three months after the
completion of the offering. Pending such investment, it is anticipated that the
proceeds will be invested in high quality, short-term securities.

                 THE FUND'S INVESTMENT OBJECTIVE AND STRATEGIES

Investment Objective

     The Fund's investment objective is to provide total return through a
combination of capital appreciation and current income. The Fund attempts to
achieve its investment objective by investing in a diversified portfolio of
convertible securities and non-convertible income-producing securities described
under "Portfolio Contents and Other Information" below. The Fund cannot assure
you that it will achieve its investment objective.

Portfolio Management Strategies

     In selecting investments for the Fund, NACM uses traditional credit
analysis combined with a disciplined, fundamental bottom-up research process
that facilitates the early identification of issuers demonstrating an ability to
improve their fundamental characteristics. See "Independent Credit Analysis"
below. NACM attempts to identify potential investments that it expects will
exceed minimum credit statistics and exhibit the highest visibility of future
expected operating performance. NACM's sell discipline is clearly defined and
designed to drive the Fund's portfolio continually toward strength. A series of
sell alerts triggering further verification research, such as change in credit
fundamentals, decline in relative attractiveness to other issues and decline in
industry fundamentals, are utilized, and NACM will consider selling a particular
security if any of the original reasons for purchase materially changes.

                                       11

<PAGE>

     In selecting convertible securities for investment by the Fund, NACM
evaluates each convertible security's investment characteristics as an
income-producing security, using the techniques described above, as well as its
potential for capital appreciation, using techniques that focus on the
security's equity characteristics. NACM seeks to capture approximately 70-80% of
the upside performance of the underlying equities with 50% or less of the
downside exposure. In analyzing specific companies for possible investment, NACM
ordinarily looks for several of the following characteristics: above-average per
share earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. NACM
will consider selling a particular convertible security when any of those
factors materially changes.

     Credit Quality. The Fund may invest without limit in securities that are
below investment grade quality, including in unrated securities judged to be of
comparable quality by NACM, and ordinarily expects to invest a substantial
portion of its assets in these securities. The Fund may invest in issuers of any
credit quality (including bonds in the lowest ratings categories). The Fund may
purchase distressed securities that are in default or the issuers of which are
in bankruptcy. As described under "High Yield Securities" below, securities of
below investment grade quality are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal,
and are commonly referred to as "high yield" securities or "junk bonds."
Securities in the lowest investment grade category also may be considered to
possess some speculative characteristics.

     Independent Credit Analysis. NACM relies heavily on its own analysis of the
credit quality and risks associated with individual securities considered for
the Fund, rather than relying exclusively on rating agencies or third-party
research. NACM has a devoted team of professionals that conducts fundamental
credit research and analysis of individual issuers, industries and sectors and
uses analytical tools to assess and monitor credit risk. The team managing the
Fund utilizes this information in an attempt to minimize credit risk and
identify issuers, industries or sectors that are undervalued or that offer
attractive capital appreciation potential or current income relative to NACM's
assessment of their credit characteristics.

Portfolio Contents and Other Information

     Under normal circumstances, the Fund will invest at least 80% of its total
assets in a diversified portfolio of convertible securities and non-convertible
income-producing securities. The portion of the Fund's assets invested in
convertible securities, on the one hand, and non-convertible income-producing
securities, on the other, will vary from time to time consistent with the Fund's
investment objective, although the Fund will normally invest at least 50% of its
total assets in convertible securities. In making allocation decisions, NACM
will consider factors such as changes in equity prices, changes in interest
rates and other economic and market factors. The Fund invests in securities with
a broad range of maturities. The weighted average maturity of the Fund will
typically range from five to ten years, although the weighted average maturity
of obligations held by the Fund may be shorter or longer at any time or from
time to time depending on market conditions.

     The Fund may invest up to 20% of its total assets in securities other than
convertible securities and non-convertible income-producing securities,
including equity securities. The Fund may invest up to 20% of its total assets
in illiquid securities (which is determined using the Securities and Exchange
Commission's standard applicable to open-end investment companies, i.e.,
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the value at which the Fund has valued the
securities).

     The Fund cannot change its investment objective without the approval of the
holders of a "majority of the outstanding" Common Shares and any Preferred
Shares voting together as a single class, and of the holders of a "majority of
the outstanding" Preferred Shares voting as a separate class. A "majority of the
outstanding" shares (whether voting together as a single class or voting as a
separate class) means (i) 67% or more of such shares present at a meeting, if
the holders of more than 50% of those shares are present or represented by
proxy, or (ii) more than 50% of such shares, whichever is less. See "Description
of Shares--Voting Rights" for additional information with respect to the voting
rights of holders of Preferred Shares.

     The Fund currently intends to leverage its portfolio through the issuance
of Preferred Shares. See "Preferred Shares and Related Leverage."

                                       12

<PAGE>

     Upon NACM's recommendation, for temporary defensive purposes and in order
to keep the Fund's cash fully invested, including during the period in which the
net proceeds of this offering are being invested, the Fund may deviate from its
investment objective and policies and invest some or all of its net assets in
investments such as high-quality, short-term debt securities. The Fund may not
achieve its investment objective when it does so.

     It is the policy of the Fund not to engage in trading for short-term
profits although portfolio turnover rate is not considered a limiting factor in
the execution of investment decisions for the Fund.

     The following provides additional information regarding the types of
securities and other instruments in which the Fund will ordinarily invest. A
more detailed discussion of these and other instruments and investment
techniques that may be used by the Fund is provided under "Investment Objective
and Policies" in the Statement of Additional Information.

Convertible Securities

     The Fund may invest without limit in convertible securities, and these
securities will ordinarily constitute a principal component of the Fund's
investment program. Convertible securities are bonds, debentures, notes,
preferred stocks or other securities that may be converted or exchanged (by the
holder or by the issuer) into shares of the underlying common stock (or cash or
securities of equivalent value) at a stated exchange ratio or predetermined
price (the "conversion price"). A convertible security may also be called for
redemption or conversion by the issuer after a particular date and under certain
circumstances (including a specified price) established upon issue. If a
convertible security held by the Fund is called for redemption or conversion,
the Fund could be required to tender it for redemption, convert it into the
underlying common stock, or sell it to a third party. Convertible securities
have general characteristics similar to both debt securities and equity
securities. Although to a lesser extent than with debt obligations, the market
value of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stocks and,
therefore, also will react to variations in the general market for equity
securities. Depending upon the relationship of the conversion price to the
market value of the underlying security, a convertible security may trade more
like an equity security than a debt instrument.

     Convertible securities are investments that provide for a stable stream of
income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar credit quality because of the potential for capital appreciation. A
convertible security, in addition to providing current income, offers the
potential for capital appreciation through the conversion feature, which enables
the holder to benefit from increases in the market price of the underlying
common stock.

Synthetic Convertible Securities

     The Fund also may invest without limit in "synthetic" convertible
securities, which combine separate securities that possess the two principal
characteristics of a true convertible security, i.e., a fixed-income security
("fixed-income component") and the right to acquire an equity security
("convertible component"). The fixed-income component is achieved by investing
in non-convertible, fixed-income securities such as bonds, preferred stocks and
money market instruments. The convertible component is achieved by investing in
warrants or options to buy common stock at a certain exercise price, or options
on a stock index. The Fund may also purchase synthetic securities created by
other parties, typically investment banks or other financial institutions,
including convertible structured notes. The fixed-income and convertible
components of a synthetic convertible security may be issued separately by
different issuers and at different times. Unlike a true convertible security,
which is a single security having a unitary market value, a synthetic
convertible comprises two or more separate securities, each with its own market
value. Therefore, the "market value" of a synthetic convertible security is the
sum of the values of its debt component and its convertibility component. For
this reason, the values of a synthetic convertible and a true convertible
security may respond differently to market fluctuations. The Fund's holdings of
synthetic convertible securities are considered convertible securities for
purposes of the Fund's policy to invest at least 50% of its total assets in
convertible securities and 80% of its total assets in a diversified portfolio of
convertible securities and non-convertible income-producing securities.

                                       13

<PAGE>

Non-Convertible Income-Producing Securities

     The Fund will also invest in non-convertible income-producing securities,
including, but not limited to, corporate bonds, debentures, notes and other
similar types of corporate debt instruments, as well as non-convertible
preferred stocks, bank loans and loan participations, commercial paper,
commercial and other mortgage-related and asset-backed securities,
payment-in-kind securities, zero-coupon bonds, bank certificates of deposit,
fixed time deposits, bankers' acceptances, U.S. Government securities and REITs.
The Fund's investments in non-convertible income-producing securities may have
fixed or variable principal payments and all types of interest rate and dividend
payment and reset terms, including fixed rate, adjustable rate, zero coupon,
contingent, deferred, payment-in-kind and auction-rate features.

High Yield Securities

     As noted above, the Fund may invest without limit in securities rated lower
than Baa by Moody's or BBB by S&P, or in unrated securities judged to be of
comparable quality by NACM, and ordinarily expects to invest a substantial
portion of its assets in these securities. These securities are sometimes
referred to as "high yield" securities or "junk bonds." Investing in high yield
securities involves greater risks (in particular, greater risk of default) and
special risks in addition to the risks associated with investments in investment
grade obligations. While offering a greater potential opportunity for capital
appreciation and higher yields, high yield securities typically entail greater
potential price volatility and may be less liquid than higher-rated securities.
High yield securities may be regarded as predominantly speculative with respect
to the issuer's continuing ability to meet principal and interest payments. They
also may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher-rated securities. The Fund may
purchase distressed securities that are in default or the issuers of which are
in bankruptcy. Securities in the lowest investment grade category also may be
considered to possess some speculative characteristics.

     The market values of high yield securities tend to reflect individual
developments of the issuer to a greater extent than do higher-quality
securities, which tend to react mainly to fluctuations in the general level of
interest rates. In addition, lower-quality securities tend to be more sensitive
to economic conditions. Certain "emerging market" governments that issue high
yield securities are among the largest debtors to commercial banks, foreign
governments and supra-national organizations such as the World Bank, and may not
be able or willing to make principal and/or interest payments as they come due.

     Credit Ratings and Unrated Securities. Rating agencies are private services
that provide ratings of the credit quality of debt obligations, including
convertible securities. Appendix A to this prospectus describes the various
ratings assigned to debt obligations by Moody's and S&P. Ratings assigned by a
rating agency are not absolute standards of credit quality and do not evaluate
market risks. Rating agencies may fail to make timely changes in credit ratings
and an issuer's current financial condition may be better or worse than a rating
indicates. The Fund will not necessarily sell a security when its rating is
reduced below its rating at the time of purchase. As described above under
"Portfolio Management Strategies--Independent Credit Analysis," NACM does not
rely solely on credit ratings, and develops its own analysis of issuer credit
quality. The ratings of a security may change over time. Moody's and S&P monitor
and evaluate the ratings assigned to securities on an ongoing basis. As a
result, instruments held by the Fund could receive a higher rating (which would
tend to increase their value) or a lower rating (which would tend to decrease
their value) during the period in which they are held.

     The Fund may purchase unrated securities (which are not rated by a rating
agency). Unrated securities may be less liquid than comparable rated securities
and involve the risk that NACM may not accurately evaluate the security's
comparative credit rating. Analysis of the creditworthiness of issuers of high
yield securities may be more complex than for issuers of higher-quality
obligations. To the extent that the Fund invests in high yield and/or unrated
securities, the Fund's success in achieving its investment objective may depend
more heavily on NACM's creditworthiness analysis than if the Fund invested
exclusively in higher-quality and rated securities.

Foreign (Non-U.S.) Investments and Currencies

     The Fund may invest up to 25% of its total assets in U.S. dollar- or
foreign currency-denominated securities of foreign issuers, and may invest a
portion of those assets in securities of issuers based in or securities
denominated in the currencies of developing or "emerging market" countries. For
this purpose, foreign securities include, but are not limited to, both U.S.
dollar- or foreign currency-denominated securities of foreign issuers, including
foreign convertible securities and non-convertible income-producing securities,
foreign equity securities (including preferred securities of foreign issuers),
foreign bank obligations, and U.S. dollar- or foreign currency-denominated
obligations of foreign governments or their subdivisions, agencies and
instrumentalities, international agencies and supranational entities. For this
purpose, foreign securities do not include ADRs or

                                       14

<PAGE>

securities guaranteed by a United States person, but may include foreign
securities in the form of EDRs, GDRs or other securities representing underlying
shares of foreign issuers. See "Risks--Foreign (Non-U.S.) Investment Risk."

     The U.S. dollar-denominated foreign securities in which the Fund may invest
include Eurodollar obligations and "Yankee Dollar" obligations. Eurodollar
obligations are U.S. dollar-denominated certificates of deposit and time
deposits issued outside the U.S. capital markets by foreign branches of U.S.
banks and by foreign banks. Yankee Dollar obligations are U.S.
dollar-denominated obligations issued in the U.S. capital markets by foreign
banks. Eurodollar and Yankee Dollar obligations are generally subject to the
same risks that apply to domestic debt issues, notably credit risk, market risk
and liquidity risk. Additionally, Eurodollar (and to a limited extent, Yankee
Dollar) obligations are subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital, in the form of U.S.
dollars, from flowing across its borders. Other risks include adverse political
and economic developments; the extent and quality of government regulation of
financial markets and institutions; the imposition of foreign withholding taxes;
and the expropriation or nationalization of foreign issuers.

     The Fund also may invest in sovereign debt issued by foreign governments,
their agencies or instrumentalities, or other government-related entities,
including debt of developing or "emerging market" issuers. As a holder of
sovereign debt, the Fund may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. In addition,
there are generally no bankruptcy proceedings similar to those in the United
States by which defaulted sovereign debt may be collected. The Fund also may
invest in Brady Bonds, which are securities created through the exchange of
existing commercial bank loans to sovereign entities for new obligations in
connection with a debt restructuring. Investments in Brady Bonds may be viewed
as speculative. Brady Bonds acquired by the Fund may be subject to restructuring
arrangements or to requests for new credit, which may cause the Fund to realize
a loss of interest or principal on any of its portfolio holdings. The Fund's
investments in securities that trade in, or receive revenues in, foreign
currencies will be subject to currency risk, which is the risk that fluctuations
in the exchange rates between the U.S. dollar and foreign currencies may
negatively affect any investment.

     Please see "Investment Objective and Policies--Foreign (Non-U.S.)
Securities" in the Statement of Additional Information for a more detailed
description of the types of foreign investments in which the Fund may invest and
their related risks.

Rule 144A Securities

     The Fund may invest without limit in securities that have not been
registered for public sale, but that are eligible for purchase and sale by
certain qualified institutional buyers ("Rule 144A Securities").

Warrants and Options on Securities and Indexes

     In connection with its investments in synthetic convertible securities, the
Fund may purchase warrants, call options on common stock and call options on
stock indexes. A warrant is a certificate that gives the holder of the warrant
the right to buy, at a specified time or specified times, from the issuer of the
warrant, the common stock of the issuer at a specified price. A call option is a
contract that gives the holder of the option, in return for a premium, the right
to buy from the writer of the option the common stock underlying the option (or
the cash value of the index) at a specified exercise price at any time during
the term of the option.

Corporate Bonds

     The Fund may invest in a wide variety of bonds of varying maturities issued
by U.S. and foreign corporations and other business entities. Bonds are fixed or
variable rate debt obligations, including bills, notes, debentures, money market
instruments and similar instruments and securities. Bonds generally are used by
corporations as well as governments and other issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest and
normally must repay the amount borrowed on or before maturity. Certain bonds are
"perpetual" in that they have no maturity date.

Preferred Stocks

     The Fund may invest in preferred stocks. The Fund's investments in
preferred stocks typically will be convertible securities, although the Fund may
also invest in non-convertible preferred stocks. Preferred stock represents an
equity interest in a company that generally entitles the holder to receive, in
preference to the holders of other stocks such as common stocks, dividends and a

                                       15

<PAGE>

fixed share of the proceeds resulting from liquidation of the company. Some
preferred stocks entitle their holders to receive additional liquidation
proceeds on the same basis as holders of a company's common stock, and thus also
represent an ownership interest in the company. Some preferred stocks offer a
fixed rate of return with no maturity date. Because they never mature, these
preferred stocks act like long-term bonds and can be more volatile than other
types of preferred stocks and may have heightened sensitivity to changes in
interest rates. Other preferred stocks have a variable dividend, generally
determined on a quarterly or other periodic basis, either according to a formula
based upon a specified premium or discount to the yield on particular U.S.
Treasury securities or based on an auction process, involving bids submitted by
holders and prospective purchasers of such stocks. Because preferred stocks
represent an equity ownership interest in a company, their value usually will
react more strongly than bonds and other debt instruments to actual or perceived
changes in a company's financial condition or prospects, or to fluctuations in
the equity markets.

REITs

     The Fund may invest in real estate investment trusts ("REITs"). REITs
primarily invest in income-producing real estate or real estate related loans or
interests. REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. REITs are not taxed on income distributed to shareholders
provided they comply with the applicable requirements of the Internal Revenue
Code of 1986, as amended. The Fund will indirectly bear its proportionate share
of any management and other expenses paid by REITs in which it invests in
addition to the expenses paid by the Fund. Debt securities issued by REITs are,
for the most part, general and unsecured obligations and are subject to risks
associated with REITs.

U.S. Government Securities

     The Fund may invest in U.S. Government securities, which are obligations
of, or guaranteed by, the U.S. Government, its agencies or government-sponsored
enterprises. U.S. Government securities include a variety of securities that
differ in their interest rates, maturities and dates of issue. Securities issued
or guaranteed by agencies or instrumentalities of the U.S. Government may or may
not be supported by the full faith and credit of the United States or by the
right of the issuer to borrow from the U.S. Treasury.

Zero-Coupon Bonds, Step-Ups and Payment-In-Kind Securities

     Zero-coupon bonds pay interest only at maturing rather than at intervals
during the life of the security. Like zero-coupon bonds, "step up" bonds pay no
interest initially but eventually begin to pay a coupon rate prior to maturity,
which rate may increase at stated intervals during the life of the security.
Payment-in-kind securities ("PIKs") are debt obligations that pay "interest" in
the form of other debt obligations, instead of in cash. Each of these
instruments is normally issued and traded at a deep discount from face value.
Zero-coupon bonds, step-ups and PIKs allow an issuer to avoid or delay the need
to generate cash to meet current interest payments and, as a result, may involve
greater credit risk than bonds that pay interest currently or in cash. The Fund
would be required to distribute the income on these instruments as it accrues,
even though the Fund will not receive the income on a current basis or in cash.
Thus, the Fund may have to sell other investments, including when it may not be
advisable to do so, to make income distributions to its shareholders.

Investments in Equity Securities

     Consistent with its investment objective, the Fund may invest in equity
securities. The Fund will often have substantial exposure to equity securities
by virtue of the equity component of the convertible securities in which the
Fund invests. The Fund may also hold equity securities in its portfolio upon
conversion of a convertible security or through direct investment in these
securities. Equity securities, such as common stock, generally represent an
ownership interest in a company. Although equity securities have historically
generated higher average returns than debt securities, equity securities have
also experienced significantly more volatility in those returns. An adverse
event, such as an unfavorable earnings report, may depress the value of a
particular equity security held by the Fund. Also, the price of equity
securities, particularly common stocks, are sensitive to general movements in
the stock market. A drop in the stock market may depress the price of equity
securities held by the Fund.

                                       16

<PAGE>

Other Investment Companies

     The Fund may invest in securities of other open- or closed-end investment
companies to the extent that such investments are consistent with the Fund's
investment objective and policies and permissible under the 1940 Act. The Fund
may invest in other investment companies either during periods when it has large
amounts of uninvested cash, such as the period shortly after the Fund receives
the proceeds of the offering of its Common Shares or Preferred Shares, during
periods when there is a shortage of attractive convertible securities and
non-convertible income-producing securities available in the market, or when
NACM believes share prices of other investment companies offer attractive
values. The Fund may invest in investment companies that are advised by NACM or
its affiliates to the extent permitted by applicable law and/or pursuant to
exemptive relief from the Securities and Exchange Commission. As a stockholder
in an investment company, the Fund will bear its ratable share of that
investment company's expenses, and would remain subject to payment of the Fund's
management fees and other expenses with respect to assets so invested. Common
Shareholders would therefore be subject to duplicative expenses to the extent
the Fund invests in other investment companies. NACM will take expenses into
account when evaluating the investment merits of an investment in an investment
company relative to available investments in convertible securities and
non-convertible income-producing securities. In addition, the securities of
other investment companies may also be leveraged and will therefore be subject
to the same leverage risks described herein. As described in the section
entitled "Risks," the net asset value and market value of leveraged shares will
be more volatile and the yield to shareholders will tend to fluctuate more than
the yield generated by unleveraged shares.

Commercial Paper

     Commercial paper represents short-term unsecured promissory notes issued in
bearer form by corporations such as banks or bank holding companies and finance
companies. The rate of return on commercial paper may be linked or indexed to
the level of exchange rates between the U.S. dollar and a foreign currency or
currencies.

Bank Obligations

     The Fund may invest in certain bank obligations, including certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation.

Loan Participations and Assignments

     The Fund may invest in fixed- and floating-rate loans issued by banks and
other corporations, which investments generally will be in the form of loan
participations and assignments of portions of such loans. Participations and
assignments involve credit risk, interest rate risk, liquidity risk, and the
risks of being a lender. If the Fund purchases a participation, it may only be
able to enforce its rights through the lender, and may assume the credit risk of
both the lender and the borrower. Given the current structure of the markets for
loan participations and assignments, the Fund expects to treat these securities
as illiquid.

Commercial and Other Mortgage-Related and Asset-Backed Securities

     Mortgage-related securities are debt instruments which provide periodic
payments consisting of interest and/or principal that are derived from or
related to payments of interest and/or principal on underlying mortgages.
Additional payments on mortgage-related securities may be made out of
unscheduled prepayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs that may be incurred.

     The Fund may invest significantly in commercial mortgage-related securities
issued by corporations. These are securities that represent an interest in, or
are secured by, mortgage loans secured by commercial property, such as
industrial and warehouse properties, office buildings, retail space and shopping
malls, multifamily properties and cooperative apartments, hotels and motels,
nursing homes, hospitals, and senior living centers. They may pay fixed or
adjustable rates of interest. The commercial

                                       17

<PAGE>

mortgage loans that underlie commercial mortgage-related securities have certain
distinct risk characteristics. Commercial mortgage loans generally lack
standardized terms, which may complicate their structure. Commercial properties
themselves tend to be unique and difficult to value. Commercial mortgage loans
tend to have shorter maturities than residential mortgage loans, and may not be
fully amortizing, meaning that they may have a significant principal balance, or
"balloon" payment, due on maturity. In addition, commercial properties,
particularly industrial and warehouse properties, are subject to environmental
risks and the burdens and costs of compliance with environmental laws and
regulations.

     Other mortgage-related securities in which the Fund may invest include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
mortgage dollar rolls, CMO residuals (other than residual interests in real
estate mortgage conduits), stripped mortgage-backed securities ("SMBSs") and
other securities that directly or indirectly represent a participation in, or
are secured by and payable from, mortgage loans on real property.

     The Fund may invest in other types of asset-backed securities that are
offered in the marketplace, including Enhanced Equipment Trust Certificates
("EETCs"). Although any entity may issue EETCs, to date, U.S. airlines are the
primary issuers. An airline EETC is an obligation secured directly by aircraft
or aircraft engines as collateral. EETCs tend to be less liquid than corporate
bonds. Other asset-backed securities may be collateralized by the fees earned by
service provider. The value of asset-backed securities may be substantially
dependent on the servicing of the underlying asset pools and are therefore
subject to risks associated with the negligence of, or defalcation by, their
servicers. In certain circumstances, the mishandling of related documentation
may also affect the rights of the security holders in and to the underlying
collateral. The insolvency of entities that generate receivable or that utilize
the assets may result in added costs and delays in addition to losses associated
with a decline in the value of the underlying assets.

     Please see "Investment Objective and Policies--Mortgage-Related and Other
Asset-Backed Securities" in the Statement of Additional Information and
"Risks--Mortgage-Related Risk" in this prospectus for a more detailed
description of the types of mortgage-related and other asset-backed securities
in which the Fund may invest and their related risks.

Variable and Floating Rate Securities

     Variable and floating rate securities provide for a periodic adjustment in
the interest rate paid on the obligations. The Fund may invest in floating rate
debt instruments ("floaters") and engage in credit spread trades. While floaters
provide a certain degree of protection against rising interest rates, the Fund
will participate in any decline in interest rates as well. A credit spread trade
is an investment position relating to a difference in the prices or interest
rates of two bonds or other securities, where the value of the investment
position is determined by changes in the difference between such prices or
interest rates, as the case may be, of the respective securities.

When Issued, Delayed Delivery and Forward Commitment Transactions

     The Fund may purchase securities which it is eligible to purchase on a
when-issued basis, may purchase and sell such securities for delayed delivery
and may make contracts to purchase such securities for a fixed price at a future
date beyond normal settlement time (forward commitments). When-issued
transactions, delayed delivery purchases and forward commitments involve a risk
of loss if the value of the securities declines prior to the settlement date.
The risk is in addition to the risk that the Fund's other assets will decline in
value. Therefore, these transactions may result in a form of leverage and
increase the Fund's overall investment exposure. Typically, no income accrues on
securities the Fund has committed to purchase prior to the time delivery of the
securities is made, although the Fund may earn income on securities it has
segregated to cover these positions.

Lending of Portfolio Securities

     For the purpose of achieving income, the Fund may lend its portfolio
securities to brokers, dealers, and other financial institutions provided a
number of conditions are satisfied, including that the loan is fully
collateralized. Please see "Investment Objective and Policies" in the Statement
of Additional Information for details. When the Fund lends portfolio securities,
its investment performance will continue to reflect changes in the value of the
securities loaned, and the Fund will also receive a fee or interest on the
collateral. Securities lending involves the risk of loss of rights in the
collateral or delay in recovery of the collateral if the borrower fails to
return the security loaned or becomes insolvent. The Fund may pay lending fees
to the party arranging the loan.

                                       18

<PAGE>

     Please see "Investment Objective and Policies" in the Statement of
Additional Information for additional information regarding the investments of
the Fund and their related risks.

                      PREFERRED SHARES AND RELATED LEVERAGE

     Subject to market conditions, approximately one to three months after the
completion of the offering of the Common Shares, the Fund intends to offer
Preferred Shares representing approximately 38% of the Fund's capital
immediately after the issuance of the Preferred Shares. The Preferred Shares
will have complete priority upon distribution of assets over the Common Shares.
The issuance of Preferred Shares will leverage the Common Shares. Leverage
involves special risks and there is no assurance that the Fund's leveraging
strategy will be successful. Although the timing and other terms of the offering
of the Preferred Shares will be determined by the Fund's Board of Trustees, the
Fund expects to invest the net proceeds of the Preferred Shares in convertible
securities, non-convertible income-producing securities and other investments in
accordance with the Fund's investment objective and policies. The Preferred
Shares will pay dividends based on short-term rates (which would be redetermined
periodically by an auction process). So long as the Fund's portfolio is invested
in securities that provide a higher rate of return than the dividend rate of the
Preferred Shares (after taking expenses into consideration), the leverage will
allow Common Shareholders to receive a higher current rate of return than if the
Fund were not leveraged.

     Changes in the value of the Fund's portfolio (including investments bought
with the proceeds of the Preferred Shares offering) will be borne entirely by
the Common Shareholders. If there is a net decrease (or increase) in the value
of the Fund's investment portfolio, the leverage will decrease (or increase) the
net asset value per Common Share to a greater extent than if the Fund were not
leveraged. During periods in which the Fund is using leverage, the fees paid to
the Manager and NACM will be higher than if the Fund did not use leverage
because the fees paid will be calculated on the basis of the Fund's total net
assets, including the proceeds from the issuance of Preferred Shares. Thus, the
Manager and NACM each have a financial incentive for the Fund to issue Preferred
Shares, which may result in a conflict of interest between the Manager/NACM and
the holders of Common Shares. Fees and expenses paid by the Fund are borne
entirely by the Common Shareholders (and not by Preferred Shareholders, if any).
These include costs associated with any offering of Preferred Shares by the Fund
(which costs are estimated to be slightly more than [1]% of the total dollar
amount of a Preferred Share offering), which will be borne immediately by Common
Shareholders.

     Under the 1940 Act, the Fund is not permitted to issue Preferred Shares
unless immediately after such issuance the value of the Fund's total net assets
is at least 200% of the liquidation value of the outstanding Preferred Shares
plus the aggregate amount of any senior securities of the Fund representing
indebtedness (i.e., such liquidation value plus the aggregate amount of senior
securities representing indebtedness may not exceed 50% of the Fund's total net
assets). In addition, the Fund is not permitted to declare any cash dividend or
other distribution on its Common Shares unless, at the time of such declaration,
the value of the Fund's total net assets satisfies the above-referenced 200%
coverage requirement. If Preferred Shares are issued, the Fund intends, to the
extent possible, to purchase or redeem Preferred Shares from time to time to the
extent necessary in order to maintain coverage of at least 200%. If the Fund has
Preferred Shares outstanding, two of the Fund's Trustees will be elected by the
holders of Preferred Shares, voting separately as a class. The remaining
Trustees of the Fund will be elected by holders of Common Shares and Preferred
Shares voting together as a single class. In the event the Fund were to fail to
pay dividends on Preferred Shares for two years, Preferred Shareholders would be
entitled to elect a majority of the Trustees of the Fund.

     The Fund may be subject to certain restrictions imposed by guidelines of
one or more rating agencies that may issue ratings for Preferred Shares issued
by the Fund. These guidelines may impose asset coverage or portfolio composition
requirements that are more stringent than those imposed on the Fund by the 1940
Act. It is not anticipated that these covenants or guidelines will impede NACM
from managing the Fund's portfolio in accordance with the Fund's investment
objective and policies.

     Assuming that the Preferred Shares will represent approximately 38% of the
Fund's capital and pay dividends at an annual average rate of     %, the income
generated by the Fund's portfolio (net of expenses) would have to exceed     %
in order to cover such dividend payments. Of course, these numbers are merely
estimates, used for illustration. Actual Preferred Share dividend rates will
vary frequently and may be significantly higher or lower than the rate
identified above.

     The following table is furnished in response to requirements of the
Securities and Exchange Commission. It is designed to illustrate the effect of
leverage on Common Share total return, assuming investment portfolio total
returns (consisting of income and changes in the value of investments held in
the Fund's portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment
portfolio returns are hypothetical figures and are not necessarily indicative of
the investment portfolio returns expected to be experienced by the Fund. The
table further assumes the issuance of Preferred Shares representing
approximately 38% of the Fund's total capital, a     % yield on the Fund's
investment portfolio, net of expenses, and the Fund's currently projected annual
Preferred Share dividend rate of     %. See "Risks."

                                       19

<PAGE>

<TABLE>
<S>                                                <C>        <C>        <C>      <C>     <C>
Assumed Portfolio Total Return ................... (10.00)%   (5.00)%    0.00%    5.00%   10.00%
Common Share Total Return ........................    (  )%     (  )%    (  )%        %        %
</TABLE>

     Common Share total return is composed of two elements--the Common Share
dividends paid by the Fund (the amount of which is largely determined by the net
investment income of the Fund after paying dividends on Preferred Shares) and
gains or losses on the value of the securities the Fund owns. As required by
Securities and Exchange Commission rules, the table assumes that the Fund is
more likely to suffer capital losses than to enjoy capital appreciation. For
example, to assume a total return of 0%, the Fund must assume that the interest
it receives on its investments is entirely offset by losses in the value of
those investments.

     The Fund also may borrow money in order to repurchase its shares or as a
temporary measure for extraordinary or emergency purposes, including for the
payment of dividends or the settlement of securities transactions which
otherwise might require untimely dispositions of Fund securities.

                                      RISKS

     The net asset value of the Common Shares will fluctuate with and be
affected by, among other things, market discount risk, convertible securities
risk, synthetic convertible securities risk, credit risk, high yield risk,
leverage risk, interest rate risk, liquidity risk, REITs risk, foreign
(non-U.S.) investment risk, reinvestment risk, issuer risk, smaller company
risk, mortgage-related risk, inflation risk, management risk, the risks of
market disruption and risks associated with the affiliations of the Fund, the
Manager and/or NACM. An investment in Common Shares will also be subject to the
risk associated with the fact that the Fund is newly organized. These risks are
summarized below.

Newly Organized

     The Fund is a newly organized, diversified, closed-end management
investment company and has no operating history.

Market Discount Risk

     As with any stock, the price of the Fund's shares will fluctuate with
market conditions and other factors. If shares are sold, the price received may
be more or less than the original investment. Net asset value will be reduced
immediately following the initial offering by a sales load and organizational
and selling expenses paid by the Fund and immediately following any offering of
Preferred Shares by the costs of that offering paid by the Fund. The Common
Shares are designed for long-term investors and should not be treated as trading
vehicles. Shares of closed-end management investment companies frequently trade
at a discount from their net asset value. The Fund's shares may trade at a price
that is less than the initial offering price. This risk may be greater for
investors who sell their shares relatively shortly after completion of the
initial offering.

Convertible Securities Risk

     The Fund may invest without limit in convertible securities, and these
securities will ordinarily constitute a principal component of the Fund's
investment program. Convertible securities generally offer lower interest or
dividend yields than non-convertible securities of similar quality. The market
values of convertible securities tend to decline as interest rates increase and,
conversely, to increase as interest rates decline. However, the convertible
security's market value tends to reflect the market price of the common stock of
the issuing company when that stock price is greater than the convertible's
"conversion price." The conversion price is defined as the predetermined price
at which the convertible could be exchanged for the associated stock. As the
market price of the underlying common stock declines, the price of the
convertible security tends to be influenced more by the yield of the convertible
security. Thus, it may not decline in price to the same extent as the underlying
common stock, and convertible securities generally have less potential for gain
or loss than common stocks. However, securities that are convertible other than
at the option of the holder generally do not limit the potential for loss to the
same extent as securities convertible at the option of the holder. In the event
of a liquidation of the issuing company, holders of convertible securities would
be paid before the company's common stockholders. Consequently, the issuer's
convertible securities generally entail less risk than its common stock.
However, convertible securities are often rated below investment grade or not
rated because they fall below debt obligations and just above common equity in
order of preference or priority on the issuer's balance sheet. See "High Yield
Risk."

                                       20

<PAGE>

Synthetic Convertible Securities Risk

     The Fund may invest without limit in synthetic convertible securities. The
value of a synthetic convertible security will respond differently to market
fluctuations than a convertible security because a synthetic convertible is
composed of two or more separate securities, each with its own market value.
Because the convertible component is achieved by investing in warrants or
options to buy common stock at a certain exercise price, or options on a stock
index, synthetic convertible securities are subject to the risks associated with
warrants and options. See "Risks--Convertible Securities Risk" and "Risks--Risks
of Warrants and Options." In addition, if the value of the underlying common
stock or the level of the index involved in the convertible component falls
below the exercise price of the warrant or option, the warrant or option may
lose all value.

Credit Risk

     The Fund could lose money if the issuer of a convertible security or
non-convertible income-producing security, or the counterparty to an option
contract, loan of portfolio securities or other obligation, is, or is perceived
to be, unable or unwilling to make timely principal and/or interest payments, or
to otherwise honor its obligations.

High Yield Risk

     In general, lower rated securities carry a greater degree of risk that the
issuer will lose its ability to make interest and principal payments, which
could have a negative impact on the Fund's net asset value or dividends. The
Fund may invest without limit in securities that are rated below investment
grade quality (i.e., below a rating of Baa or BBB by Moody's or S&P,
respectively), or that are unrated but judged to be of comparable quality by
NACM, and ordinarily expects to invest a substantial portion of its assets in
these securities. Securities rated below investment grade quality are regarded
as having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal, and are commonly referred to as "junk bonds"
or "high yield" securities. The prices of these lower grade securities are more
sensitive to negative developments, such as a decline in the issuer's revenues
or a general economic downturn, than are the prices of higher grade securities.
In addition, the secondary market on which high yield securities are traded may
be less liquid than the market for investment grade securities, meaning these
securities are subject to greater liquidity risk than investment grade
securities. Securities in the lowest investment grade category also may be
considered to possess some speculative characteristics by certain rating
agencies.

Interest Rate Risk

     Interest rate risk is the risk that convertible securities and
non-convertible income-producing securities (and the Fund's net assets) will
decline in value because of changes in interest rates. Generally, securities
will decrease in value when interest rates rise and increase in value when
interest rates decline. This means that the net asset value of the Common Shares
will fluctuate with interest rate changes and the corresponding changes in the
value of the Fund's holdings. Because market interest rates are currently near
their lowest levels in many years, there is a greater risk that the Fund's
portfolio will decline in value. The Fund's use of leverage through the issuance
of Preferred Shares will tend to increase Common Share interest rate risk.

Issuer Risk

     The value of securities in the Fund's portfolio may decline for a number of
reasons which directly relate to the issuer, such as management performance,
financial leverage and reduced demand for the issuer's goods and services.

Equity Securities Risk

     The Fund will often have substantial exposure to equity securities by
virtue of the equity component of the convertible securities in which the Fund
invests. The Fund may also hold equity securities in its portfolio upon
conversion of a convertible security or through direct investment in these
securities. The market price of equity securities may go up or down, sometimes
rapidly or unpredictably. Equity securities portfolio may decline in value due
to factors affecting equity securities markets generally, particular industries
represented in those markets or the issuer itself, including the historical and
prospective earnings of the issuer and the value of its assets. The values of
equity securities may decline due to general market conditions which are not
specifically related to a particular company, such as real or perceived adverse
economic conditions, changes in the general outlook for corporate earnings,
changes in interest or currency rates or adverse investor sentiment generally.
They may also

                                       21

<PAGE>

decline due to factors which affect a particular industry or industries, such as
labor shortages or increased production costs and competitive conditions within
an industry. Equity securities generally have greater price volatility than debt
and other income-producing securities.

Leverage Risk

     Leverage risk includes the risk associated with the issuance of the
Preferred Shares, if any, in order to leverage the Fund's portfolio. There can
be no assurance that the Fund's leveraging strategy involving Preferred Shares
will be successful. Once the Preferred Shares are issued, the net asset value
and market value of Common Shares will be more volatile, and the yield and total
return to Common Shareholders will tend to fluctuate more in response to changes
in interest rates and with changes in the short-term dividend rates on the
Preferred Shares. The Fund anticipates that the Preferred Shares, at least
initially, would likely pay cumulative dividends at rates determined over
relatively short-term periods (such as seven days), by providing for the
periodic redetermination of the dividend rate through an auction or remarketing
procedures. See "Description of Shares--Preferred Shares." The rates of return
on intermediate- and long-term obligations are typically, although not always,
higher than the rates of return on short-term obligations. If the dividend rate
on the Preferred Shares approaches the net rate of return on the Fund's
investment portfolio, the benefit of leverage to Common Shareholders will be
reduced. If the dividend rate on the Preferred Shares exceeds the net rate of
return on the Fund's portfolio, the leverage will result in a lower rate of
return to Common Shareholders than if the Fund were not leveraged. Because the
longer-term instruments included in the Fund's portfolio will typically pay
fixed rates of interest while the dividend rate on the Preferred Shares will be
adjusted periodically, this could occur even when both long-term and short-term
interest rates rise. In addition, the Fund will pay (and Common Shareholders
will bear) any costs and expenses relating to the issuance and ongoing
maintenance of the Preferred Shares. The Fund cannot assure you that it will
issue Preferred Shares or, if used, that this strategy will result in a higher
yield or return to Common Shareholders.

     Similarly, any decline in the net asset value of the Fund's investments
will be borne entirely by Common Shareholders. Therefore, if the market value of
the Fund's portfolio declines, any leverage will result in a greater decrease in
net asset value to Common Shareholders than if the Fund were not leveraged. Such
greater net asset value decrease will also tend to cause a greater decline in
the market price for the Common Shares. The Fund might be in danger of failing
to maintain the required 200% asset coverage or of losing its expected AAA/Aaa
ratings on the Preferred Shares or, in an extreme case, the Fund's current
investment income might not be sufficient to meet the dividend requirements on
the Preferred Shares. In order to counteract such an event, or in order to meet
its other obligations, the Fund might need to liquidate investments in order to
fund a redemption of some or all of the Preferred Shares. Liquidation at times
of low securities prices may result in capital loss and may reduce returns to
Common Shareholders.

     While the Fund may from time to time consider reducing leverage in response
to actual or anticipated changes in interest rates in an effort to mitigate the
increased volatility of current income and net asset value associated with
leverage, there can be no assurance that the Fund will actually reduce leverage
in the future or that any reduction, if undertaken, will benefit the Common
Shareholders. Changes in the future direction of interest rates are very
difficult to predict accurately. If the Fund were to reduce leverage based on a
prediction about future changes to interest rates, and that prediction turned
out to be incorrect, the reduction in leverage would likely operate to reduce
the income and/or total returns to Common Shareholders relative to the
circumstance if the Fund had not reduced leverage. The Fund may decide that this
risk outweighs the likelihood of achieving the desired reduction to volatility
in income and Common Share price if the prediction were to turn out to be
correct, and determine not to reduce leverage as described above.

Liquidity Risk

     The Fund may invest up to 20% of its total assets in securities which are
illiquid at the time of investment. The term "illiquid securities" for this
purpose is determined using the Securities and Exchange Commission's standard
applicable to open-end investment companies, i.e., securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the value at which the Fund has valued the securities. Illiquid
securities may be subject to wide fluctuations in market value. The Fund may be
subject to significant delays in disposing of illiquid securities. Accordingly,
the Fund may be forced to sell these securities at less than fair market value
or may not be able to sell them when NACM believes it is desirable to do so.
Illiquid securities also may entail registration expenses and other transaction
costs that are higher than those for liquid securities. Restricted securities,
i.e., securities subject to legal or contractual restrictions on resale, may
also be illiquid. However, some restricted securities (such as securities issued
pursuant to Rule 144A under the Securities Act of 1933 and certain commercial
paper) may be treated as liquid for these purposes.

                                       22

<PAGE>

Foreign (Non-U.S.) Investment Risk

     The Fund may invest up to 25% of its total assets in U.S. dollar- or
foreign currency-denominated securities of foreign issuers, and may invest a
portion of those assets in securities of issuers based in or securities
denominated in the currencies of developing or "emerging market" countries. The
Fund's investments in foreign issuers and in securities denominated in foreign
currencies involve special risks. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and foreign issuers
are not generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States. The securities
of some foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage costs, custodial
expenses and other fees are also generally higher than for securities traded in
the United States. With respect to certain foreign countries, there is also a
possibility of expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments which could affect the value
of investments in those countries. In addition, income received by the Fund from
sources within foreign countries may be reduced by withholding and other taxes
imposed by such countries.

     The value of securities denominated in foreign currencies may fluctuate
based on changes in the value of those currencies relative to the U.S. dollar,
and a decline in applicable foreign exchange rates could reduce the value of
such securities held by the Fund. The values of foreign investments and the
investment income derived from them also may be affected unfavorably by changes
in currency exchange control regulations. In addition, although a portion of the
Fund's investment income may be received or realized in foreign currencies, the
Fund will be required to compute and distribute its income in U.S. dollars.
Therefore, if the exchange rate for any such currency declines after the Fund's
income has been earned and translated into U.S. dollars but before payment, the
Fund could be required to liquidate portfolio securities to make such
distributions.

     Foreign investment risk may be particularly high to the extent that the
Fund invests in securities of issuers based in or securities denominated in the
currencies of developing or "emerging market" countries. These securities may
present market, credit, currency, liquidity, legal, political and other risks
different from, and greater than, the risks of investing in developed foreign
countries. These heightened risks include: (i) greater risks of expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the smaller size of the market for such securities and a lower
volume of trading, resulting in lack of liquidity and in price volatility; and
(iii) certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests.

Smaller Company Risk

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

Risks of Warrants and Options

     Warrants and options are financial contracts whose value depends on the
value of the underlying common stock or stock index. The Fund will invest in
warrants and options only to the extent that the convertible components of the
synthetic convertible securities in which it invests consist of a warrant, call
option on common stock or call option on a stock index. The Fund's investments
in warrants and options involve risks different from, and possibly greater than,
the risks associated with investing directly in securities. Warrants and options
are subject to a number of risks described elsewhere in this prospectus, such as
liquidity risk, equity securities risk, issuer risk, management risk and, if
applicable, smaller companies risk. They also involve the risk of mispricing or
improper valuation, the risk of ambiguous documentation, and the risk that
changes in the value of the warrant or option may not correlate perfectly with
the underlying common stock or stock index. If the Fund purchases a call option
but does not exercise the option, it will lose the premium paid for the option.

Reinvestment Risk

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

                                       23

<PAGE>

REITs and Mortgage-Related Risk

     Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. An equity REIT
may be affected by changes in the value of the underlying properties owned by
the REIT. A mortgage REIT may be affected by changes in interest rates and the
ability of the issuers of its portfolio mortgages to repay their obligations.
REITs are dependent upon the skills of their managers and are not diversified.
REITs are generally dependent upon maintaining cash flows to repay borrowings
and to make distributions to shareholders and are subject to the risk of default
by lessees or borrowers. REITs whose underlying assets are concentrated in
properties used by a particular industry, such as health care, are also subject
to risks associated with such industry.

     REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. If the REIT invests in adjustable rate mortgage loans the interest
rates on which are reset periodically, yields on a REIT's investments in such
loans will gradually align themselves to reflect changes in market interest
rates. This causes the value of such investments to fluctuate less dramatically
in response to interest rate fluctuations than would investments in fixed rate
obligations.

     REITs may have limited financial resources, may trade less frequently and
in a limited volume and may be subject to more abrupt or erratic price movements
than larger company securities. Historically, REITs have been more volatile in
price than the larger capitalization stocks included in Standard & Poor's 500
Stock Index.

     In addition to REITs, the Fund may invest in a variety of other
mortgage-related securities, including commercial mortgage securities and other
mortgage-backed instruments. Rising interest rates tend to extend the duration
of mortgage-related securities, making them more sensitive to changes in
interest rates. As a result, in a period of rising interest rates,
mortgage-related securities held by the Fund may exhibit additional volatility.
This is known as extension risk. In addition, mortgage-related securities are
subject to prepayment risk--the risk that borrowers may pay off their mortgages
sooner than expected, particularly when interest rates decline. This can reduce
the Fund's returns because the Fund may have to reinvest that money at lower
prevailing interest rates. The Fund's investments in other asset-backed
securities are subject to risks similar to those associated with
mortgage-related securities, as well as additional risks associated with the
nature of the assets and the servicing of those assets.

Inflation Risk

     Inflation risk is the risk that the value of assets or income from the
Fund's investments will be worth less in the future as inflation decreases the
value of money. As inflation increases, the real, or inflation-adjusted, value
of the Common Shares and distributions can decline and the dividend payments on
the Fund's Preferred Shares, if any, may increase.

Management Risk

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

Market Disruption

     As a result of the terrorist attacks on the World Trade Center and the
Pentagon on September 11, 2001, some of the U.S. securities markets were closed
for a four-day period. These terrorist attacks and related events have led to
increased short-term market volatility and may have long-term effects on U.S.
and world economies and markets. A similar disruption of the financial markets
could impact interest rates, auctions, secondary trading, ratings, credit risk,
inflation and other factors relating to the Common Shares.

                                       24

<PAGE>

Certain Affiliations

     Certain broker-dealers may be considered to be affiliated persons of the
Fund, the Manager and/or NACM due to their possible affiliations with Allianz
AG, the ultimate parent of the Manager and NACM. Absent an exemption from the
Securities and Exchange Commission or other regulatory relief, the Fund is
generally precluded from effecting certain principal transactions with
affiliated brokers, and its ability to purchase securities being underwritten by
an affiliated broker or a syndicate including an affiliated broker, or to
utilize affiliated brokers for agency transactions, is subject to restrictions.
This could limit the Fund's ability to engage in securities transactions and
take advantage of market opportunities. In addition, unless and until the
underwriting syndicate is broken in connection with the initial public offering
of the Common Shares, the Fund will be precluded from effecting principal
transactions with brokers who are members of the syndicate.

                            HOW THE FUND MANAGES RISK

Investment Limitations

     The Fund has adopted certain investment limitations designed to limit
investment risk and maintain portfolio diversification. These limitations (two
of which are listed below) are fundamental and may not be changed without the
approval of the holders of a majority of the outstanding Common Shares and, if
issued, Preferred Shares voting together as a single class, and the approval of
the holders of a majority of the Preferred Shares voting as a separate class.
The Fund may not:

     .    Concentrate its investments in a particular "industry," as that term
          is used in the 1940 Act and as interpreted, modified, or otherwise
          permitted by regulatory authority having jurisdiction, from time to
          time; and

     .    With respect to 75% of the Fund's total assets, purchase the
          securities of any issuer, except securities issued or guaranteed by
          the U.S. Government or any of its agencies or instrumentalities or
          securities of other investment companies, if, as a result, (i) more
          than 5% of the Fund's total assets would be invested in the securities
          of that issuer, or (ii) the Fund would hold more than 10% of the
          outstanding voting securities of that issuer.

     The Fund would be deemed to "concentrate" its investments in a particular
industry if it invested more than 25% of its total assets in that industry. The
Fund's industry concentration policy does not preclude it from focusing
investments in issuers in a group of related industrial sectors (such as
different types of utilities).

     The Fund may become subject to guidelines which are more limiting than the
investment restrictions set forth above and other restrictions set forth in the
Statement of Additional Information in order to obtain and maintain ratings from
Moody's, S&P and/or Fitch, Inc. on the Preferred Shares that it intends to
issue. The Fund does not anticipate that such guidelines would have a material
adverse effect on the Fund's Common Shareholders or the Fund's ability to
achieve its investment objective. See "Investment Objective and Policies" and
"Investment Restrictions" in the Statement of Additional Information for
information about these guidelines and a complete list of the fundamental
investment policies of the Fund.

Limited Issuance of Preferred Shares

     Under the 1940 Act, the Fund could issue Preferred Shares having a total
liquidation value (original purchase price of the shares being liquidated plus
any accrued and unpaid dividends) of up to one-half of the value of the total
assets of the Fund, less liabilities. To the extent that the Fund has
outstanding any senior securities representing indebtedness, the aggregate
amount of such senior securities will be added to the total liquidation value of
any outstanding Preferred Shares for purposes of this asset coverage
requirement. If the total liquidation value of the Preferred Shares plus the
aggregate amount of such other senior securities were ever more than one-half of
the value of the Fund's total net assets, the Fund would not be able to declare
dividends on the Common Shares until such liquidation value and/or aggregate
amount of other senior securities, as a percentage of the Fund's total assets,
were reduced. The Fund intends to issue Preferred Shares representing
approximately 38% of the Fund's total capital immediately after their issuance
approximately one to three months after the completion of the offering of Common
Shares. This higher than required margin of net asset value provides a cushion
against later fluctuations in the value of the Fund's portfolio and will subject
Common Shareholders to less income and net asset value volatility than if the
Fund were more highly leveraged through Preferred Shares. No assurance can be
given that this cushion will not be reduced or eliminated. The Fund intends to
purchase or redeem Preferred Shares, if necessary, to keep the liquidation value
of the Preferred Shares plus the aggregate amount of other senior securities
representing indebtedness below one-half of the value of the Fund's total net
assets.

                                       25

<PAGE>

Management of Investment Portfolio and Capital Structure to Limit Leverage Risk

     The Fund may take certain actions if short-term interest rates increase or
market conditions otherwise change (or the Fund anticipates such an increase or
change) and the Fund's leverage begins (or is expected) to adversely affect
Common Shareholders. In order to attempt to offset such a negative impact of
leverage on Common Shareholders, the Fund may shorten the average maturity or
duration of its investment portfolio (by investing in short-term, high quality
securities) or may extend the maturity of outstanding Preferred Shares. The Fund
also may attempt to reduce leverage by redeeming or otherwise purchasing
Preferred Shares. As explained above under "Risks--Leverage Risk," the success
of any such attempt to limit leverage risk depends on NACM's ability to
accurately predict interest rate or other market changes. Because of the
difficulty of making such predictions, the Fund may not be successful in
managing its interest rate exposure in the manner described above.

     If market conditions suggest that additional leverage would be beneficial,
the Fund may sell previously unissued Preferred Shares or Preferred Shares that
the Fund previously issued but later repurchased.

                             MANAGEMENT OF THE FUND

Trustees and Officers

     The Board of Trustees is responsible for the management of the Fund,
including supervision of the duties performed by the Manager and NACM. There are
currently three Trustees of the Fund, none of whom is currently treated by the
Fund as an "interested person" (as defined in the 1940 Act). The names and
business addresses of the Trustees and officers of the Fund and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Fund" in the Statement of Additional Information.

Investment Manager

     The Manager serves as the investment manager of the Fund. Subject to the
supervision of the Board of Trustees, the Manager is responsible for managing,
either directly or through others selected by it, the investment activities of
the Fund and the Fund's business affairs and other administrative matters. The
Manager is located at 1345 Avenue of the Americas, New York, New York 10105.

     Organized in 2000, the Manager provides investment management and advisory
services to several closed-end and open-end investment company clients. As of
December 31, 2002, the Manager had approximately $   in assets under management.
Allianz Dresdner Asset Management of America L.P. is the direct parent company
of PIMCO Advisors Retail Holdings LLC, of which the Manager is a wholly-owned
subsidiary. As of December 31, 2002, Allianz Dresdner Asset Management of
America L.P. and its subsidiary partnerships, including NACM, had approximately
$     billion in assets under management.

     The Manager has retained its affiliate, NACM, to manage the Fund's
investments. See "--Portfolio Manager" below. The Manager is a majority-owned
indirect subsidiary and NACM a wholly-owned indirect subsidiary of Allianz AG, a
publicly traded German insurance and financial services company.

Portfolio Manager

     NACM serves as the portfolio manager for the Fund. Subject to the
supervision of the Manager, NACM has full investment discretion and makes all
determinations with respect to the investment of the Fund's assets.

     NACM is located at 600 West Broadway, Suite 2900, San Diego, California
92101. Founded in 1984, NACM currently manages approximately $     billion in
discretionary assets for numerous clients, including investment companies,
employee benefit plans, corporations, public retirement systems and unions,
university endowments, foundations, and other institutional investors and
individuals.

     The Manager (and not the Fund) pays a portion of the fees it receives to
NACM in return for its services, at the maximum annual rate of   % of the Fund's
average daily net assets (including assets attributable to any Preferred Shares
that may be outstanding).

                                       26

<PAGE>

     The following six individuals constitute the team at NACM that has primary
responsibility for the day-to-day portfolio management of the Fund, with Mr.
Forsyth serving as the lead:

<TABLE>
<CAPTION>
              Name                   Since                         Recent Professional Experience
              ----                   -----                         ------------------------------
<S>                               <C>          <C>
Douglas Forsyth, CFA                  2003     Mr. Forsyth is a portfolio manager at NACM. He focuses on high yield
                                  (Inception)  and convertible securities. He joined NACM in 1994 after three years
                                               of investment management experience at AEGON USA. Mr. Forsyth holds a
                                               B.B.A. from the University of Iowa.
William L. Stickney                   2003     Mr. Stickney is a portfolio manager at NACM. He focuses on high yield
                                  (Inception)  and convertible securities. He joined NACM in 1999 after an aggregate
                                               of ten years of investment experience with ABN AMRO, Inc., Cowen &
                                               Company and Wayne Hummer & Company. Mr. Stickney holds a B.S. from
                                               Miami University and is an M.M. candidate at Northwestern University,
                                               J.L. Kellogg School of Management.
Michael E. Yee                        2003     Mr. Yee is a portfolio manager at NACM. He focuses on high yield and
                                  (Inception)  convertible securities. He joined NACM in 1995 and has been a
                                               portfolio manager since 1998. Mr. Yee holds a B.S. from the University
                                               of California, San Diego and an M.B.A. from San Diego State University.
Justin Kass                           2003     Mr. Kass is an investment analyst at NACM. He focuses on high yield
                                  (Inception)  and convertible securities. He joined NACM in 2000. Mr. Kass holds a
                                               B.S. from the University of California, Davis and an M.B.A. from the
                                               Anderson School at the University of California, Los Angeles.
Elizabeth Lemesevski                  2003     Ms. Lemesevski is an investment analyst at NACM. She focuses on high
                                  (Inception)  yield and convertible securities. She joined NACM in 2001. Ms.
                                               Lemesevski holds a B.S. from Rutgers University and an M.B.A. from
                                               Fordham University.
Nicole Larrabee                       2003
                                  (Inception)
</TABLE>

Investment Management Agreement

     Pursuant to an investment management agreement between the Manager and the
Fund (the "Investment Management Agreement"), the Fund has agreed to pay the
Manager an annual management fee payable on a monthly basis at the annual rate
of 0.75% of the Fund's average daily net assets (including net assets
attributable to Preferred Shares) for the services and facilities it provides.

     In addition to the fees of the Manager, the Fund pays all other costs and
expenses of its operations, including compensation of its Trustees (other than
those affiliated with the Manager), custodial expenses, shareholder servicing
expenses, transfer agency and dividend disbursing expenses, legal fees, expenses
of independent auditors, expenses of repurchasing shares, expenses of issuing
any Preferred Shares, expenses of preparing, printing and distributing
prospectuses, shareholder reports, notices, proxy statements and reports to
governmental agencies, and taxes, if any.

     Because the fees received by the Manager and NACM are based on the total
net assets of the Fund (including assets attributable to Preferred Shares and
any leverage created thereby), the Manager and NACM each have a financial
incentive for the Fund to issue Preferred Shares, which may create a conflict of
interest between the Manager/NACM and the holders of the Fund's Common Shares.

                                 NET ASSET VALUE

     The net asset value ("NAV") of the Fund equals the total value of the
Fund's portfolio investments and other assets, less any liabilities. For
purposes of calculating NAV, portfolio securities and other assets for which
market quotes are available are stated at market value. Market value is
generally determined on the basis of the last reported sales price, or if no
sales are reported, based on quotes obtained from a quotation reporting system,
established market makers, or pricing services. Certain securities or
investments for which market quotations are not readily available may be valued,
pursuant to guidelines established by the Board of Trustees, with reference to
other securities or indexes. For instance, a pricing service may recommend a
fair market value based on prices of comparable securities. Short-term
investments having a maturity of 60 days or less are generally valued at

                                       27

<PAGE>

amortized cost. Other securities for which market quotes are not readily
available are valued at fair value as determined in good faith by the Board of
Trustees or persons acting at their direction.

     The NAV of the Fund will be determined as of the close of regular trading
on the New York Stock Exchange (normally 4:00 p.m., Eastern time) (the "NYSE
Close") on each day the New York Stock Exchange is open. For purposes of
calculating the NAV, the Fund normally uses pricing data for domestic equity
securities received shortly after the NYSE Close and does not normally take into
account trading, clearances or settlements that take place after the NYSE Close.
Domestic securities and foreign securities are normally priced using data
reflecting the earlier closing of the principal markets for those securities.
Information that becomes known to the Fund or its agent after the Fund's NAV has
been calculated on a particular day will not be used to retroactively adjust the
price of a security or the Fund's NAV determined earlier that day.

     Investments initially valued in currencies other than the U.S. dollar are
converted to U.S. dollars using exchange rates obtained from pricing services.
As a result, the NAV of the Fund's shares may be affected by changes in the
value of currencies in relation to the U.S. dollar. The value of securities
traded in markets outside the United States or denominated in currencies other
than the U.S. dollar may be affected significantly on a day that the New York
Stock Exchange is closed.

     In unusual circumstances, instead of valuing securities in the usual
manner, the Fund may value securities at fair value as determined in good faith
by the Board of Trustees, generally based upon recommendations provided by NACM.
Fair valuation also may be required due to material events that occur after the
close of the relevant market but prior to the NYSE Close.

                                  DISTRIBUTIONS

     Commencing with the first dividend, the Fund intends to make regular
monthly cash distributions to Common Shareholders at a rate based upon the
projected performance of the Fund. Distributions can only be made from net
investment income after paying any accrued dividends to Preferred Shareholders.
The dividend rate that the Fund pays will depend on a number of factors,
including dividends payable on the Preferred Shares and the expenses of any
other leveraging transactions. The net income of the Fund consists of all
interest income accrued on portfolio assets less all expenses of the Fund.
Expenses of the Fund are accrued each day. Over time, substantially all the net
investment income of the Fund will be distributed. At least annually, the Fund
also intends to distribute to you your pro rata share of any available net
capital gain. Initial distributions to Common Shareholders are expected to be
declared approximately 45 days, and paid approximately 60 to 90 days, from the
completion of this offering, depending on market conditions. Although it does
not now intend to do so, the Board of Trustees may change the Fund's dividend
policy and the amount or timing of the distributions, based on a number of
factors, including the amount of the Fund's undistributed net investment income
and historical and projected investment income and the amount of the expenses
and dividend rates on any outstanding Preferred Shares.

     To permit the Fund to maintain a more stable monthly distribution, the Fund
will initially distribute less than the entire amount of net investment income
earned in a particular period. The undistributed net investment income would be
available to supplement future distributions. As a result, the distributions
paid by the Fund for any particular monthly period may be more or less than the
amount of net investment income actually earned by the Fund during the period.
Undistributed net investment income will be added to the Fund's net asset value
and, correspondingly, distributions from undistributed net investment income
will be deducted from the Fund's net asset value.

                           DIVIDEND REINVESTMENT PLAN

     Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common
Shareholders whose shares are registered in their own names will have all
dividends, including any capital gain dividends, reinvested automatically in
additional Common Shares by PFPC Inc., as agent for the Common Shareholders (the
"Plan Agent"), unless the shareholder elects to receive cash. An election to
receive cash may be revoked or reinstated at the option of the shareholder. In
the case of record shareholders such as banks, brokers or other nominees that
hold Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record shareholder as representing the total amount
registered in such shareholder's name and held for the account of beneficial
owners who are to participate in the Plan. Shareholders whose shares are held in
the name of a bank, broker or nominee should contact the bank, broker or nominee
for details. Such shareholders may not be able to transfer their shares to
another bank or broker and continue to participate in the Plan. All
distributions to investors who elect not to participate in the Plan (or whose
broker or nominee elects not to participate on the investor's behalf), will be
paid in cash by check mailed, in the case of direct shareholders, to the record
holder by PFPC Inc., as the Fund's dividend disbursement agent.

                                       28

<PAGE>

     Unless you elect (or your broker or nominee elects) not to participate in
the Plan, the number of Common Shares you will receive will be determined as
follows:

          (1) If Common Shares are trading at or above net asset value on the
     payment date, the Fund will issue new shares at the greater of (i) the net
     asset value per Common Share on the payment date or (ii) 95% of the market
     price per Common Share on the payment date; or

          (2) If Common Shares are trading below net asset value (minus
     estimated brokerage commissions that would be incurred upon the purchase of
     Common Shares on the open market) on the payment date, the Plan Agent will
     receive the dividend or distribution in cash and will purchase Common
     Shares in the open market, on the New York Stock Exchange or elsewhere, for
     the participants' accounts. It is possible that the market price for the
     Common Shares may increase before the Plan Agent has completed its
     purchases. Therefore, the average purchase price per share paid by the Plan
     Agent may exceed the market price on the payment date, resulting in the
     purchase of fewer shares than if the dividend or distribution had been paid
     in Common Shares issued by the Fund. The Plan Agent will use all dividends
     and distributions received in cash to purchase Common Shares in the open
     market on or shortly after the payment date, but in no event later than the
     ex-dividend date for the next distribution. Interest will not be paid on
     any uninvested cash payments.

     You may withdraw from the Plan at any time by giving written notice to the
Plan Agent. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.

     The Plan Agent maintains all shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. The Plan Agent will also furnish each person who
buys Common Shares with written instructions detailing the procedures for
electing not to participate in the Plan and to instead receive distributions in
cash. Common Shares in your account will be held by the Plan Agent in
non-certificated form. Any proxy you receive will include all Common Shares you
have received under the Plan.

     There is no brokerage charge for reinvestment of your dividends or
distributions in Common Shares. However, all participants will pay a pro rata
share of brokerage commissions incurred by the Plan Agent when it makes open
market purchases.

     Automatically reinvested dividends and distributions are taxed in the same
manner as cash dividends and distributions.

     The Fund and the Plan Agent reserve 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. Additional information about the Plan may be
obtained from PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809, telephone
number 1-800-331-1710.

                               DESCRIPTION OF SHARES

Common Shares

     The Declaration authorizes the issuance of an unlimited number of Common
Shares. The Common Shares will be issued with a par value of $0.00001 per share.
All Common Shares have equal rights to the payment of dividends and the
distribution of assets upon liquidation. Common Shares will, when issued, be
fully paid and, subject to matters discussed in "Anti-Takeover and Other
Provisions in the Declaration of Trust," non-assessable, and will have no
pre-emptive or conversion rights or rights to cumulative voting. Whenever
Preferred Shares are outstanding, Common Shareholders will not be entitled to
receive any distributions from the Fund unless all accrued dividends on
Preferred Shares have been paid, and unless asset coverage (as defined in the
1940 Act) with respect to Preferred Shares would be at least 200% after giving
effect to the distributions. See "--Preferred Shares" below.

     The Common Shares have been authorized for listing on the New York Stock
Exchange, subject to notice of issuance. The Fund intends to hold annual
meetings of shareholders so long as the Common Shares are listed on a national
securities exchange and such meetings are required as a condition to such
listing.

     The Fund's net asset value per share generally increases when interest
rates decline, and decreases when interest rates rise, and these changes are
likely to be greater because the Fund intends to have a leveraged capital
structure. Net asset value will be reduced immediately following the offering by
the amount of the sales load and organization and offering expenses paid by the

                                       29

<PAGE>

Fund. The Manager has agreed to pay the amount by which the aggregate of all of
the Fund's organizational expenses and all offering costs (other than the sales
load) exceeds $0.03 per Common Share.

     Unlike open-end funds, closed-end funds like the Fund do not continuously
offer shares and do not provide daily redemptions. Rather, if a shareholder
determines to buy additional Common Shares or sell shares already held, the
shareholder may do so by trading on the exchange through a broker or otherwise.
Shares of closed-end investment companies may frequently trade on an exchange at
prices lower than net asset value. Shares of closed-end investment companies
like the Fund have during some periods traded at prices higher than net asset
value and during other periods have traded at prices lower than net asset value.
The Fund's Declaration limits the ability of the Fund to convert to open-end
status. See "Anti-Takeover and Other Provisions in the Declaration of Trust."

     Because the market value of the Common Shares may be influenced by such
factors as dividend levels (which are in turn affected by expenses), call
protection, dividend stability, portfolio credit quality, net asset value,
relative demand for and supply of such shares in the market, general market and
economic conditions, and other factors beyond the control of the Fund, the Fund
cannot assure you that the Common Shares will trade at a price equal to or
higher than net asset value in the future. The Common Shares are designed
primarily for long-term investors, and investors in the Common Shares should not
view the Fund as a vehicle for trading purposes. See "Preferred Shares and
Related Leverage" and the Statement of Additional Information under "Repurchase
of Common Shares; Conversion to Open-End Fund."

Preferred Shares

     The Declaration authorizes the issuance of an unlimited number of Preferred
Shares. The Preferred Shares may be issued in one or more classes or series,
with such par value and rights as determined by the Board of Trustees, by action
of the Board of Trustees without the approval of the Common Shareholders.

     The Fund's Board of Trustees has indicated its intention to authorize an
offering of Preferred Shares (representing approximately 38% of the Fund's
capital immediately after the time the Preferred Shares are issued)
approximately one to three months after completion of the offering of Common
Shares. Any such decision is subject to market conditions and to the Board's
continuing belief that leveraging the Fund's capital structure through the
issuance of Preferred Shares is likely to achieve the benefits to the Common
Shareholders described in this prospectus. Although the terms of the Preferred
Shares will be determined by the Board of Trustees (subject to applicable law
and the Fund's Declaration) if and when it authorizes a Preferred Shares
offering, the Board has determined that the Preferred Shares, at least
initially, would likely pay cumulative dividends at rates determined over
relatively short-term periods (such as seven days), by providing for the
periodic redetermination of the dividend rate through an auction or remarketing
procedure. The Board of Trustees has indicated that the preference on
distribution, liquidation preference, voting rights and redemption provisions of
the Preferred Shares will likely be as stated below.

     As used in this prospectus, unless otherwise noted, the Fund's "net assets"
include assets of the Fund attributable to any outstanding Preferred Shares,
with no deduction for the liquidation preference of the Preferred Shares. Solely
for financial reporting purposes, however, the Fund is required to exclude the
liquidation preference of Preferred Shares from "net assets," so long as the
Preferred Shares have redemption features that are not solely within the control
of the Fund. For all regulatory and tax purposes, the Fund's Preferred Shares
will be treated as stock (rather than indebtedness).

Limited Issuance of Preferred Shares

     Under the 1940 Act, the Fund could issue Preferred Shares with an aggregate
liquidation value of up to one-half of the value of the Fund's total net assets
(total assets less all liabilities and indebtedness not represented by "senior
securities," as defined in the 1940 Act), measured immediately after issuance of
the Preferred Shares. "Liquidation value" means the original purchase price of
the shares being liquidated plus any accrued and unpaid dividends. In addition,
the Fund is not permitted to declare any cash dividend or other distribution on
its Common Shares unless the liquidation value of the Preferred Shares is less
than one-half of the value of the Fund's total net assets (determined after
deducting the amount of such dividend or distribution) immediately after the
distribution. The liquidation value of the Preferred Shares is expected to be
approximately 38% of the value of the Fund's total net assets. The Fund intends
to purchase or redeem Preferred Shares, if necessary, to keep that fraction
below one-half.

                                       30

<PAGE>

Distribution Preference

     The Preferred Shares have complete priority over the Common Shares as to
distribution of assets.

Liquidation Preference

     In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Fund, holders of Preferred Shares will be
entitled to receive a preferential liquidating distribution (expected to equal
the original purchase price per share plus accumulated and unpaid dividends
thereon, whether or not earned or declared) before any distribution of assets is
made to holders of Common Shares.

Voting Rights

     Preferred Shares are required to be voting shares. Except as otherwise
provided in the Declaration or the Fund's Bylaws or otherwise required by
applicable law, holders of Preferred Shares will vote together with Common
Shareholders as a single class.

     Holders of Preferred Shares, voting as a separate class, will also be
entitled to elect two of the Fund's Trustees. The remaining Trustees will be
elected by Common Shareholders and holders of Preferred Shares, voting together
as a single class. In the unlikely event that two full years of accrued
dividends are unpaid on the Preferred Shares, the holders of all outstanding
Preferred Shares, voting as a separate class, will be entitled to elect a
majority of the Fund's Trustees until all dividends in arrears have been paid or
declared and set apart for payment.

Redemption, Purchase and Sale of Preferred Shares

     The terms of the Preferred Shares may provide that they are redeemable at
certain times, in whole or in part, at the original purchase price per share
plus accumulated dividends. The terms also may state that the Fund may tender
for or purchase Preferred Shares and resell any shares so tendered. Any
redemption or purchase of Preferred Shares by the Fund will reduce the leverage
applicable to Common Shares, while any resale of Preferred Shares by the Fund
will increase such leverage. See "Preferred Shares and Related Leverage."

     The discussion above describes the Board of Trustees' present intention
with respect to a possible offering of Preferred Shares. If the Board of
Trustees determines to authorize such an offering, the terms of the Preferred
Shares may be the same as, or different from, the terms described above, subject
to applicable law and the Fund's Declaration and Bylaws.

         ANTI-TAKEOVER AND OTHER PROVISIONS IN THE DECLARATION OF TRUST

     The Declaration includes provisions that could limit the ability of other
entities or persons to acquire control of the Fund or to convert the Fund to
open-end status. The Fund's Trustees are divided into three classes. At each
annual meeting of shareholders, the term of one class will expire and each
Trustee elected to that class will hold office for a term of three years. The
classification of the Board of Trustees in this manner could delay for an
additional year the replacement of a majority of the Board of Trustees. In
addition, the Declaration provides that a Trustee may be removed only for cause
and only (i) by action of at least seventy-five percent (75%) of the outstanding
shares of the classes or series of shares entitled to vote for the election of
such Trustee, or (ii) by at least seventy-five percent (75%) of the remaining
Trustees.

     As described below, the Declaration grants special approval rights with
respect to certain matters to members of the Board who qualify as "Continuing
Trustees," which term means a Trustee who either (i) has been a member of the
Board for a period of at least thirty-six months (or since the commencement of
the Fund's operations, if less than thirty-six months) or (ii) was nominated to
serve as a member of the Board of Trustees by a majority of the Continuing
Trustees then members of the Board.

     The Declaration requires the affirmative vote or consent of at least
seventy-five percent (75%) of the Board of Trustees and holders of at least
seventy-five percent (75%) of the Fund's shares (including Common and Preferred
Shares) to authorize certain Fund transactions not in the ordinary course of
business, including a merger or consolidation or a sale or transfer of Fund
assets, unless the transaction is authorized by both a majority of the Trustees
and seventy-five percent (75%) of the Continuing Trustees (in which case no
shareholder authorization would be required by the Declaration, but may be
required in certain cases under the 1940 Act). The Declaration also requires the
affirmative vote or consent of holders of at least seventy-five percent (75%) of
each

                                       31

<PAGE>

class of the Fund's shares entitled to vote on the matter to authorize a
conversion of the Fund from a closed-end to an open-end investment company,
unless the conversion is authorized by both a majority of the Trustees and
seventy-five percent (75%) of the Continuing Trustees (in which case
shareholders would have only the minimum voting rights required by the 1940 Act
with respect to the conversion). Also, the Declaration provides that the Fund
may be terminated at any time by vote or consent of at least seventy-five
percent (75%) of the Fund's shares or, alternatively, by vote or consent of both
a majority of the Trustees and seventy-five percent (75%) of the Continuing
Trustees. See "Anti-Takeover and Other Provisions in the Declaration of Trust"
in the Statement of Additional Information for a more detailed summary of these
provisions.

     The Trustees may from time to time grant other voting rights to
shareholders with respect to these and other matters in the Fund's Bylaws.

     The overall effect of these provisions is to render more difficult the
accomplishment of a merger or the assumption of control by a third party. They
provide, however, the advantage of potentially requiring persons seeking control
of the Fund to negotiate with its management regarding the price to be paid and
facilitating the continuity of the Fund's investment objective and policies. The
provisions of the Declaration described above could have the effect of depriving
the Common Shareholders of opportunities to sell their Common Shares at a
premium over the then current market price of the Common Shares by discouraging
a third party from seeking to obtain control of the Fund in a tender offer or
similar transaction. The Board of Trustees of the Fund has considered the
foregoing anti-takeover provisions and concluded that they are in the best
interests of the Fund and its Common Shareholders.

     The foregoing is intended only as a summary and is qualified in its
entirety by reference to the full text of the Declaration and the Fund's Bylaws,
both of which are on file with the Securities and Exchange Commission.

     Under Massachusetts law, shareholders could, in certain circumstances, be
held personally liable for the obligations of the Fund. However, the Declaration
contains an express disclaimer of shareholder liability for debts or obligations
of the Fund and requires that notice of such limited liability be given in each
agreement, obligation or instrument entered into or executed by the Fund or the
Trustees. The Declaration further provides for indemnification out of the assets
and property of the Fund for all loss and expense of any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The Fund believes that the likelihood of such circumstances is
remote.

            REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND

     The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Common Shares will trade in the open market at a price that will be a function
of several factors, including dividend levels (which are in turn affected by
expenses), net asset value, call protection, dividend stability, portfolio
credit quality, relative demand for and supply of such shares in the market,
general market and economic conditions and other factors. Shares of a closed-end
investment company may frequently trade at prices lower than net asset value.
The Fund's Board of Trustees regularly monitors the relationship between the
market price and net asset value of the Common Shares. If the Common Shares were
to trade at a substantial discount to net asset value for an extended period of
time, the Board may consider the repurchase of its Common Shares on the open
market or in private transactions, the making of a tender offer for such shares,
or the conversion of the Fund to an open-end investment company. The Fund cannot
assure you that its Board of Trustees will decide to take or propose any of
these actions, or that share repurchases or tender offers will actually reduce
market discount.

     If the Fund were to convert to an open-end company, it would be required to
redeem all Preferred Shares then outstanding (requiring in turn that it
liquidate a portion of its investment portfolio), and the Common Shares would no
longer be listed on the New York Stock Exchange. In contrast to a closed-end
investment company, shareholders of an open-end investment company may require
the company to redeem their shares at any time (except in certain circumstances
as authorized by or under the 1940 Act) at their net asset value, less any
redemption charge that is in effect at the time of redemption.

     Before deciding whether to take any action to convert the Fund to an
open-end investment company, the Board would consider all relevant factors,
including the extent and duration of the discount, the liquidity of the Fund's
portfolio, the impact of any action that might be taken on the Fund or its
shareholders, and market considerations. Based on these considerations, even if
the Fund's shares should trade at a discount, the Board of Trustees may
determine that, in the interest of the Fund and its shareholders, no action
should be taken. See the Statement of Additional Information under "Repurchase
of Common Shares; Conversion to Open-End Fund" for a further discussion of
possible action to reduce or eliminate such discount to net asset value.

                                       32

<PAGE>

                                   TAX MATTERS

Federal Income Tax Matters

     The following federal income tax discussion is based on the advice of Ropes
& Gray, counsel to the Fund, and reflects provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing Treasury regulations, rulings
published by the Internal Revenue Service (the "Service"), and other applicable
authority, as of the date of this prospectus. These authorities are subject to
change by legislative or administrative action, possibly with retroactive
effect. The following discussion is only a summary of some of the important tax
considerations generally applicable to investments in the Fund. For more
detailed information regarding tax considerations, see the Statement of
Additional Information. There may be other tax considerations applicable to
particular investors. In addition, income earned through an investment in the
Fund may be subject to state and local taxes.

     The Fund intends to qualify each year for taxation as a regulated
investment company eligible for treatment under the provisions of Subchapter M
of the Code. If the Fund so qualifies and satisfies certain distribution
requirements, the Fund will not be subject to federal income tax on income
distributed in a timely manner to its shareholders in the form of dividends or
capital gain distributions.

     To satisfy the distribution requirement applicable to regulated investment
companies, amounts paid as dividends by the Fund to its shareholders, including
holders of its Preferred Shares, must qualify for the dividends-paid deduction.
In certain circumstances, the Service could take the position that dividends
paid on the Preferred Shares constitute preferential dividends under Section
562(c) of the Code, and thus do not qualify for the dividends-paid deduction.

     If at any time when Preferred Shares are outstanding the Fund does not meet
applicable asset coverage requirements, it will be required to suspend
distributions to Common Shareholders until the requisite asset coverage is
restored. Any such suspension may cause the Fund to pay a 4% federal excise tax
(imposed on regulated investment companies that fail to distribute for a given
calendar year, generally, at least 98% of their net investment income and
capital gain net income) and income tax on undistributed income or gains, and
may, in certain circumstances, prevent the Fund from qualifying for treatment as
a regulated investment company. The Fund may redeem Preferred Shares in an
effort to comply with the distribution requirement applicable to regulated
investment companies and to avoid income and excise taxes.

     The Fund's investments in certain debt obligations may cause the Fund to
recognize taxable income in excess of the cash generated by such obligations.
Thus, the Fund could be required at times to liquidate other investments in
order to satisfy its distribution requirements.

     For federal income tax purposes, distributions of investment income are
taxable as ordinary income. Whether distributions of capital gains are taxed as
ordinary income or capital gains is determined by how long the Fund owned the
investments that generated such capital gains, rather than how long a
shareholder has owned his or her shares. Distributions are taxable to
shareholders even if they are paid from income or gains earned by the Fund
before a shareholder's investment (and thus were included in the price the
shareholder paid). Distributions of gains from the sale of investments that the
Fund owned for more than one year and that are properly designated by the Fund
as capital gain dividends will be taxable as capital gains. Distributions of
gains from the sale of investments that the Fund owned for one year or less will
be taxable as ordinary income. Distributions are taxable whether shareholders
receive them in cash or reinvest them in additional shares through the Dividend
Reinvestment Plan. Any gain resulting from the sale or exchange of Fund shares
generally will be taxable as capital gains.

     The Fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the Fund's yield on those securities would be
decreased. In addition, the Fund's investments in foreign securities or foreign
currencies may increase or accelerate the Fund's recognition of ordinary income
and may affect the timing or amount of the Fund's distributions.

     The backup withholding tax rate will be 30% for amounts paid during 2003 if
the Fund is required to apply backup withholding to taxable distributions
payable to a shareholder. Please see "Tax Matters" in the Statement of
Additional Information for additional information about the new backup
withholding tax rates.

     The Bush Administration has announced a proposal to reduce or eliminate the
tax on dividends; however, many of the details of the proposal (including how
the proposal would apply to dividends paid by a regulated investment company)
have not been specified. Moreover, the prospects for this proposal are unclear.
Accordingly, it is not currently possible to evaluate how this proposal might
affect the tax discussion above.

                                       33

<PAGE>

     This section relates only to federal income tax consequences of investing
in the Fund; the consequences under other tax laws may differ. You should
consult your tax advisor as to the possible application of foreign, state and
local income tax laws to Fund dividends and capital distributions. Please see
"Tax Matters" in the Statement of Additional Information for additional
information regarding the tax aspects of investing in the Fund.

                                       34

<PAGE>

                                  UNDERWRITING

     The Underwriters named below, acting through       , as lead manager, and
          as their representatives (together with the lead manager, the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement with the Fund and the Manager, to purchase from
the Fund the number of Common Shares set forth opposite their respective names.
The Underwriters are committed to purchase and pay for all of such Common Shares
(other than those covered by the over-allotment option described below) if any
are purchased.

                                                                Number of
             Underwriters                                   Common Shares
             ------------                                   -------------
                       ..................................
                       ..................................
                       ..................................
                       ..................................
                    TOTAL................................

      The Fund has granted to the Underwriters an option, exercisable for 45
days from the date of this prospectus, to purchase up to an additional    Common
Shares to cover over-allotments, if any, at the initial offering price. The
Underwriters may exercise such option solely for the purpose of covering
Underwriting over-allotments incurred in the sale of the Common Shares offered
hereby. To the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase an additional number of Common Shares proportionate to such
Underwriter's initial commitment.

      The Fund has agreed to pay a commission to the Underwriters in the amount
of up to $    per Common Share (   % of the public offering price per Common
Share). The Representatives have advised the Fund that the Underwriters may pay
up to $   per Common Share from such commission to selected dealers who sell the
Common Shares and that such dealers may reallow a concession of up to $    per
Common Share to certain other dealers who sell shares. Investors must pay for
any Common Shares purchased on or before    , 2003.

      Prior to this offering, there has been no public or private market for the
Common Shares or any other securities of the Fund. Consequently, the offering
price for the Common Shares was determined by negotiation among the Fund, the
Manager and the Representatives. There can be no assurance, however, that the
price at which Common Shares sell after this offering will not be lower than the
price at which they are sold by the Underwriters or that an active trading
market in the Common Shares will develop and continue after this offering. The
minimum investment requirement is 100 Common Shares.

      The Fund and the Manager have agreed to indemnify the several Underwriters
for or to contribute to the losses arising out of certain liabilities, including
liabilities under the Securities Act of 1933, as amended.

      The Fund has agreed not to offer, sell or register with the Securities and
Exchange Commission any equity securities of the Fund, other than issuances of
Common Shares, including pursuant to the Fund's Dividend Reinvestment Plan, and
issuances in connection with any offering of Preferred Shares, each as
contemplated in this prospectus, for a period of 180 days after the date of the
Underwriting Agreement without the prior written consent of the Representatives.

      The Representatives have informed the Fund that the Underwriters do not
intend to confirm any sales to any accounts over which they exercise
discretionary authority.

      In connection with this offering, the Underwriters may purchase and sell
Common Shares in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Shares and syndicate short positions involve
the sale by the Underwriters of a greater number of Common Shares than they are
required to purchase from the Fund in this offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the Common Shares sold in this offering
for their account, may be reclaimed by the syndicate if such Common Shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Shares, which may be higher than the price that might otherwise prevail
in the open market; and these activities, if commenced, may be discontinued at
any time without notice. These transactions may be effected on the New York
Stock Exchange or otherwise.

                                       35

<PAGE>

      The Fund anticipates that the Representatives and certain other
Underwriters may from time to time act as brokers and dealers in connection with
the execution of its portfolio transactions after they have ceased to be
Underwriters and, subject to certain restrictions, may act as such brokers while
they are Underwriters.

      In connection with this offering, certain of the Underwriters or selected
dealers may distribute prospectuses electronically.

                          CUSTODIAN AND TRANSFER AGENT

     The custodian of the assets of the Fund is             . The Custodian
performs custodial and fund accounting services.

     PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809, serves as the
Fund's transfer agent, registrar, dividend disbursement agent and shareholder
servicing agent, as well as agent for the Fund's Dividend Reinvestment Plan.

                                  LEGAL MATTERS

     Certain legal matters in connection with the Common Shares will be passed
upon for the Fund by Ropes & Gray, Boston, Massachusetts, and for the
Underwriters by may                                   rely as to certain matters
of Massachusetts law on the opinion of Ropes & Gray.

                                       36

<PAGE>

          TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<S>                                                                               <C>
Use of Proceeds .................................................................   3
Investment Objective and Policies ...............................................   3
Investment Restrictions .........................................................  38
Management of the Fund ..........................................................  40
Investment Manager and Portfolio Manager ........................................  46
Portfolio Transactions ..........................................................  50
Distributions ...................................................................  51
Description of Shares ...........................................................  52
Anti-Takeover and Other Provisions in the Declaration of Trust ..................  55
Repurchase of Common Shares; Conversion to Open-End Fund ........................  57
Tax Matters .....................................................................  58
Performance Related and Comparative Information .................................  64
Custodian, Transfer Agent and Dividend Disbursement Agent .......................  65
Independent Accountants .........................................................  65
Counsel .........................................................................  65
Registration Statement ..........................................................  66
Report of Independent Accountants ...............................................  67
Financial Statements ............................................................  68
Appendix A--Performance Related and Comparative and Other Information ........... A-1
</TABLE>

                                       37

<PAGE>

                                   APPENDIX A

                        DESCRIPTION OF SECURITIES RATINGS

     The Fund's investments may range in quality from securities rated in the
lowest category to securities rated in the highest category (as rated by Moody's
or S&P or, if unrated, determined by NACM to be of comparable quality). The
percentage of a Fund's assets invested in securities in a particular rating
category will vary. The following terms are generally used to describe the
credit quality of debt securities:

     High Quality Debt Securities are those rated in one of the two highest
rating categories (the highest category for commercial paper) or, if unrated,
deemed comparable by NACM.

     Investment Grade Debt Securities are those rated in one of the four highest
rating categories or, if unrated, deemed comparable by NACM.

     Below Investment Grade, High Yield Securities ("Junk Bonds") are those
rated lower than Baa by Moody's or BBB by S&P and comparable securities. They
are deemed predominantly speculative with respect to the issuer's ability to
repay principal and interest.

     Following is a description of Moody's and S&P's rating categories
applicable to debt securities.

Moody's Investors Service, Inc.

   Corporate and Municipal Bond Ratings

     Aaa: Bonds 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
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

     Aa: Bonds 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 that
make the long-term risks appear somewhat larger than with Aaa securities.

     A: Bonds 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
that suggest a susceptibility to impairment sometime in the future.

     Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

     Ba: Bonds 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.

     B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

     Caa: Bonds 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.

     Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

     C: Bonds 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.

                                      A-1

<PAGE>

     Moody's bond ratings, where specified, are applicable to 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 letter-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.

     Unless noted as an exception, Moody's rating on a bank's ability to repay
senior obligations extends only to branches located in countries which carry a
Moody's Sovereign Rating for Bank Deposits. Such branch obligations are rated at
the lower of the bank's rating or Moody'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'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's home country and
either the issuer's home country or the country where an issuer branch is
located are not incorporated into Moody's ratings.

     Moody's makes no representation that rated bank obligations or insurance
company obligations are exempt from registration under the U.S. Securities Act
of 1933 or issued in conformity with any other applicable law or regulation. Nor
does Moody's represent any specific bank or insurance company obligation is
legally enforceable or a valid senior obligation of a rated issuer.

     Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classified from Aa through Caa in its corporate bond rating system. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.

   Corporate Short-Term Debt Ratings

     Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.

     Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:

     PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.

    PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

    PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

    NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime
rating categories.

Standard & Poor's

   Issue Credit Rating Definitions

     A Standard & Poor'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

                                      A-2

<PAGE>

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.

     Issue credit ratings are based on current information furnished by the
obligors or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor'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.

     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--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.

     Issue credit ratings are based, in varying degrees, on the following
considerations: 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; nature of and provisions of the obligation; 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' rights.

     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.

Corporate and Municipal Bond Ratings

Investment Grade

     AAA: An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

     AA: An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

     A: An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

     BBB: An obligation rated BBB 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.

Speculative Grade

     Obligations rated BB, B, CCC, CC, and C are regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.

     BB: An obligation rated BB 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's inadequate capacity to meet its financial commitment on the
obligation.

     B: An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, 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's capacity or willingness to meet its
financial commitment on the obligation.

                                      A-3

<PAGE>

     CCC: An obligation rated CCC 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.

     CC: An obligation rated CC is currently highly vulnerable to nonpayment.

     C: A subordinated debt or preferred stock obligation rated C is CURRENTLY
HIGHLY VULNERABLE to nonpayment. The C rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A C also will be assigned to a preferred
stock issue in arrears on dividends or sinking fund payments, but that is
currently paying.

     CI: The rating CI is reserved for income bonds on which no interest is
being paid.

     D: An obligation rated D is in payment default. The D 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 & Poor's believes that
such payments will be made during such grace period. The D 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.

     Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

     Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.

     r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

     The absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.

     N.R.: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.

     Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Commercial Paper Rating Definitions

     A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from A for the
highest quality obligations to D for the lowest. These categories are as
follows:

     A-1: A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.

     A-2: A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

     A-3: A short-term obligation rated A-3 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.

                                      A-4

<PAGE>

     B: A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.

     C: A short-term obligation rated C 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.

     D: A short-term obligation rated D is in payment default. The D 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 & Poor's
believes that such payments will be made during such grace period. The D 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.

     A commercial paper rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
Standard & Poor's by the issuer or obtained from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.

                                      A-5

<PAGE>


================================================================================



                                     Shares


                                      LOGO


                  Nicholas-Applegate Convertible & Income Fund


                                  Common Shares


                                  ----------
                                  PROSPECTUS
                                  ----------



                                     , 2003


================================================================================

<PAGE>

     The information in this Statement of Additional Information 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
Statement of Additional Information 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.

                 SUBJECT TO COMPLETION - DATED           , 2003

                  NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND

                       STATEMENT OF ADDITIONAL INFORMATION

                                        , 2003

     Nicholas-Applegate Convertible & Income Fund (the "Fund") is a newly
organized, diversified closed-end management investment company.

     This Statement of Additional Information relating to common shares of the
Fund ("Common Shares") is not a prospectus, and should be read in conjunction
with the Fund's prospectus relating thereto dated                  , 2003 (the
"Prospectus"). This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing Common
Shares, and investors should obtain and read the Prospectus prior to purchasing
such shares. A copy of the Prospectus may be obtained without charge by calling
(800) 331-1710. You may also obtain a copy of the Prospectus on the web site
(http://www.sec.gov) of the Securities and Exchange Commission ("SEC").
Capitalized terms used but not defined in this Statement of Additional
Information have the meanings ascribed to them in the Prospectus.

                                       -1-

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<S>                                                                            <C>
USE OF PROCEEDS ...........................................................    3
INVESTMENT OBJECTIVE AND POLICIES .........................................    3
INVESTMENT RESTRICTIONS ...................................................   31
MANAGEMENT OF THE FUND ....................................................   33
INVESTMENT MANAGER AND PORTFOLIO MANAGER ..................................   42
PORTFOLIO TRANSACTIONS ....................................................   46
DISTRIBUTIONS .............................................................   48
DESCRIPTION OF SHARES .....................................................   49
ANTI-TAKEOVER AND OTHER PROVISIONS IN THE DECLARATION OF TRUST ............   52
REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND ..................   54
TAX MATTERS ...............................................................   56
PERFORMANCE RELATED AND COMPARATIVE INFORMATION ...........................   64
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSEMENT AGENT .................   64
INDEPENDENT ACCOUNTANTS ...................................................   77
COUNSEL ...................................................................   65
REGISTRATION STATEMENT ....................................................   65
REPORT OF INDEPENDENT ACCOUNTANTS .........................................   66
FINANCIAL STATEMENTS ......................................................   67
APPENDIX A - Performance Related and Comparative and Other Information ....  A-1
</TABLE>

      This Statement of Additional Information is dated            , 2003.

                                       -2-

<PAGE>

                                 USE OF PROCEEDS

     The net proceeds of the offering of Common Shares of the Fund will be
approximately $      (or $      if the Underwriters exercise the over-allotment
option in full) after payment of organization and offering costs.

     On behalf of the Fund, PIMCO Advisors Fund Management LLC (the "Manager"),
the Fund's investment manager, has agreed to pay the amount by which the
aggregate of all of the Fund's organizational expenses and all offering costs
(other than the sales load) exceeds $0.03 per Common Share.

     Pending investment in convertible securities, non-convertible
income-producing securities and other securities that meet the Fund's investment
objective and policies, it is anticipated that the net proceeds of the offering
will be invested in high quality, short-term securities.

                        INVESTMENT OBJECTIVE AND POLICIES

     The investment objective and general investment policies of the Fund are
described in the Prospectus. Additional information concerning the
characteristics of certain of the Fund's investments is set forth below.

Convertible Securities

     The Fund may invest without limit in convertible securities, and these
securities will ordinarily constitute a principal component of the Fund's
investment program. Convertible securities are bonds, debentures, notes,
preferred stocks or other securities that may be converted or exchanged (by the
holder or by the issuer) into shares of the underlying common stock (or cash or
securities of equivalent value) at a stated exchange ratio or predetermined
price (the "conversion price"). A convertible security may also be called for
redemption or conversion by the issuer after a particular date and under certain
circumstances (including a specified price) established upon issue. If a
convertible security held by the Fund is called for redemption or conversion,
the Fund could be required to tender it for redemption, convert it into the
underlying common stock, or sell it to a third party, which may have an adverse
effect on the Fund's ability to achieve its investment objective. Convertible
securities have general characteristics similar to both debt and equity
securities.

     A convertible security generally entitles the holder to receive interest
paid or accrued until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities rank senior to common stock in a
corporation's capital structure and, therefore, generally entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a debt obligation. Before conversion,
convertible securities have characteristics similar to non-convertible debt
obligations and can provide for a stable stream of income with generally higher
yields than common stocks. However, there can be no assurance of current income
because the issuers of the convertible securities may default on their

                                       -3-

<PAGE>

obligations. In addition, convertible securities are often lower-rated
securities. See "--High Yield Securities" below.

     Convertible securities generally offer lower interest or dividend yields
than non-convertible securities of similar credit quality because of the
potential for capital appreciation. A convertible security, in addition to
providing current income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. The common stock underlying
convertible securities may be issued by a different entity than the issuer of
the convertible securities.

     The value of convertible securities is influenced by both the yield of
non-convertible securities of comparable issuers and by the value of the
underlying common stock. The value of a convertible security viewed without
regard to its conversion feature (i.e., strictly on the basis of its yield) is
sometimes referred to as its "investment value." The investment value of the
convertible security typically will fluctuate based on the credit quality of the
issuer and will fluctuate inversely with changes in prevailing interest rates.
However, at the same time, the convertible security will be influenced by its
"conversion value," which is the market value of the underlying common stock
that would be obtained if the convertible security were converted. Conversion
value fluctuates directly with the price of the underlying common stock, and
will therefore be subject to risks relating to the activities of the issuer
and/or general market and economic conditions. Depending upon the relationship
of the conversion price to the market value of the underlying security, a
convertible security may trade more like an equity security than a debt
instrument.

     If, because of a low price of the common stock, the conversion value is
substantially below the investment value of the convertible security, the price
of the convertible security is governed principally by its investment value. If
the conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the value of the security will be
principally influenced by its conversion value. A convertible security will sell
at a premium over its conversion value to the extent investors place value on
the right to acquire the underlying common stock while holding a fixed income
security.

Synthetic Convertible Securities

     NACM may also create a "synthetic" convertible security by combining
separate securities that possess the two principal characteristics of a true
convertible security, i.e., a fixed-income security ("fixed-income component")
and the right to acquire an equity security ("convertible component"). The
fixed-income component is achieved by investing in non-convertible, fixed-income
securities such as bonds, preferred stocks and money market instruments. The
convertible component is achieved by investing in warrants or options to buy
common stock at a certain exercise price, or options on a stock index. Unlike a
true convertible security, which is a single security having a unitary market
value, a synthetic convertible comprises two or more separate securities, each
with its own market value. Therefore, the "market value" of a synthetic
convertible security is the sum of the values of its fixed-income component and
its convertible component. For this reason, the values of a synthetic
convertible security and a true convertible security may respond differently to
market fluctuations.

                                       -4-

<PAGE>

     More flexibility is possible in the assembly of a synthetic convertible
security than in the purchase of a convertible security. Although synthetic
convertible securities may be selected where the two components are issued by a
single issuer, thus making the synthetic convertible security similar to the
true convertible security, the character of a synthetic convertible security
allows the combination of components representing distinct issuers, when NACM
believes that such a combination would better promote the Fund's investment
objective. A synthetic convertible security also is a more flexible investment
in that its two components may be purchased separately. For example, the Fund
may purchase a warrant for inclusion in a synthetic convertible security but
temporarily hold short-term investments while postponing the purchase of a
corresponding bond pending development of more favorable market conditions.

     A holder of a synthetic convertible security faces the risk of a decline in
the price of the security or the level of the index involved in the convertible
component, causing a decline in the value of the call option or warrant
purchased to create the synthetic convertible security. Should the price of the
stock fall below the exercise price and remain there throughout the exercise
period, the entire amount paid for the call option or warrant would be lost.
Because a synthetic convertible security includes the fixed-income component as
well, the holder of a synthetic convertible security also faces the risk that
interest rates will rise, causing a decline in the value of the fixed-income
instrument.

     The Fund may also purchase synthetic convertible securities created by
other parties, including convertible structured notes. Convertible structured
notes are fixed income debentures linked to equity, and are typically issued by
investment banks. Convertible structured notes have the attributes of a
convertible security; however, the investment bank that issued the convertible
note, rather than the issuer of the underlying common stock into which the note
is convertible, assumes the credit risk associated with the investment.

     The Fund's holdings of synthetic convertible securities are considered
convertible securities for purposes of the Fund's policy to invest at least 50%
of its assets in convertible securities and 80% of its total assets in a
diversified portfolio of convertible and non-convertible income-producing
securities.

Warrants to Purchase Securities

     The Fund may invest in warrants to purchase debt securities or equity
securities, particularly in connection with its investments in synthetic
convertible securities. A warrant to purchase equity securities is a right to
purchase common stock at a specific price (usually at a premium above the market
value of the underlying common stock at time of issuance) during a specified
period of time. Such a warrant may have a life ranging from less than a year to
twenty years or longer, but the warrant becomes worthless unless it is exercised
or sold before expiration. In addition, if the market price of the common stock
does not exceed an equity security warrant's exercise price during the life of
the warrant, the warrant will expire worthless. Equity security warrants have no
voting rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. The percentage increase or decrease in the value
of an equity security warrant may be greater than the percentage increase or
decrease in the value of the underlying common stock.

                                       -5-

<PAGE>

     Debt obligations with warrants attached to purchase equity securities have
many characteristics of convertible securities and their prices may, to some
degree, reflect the performance of the underlying stock. Debt obligations also
may be issued with warrants attached to purchase additional debt securities at
the same coupon rate. A decline in interest rates would permit the Fund to buy
additional bonds at the favorable rate or to sell such warrants at a profit. If
interest rates rise, these warrants would generally expire with no value.

Options on Securities and Indexes

     In connection with its investments in synthetic convertible securities, the
Fund may purchase call options on common stocks and call options on stock
indexes. The Fund may purchase call options on common stocks or stock indexes in
standardized contracts traded on domestic or other securities exchanges, boards
of trade, or similar entities, or quoted on NASDAQ or on an over-the-counter
market.

     A call option on a security (or an index) is a contract that gives the
holder of the option, in return for a premium, the right to buy from the writer
of the option the security underlying the option (or the cash value of the
index) at a specified exercise price at any time during the term of the option.
The writer of an option on a security has the obligation upon exercise of the
option to deliver the underlying security upon payment of the exercise price.
Upon exercise, the writer of an option on an index is obligated to pay the
difference between the cash value of the index and the exercise price multiplied
by the specified multiplier for the index option. (An index is designed to
reflect features of a particular securities market, a specific group of
financial instruments or securities, or certain economic indicators.)

     If an option purchased by the Fund expires unexercised, the Fund realizes a
capital loss equal to the premium paid. Prior to the earlier of exercise or
expiration, an exchange-traded option may be closed out by an offsetting
purchase or sale of an option of the same series (type, exchange, underlying
security or index, exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when the
Fund desires.

     The Fund may sell call options it has previously purchased, which could
result in a net gain or loss depending on whether the amount realized on the
sale is more or less than the premium and other transaction costs paid on the
call option which is sold. The principal factors affecting the market value of a
call option include supply and demand, interest rates, the current market price
of the underlying security or index in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.

     The premium paid for a call option purchased by the Fund is an asset of the
Fund. The value of an option purchased is marked to market daily and is valued
at the closing price on the exchange on which it is traded or, if not traded on
an exchange or no closing price is available, at the mean between the last bid
and asked prices.

     There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given

                                       -6-

<PAGE>

transaction not to achieve its objectives. A decision as to whether, when and
how to use options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.

     If a call option purchased by the Fund is not sold when it has remaining
value, and if the market price of the underlying security remains less than or
equal to the exercise price, the Fund will lose its entire investment in the
option.

     There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option may expire worthless.

     If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased.

High Yield Securities

     As described under "The Fund's Investment Objective and Strategies" in the
Prospectus, the Fund may invest without limit in securities rated lower than Baa
by Moody's or BBB by S&P, or in securities that are unrated but judged to be of
comparable quality by NACM, and ordinarily expects to invest a substantial
portion of its assets in these securities. These securities are sometimes
referred to as "high yield" securities or "junk bonds."

     Investments in high yield securities generally provide greater income and
increased opportunity for capital appreciation than investments in higher
quality 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 predominantly speculative with
respect to the issuer's continuing ability to meet principal and interest
payments. Securities in the lowest investment grade category also may be
considered to possess some speculative characteristics by certain rating
agencies. In addition, analysis of the creditworthiness of issuers of high yield
securities may be more complex than for issuers of higher quality securities.

     High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high yield security prices because the advent
of a recession could lessen the ability of an issuer to make principal and
interest payments on its debt obligations. If an issuer of high yield securities
defaults, in addition to risking payment of all or a portion of interest and
principal, the Fund may incur additional expenses to seek recovery. In the case
of high yield securities structured as zero-coupon, step-up or payment-in-kind
securities, their market prices will normally be affected to a greater extent by
interest rate changes, and therefore tend to be more volatile than securities
which pay interest currently and in cash. NACM seeks to reduce these risks
through diversification, credit analysis and attention to current developments
and trends in both the economy and financial markets.

                                       -7-

<PAGE>

     The secondary market on which high yield securities are traded may be less
liquid than the market for investment grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Fund
could sell a high yield security, and could adversely affect the daily net asset
value of the shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of high
yield securities, especially in a thinly traded market. When secondary markets
for high yield securities are less liquid than the market for investment grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
During periods of thin trading in these markets, the spread between bid and
asked prices is likely to increase significantly and the Fund may have greater
difficulty selling its portfolio securities. The Fund will be more dependent on
NACM's research and analysis when investing in high yield securities. NACM seeks
to minimize the risks of investing in all securities through in-depth credit
analysis and attention to current developments in interest rates and market
conditions.

     A general description of the ratings of securities by Moody's and S&P is
set forth in Appendix A to the Prospectus. The ratings of Moody's and S&P
represent their opinions as to the quality of the securities they rate. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, in the case of debt obligations, certain
debt obligations with the same maturity, coupon and rating may have different
yields while debt obligations with the same maturity and coupon with different
ratings may have the same yield. For these reasons, the use of credit ratings as
the sole method of evaluating high yield securities can involve certain risks.
For example, credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield securities. Also, credit
rating agencies may fail to change credit ratings in a timely fashion to reflect
events since the security was last rated. NACM does not rely solely on credit
ratings when selecting securities for the Fund, and develops its own independent
analysis of issuer credit quality.

     The Fund's credit quality policies apply only at the time a security is
purchased, and the Fund is not required to dispose of a security in the event
that a rating agency or NACM downgrades its assessment of the credit
characteristics of a particular issue. In determining whether to retain or sell
such a security, NACM may consider such factors as NACM's assessment of the
credit quality of the issuer of such security, the price at which such security
could be sold and the rating, if any, assigned to such security by other rating
agencies. However, analysis of the creditworthiness of issuers of high yield
securities may be more complex than for issuers of higher quality debt
securities.

Corporate Bonds

     The Fund may invest in a wide variety of bonds and related debt obligations
of varying maturities issued by U.S. and foreign corporations (including banks)
and other business entities. Bonds are fixed or variable rate debt obligations,
including bills, notes, debentures, money market instruments and similar
instruments and securities. Bonds generally are used by corporations and other
issuers to borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest and normally must repay the amount borrowed on or
before maturity. Certain bonds are "perpetual" in that they have no maturity
date. The Fund may invest

                                       -8-

<PAGE>

up to 25% of its total assets in securities of foreign issuers, including
corporate debt securities of foreign issuers in accordance with the Fund's
investment objective and policies as described in the Prospectus. See "--Foreign
(Non-U.S.) Securities" below. The Fund may also invest without limit in
corporate bonds that are below investment grade quality. See "--High Yield
Securities" above.

     The Fund's investments in corporate bonds are subject to a number of risks
described in the Prospectus and elaborated upon elsewhere in this section of the
Statement of Additional Information, including interest rate risk, credit risk,
high yield risk, issuer risk, foreign (non-U.S.) investment risk, inflation
risk, liquidity risk, smaller company risk and management risk.

Commercial Paper

     Commercial paper represents short-term unsecured promissory notes issued in
bearer form by corporations such as banks or bank holding companies and finance
companies. The Fund may invest in commercial paper of any credit quality
consistent with the Fund's investment objective and policies, including unrated
commercial paper for which NACM has made a credit quality assessment. See
Appendix A to the Prospectus for a description of the ratings assigned by
Moody's and S&P to commercial paper. The rate of return on commercial paper may
be linked or indexed to the level of exchange rates between the U.S. dollar and
a foreign currency or currencies.

Preferred Stock

     Preferred stock represents an equity interest in a company that generally
entitles the holder to receive, in preference to the holders of other stocks
such as common stocks, dividends and a fixed share of the proceeds resulting
from a liquidation of the company. Some preferred stocks also entitle their
holders to receive additional liquidation proceeds on the same basis as holders
of a company's common stock, and thus also represent an ownership interest in
that company. The Fund's investments in preferred stocks typically will be
convertible securities, although the Fund may also invest in non-convertible
preferred stocks.

     As described below, the Fund may invest in preferred stocks that pay fixed
or adjustable rates of return. The value of a company's preferred stock may fall
as a result of factors relating directly to that company's products or services.
A preferred stock's value may also fall because of factors affecting not just
the company, but companies in the same industry or in a number of different
industries, such as increases in production costs. The value of preferred stock
may also be affected by changes in financial markets that are relatively
unrelated to the company or its industry, such as changes in interest rates or
currency exchange rates. In addition, a company's preferred stock generally pays
dividends only after the company makes required payments to holders of its bonds
and other debt. For this reason, the value of the preferred stock will usually
react more strongly than bonds and other debt to actual or perceived changes in
the company's financial condition or prospects. Preferred stocks of smaller
companies may be more vulnerable to adverse developments than those of larger
companies.

     Fixed Rate Preferred Stocks. Some fixed rate preferred stocks in which the
Fund may invest, known as perpetual preferred stocks, offer a fixed return with
no maturity date. Because

                                       -9-

<PAGE>

they never mature, perpetual preferred stocks act like long-term bonds and can
be more volatile than other types of preferred stocks that have a maturity date
and may have heightened sensitivity to changes in interest rates. The Fund may
also invest in sinking fund preferred stocks. These preferred stocks also offer
a fixed return, but have a maturity date and are retired or redeemed on a
predetermined schedule. The shorter duration of sinking fund preferred stocks
makes them perform somewhat like intermediate-term bonds and they typically have
lower yields than perpetual preferred stocks.

     Adjustable Rate and Auction Preferred Stocks. Typically, the dividend rate
on an adjustable rate preferred stock is determined prospectively each quarter
by applying an adjustment formula established at the time of issuance of the
stock. Although adjustment formulas vary among issues, they typically involve a
fixed premium or discount relative to rates on specified debt securities issued
by the U.S. Treasury. Typically, an adjustment formula will provide for a fixed
premium or discount adjustment relative to the highest base yield of three
specified U.S. Treasury securities: the 90-day Treasury bill, the 10-year
Treasury note and the 20-year Treasury bond. The premium or discount adjustment
to be added to or subtracted from this highest U.S. Treasury base rate yield is
fixed at the time of issue and cannot be changed without the approval of the
holders of the stock. The dividend rate on other preferred stocks in which the
Fund may invest, commonly known as auction preferred stocks, is adjusted at
intervals that may be more frequent than quarterly, such as every 49 days, based
on bids submitted by holders and prospective purchasers of such stocks and may
be subject to stated maximum and minimum dividend rates. The issues of most
adjustable rate and auction preferred stocks currently outstanding are
perpetual, but are redeemable after a specified date at the option of the
issuer. Certain issues supported by the credit of a high-rated financial
institution provide for mandatory redemption prior to expiration of the credit
arrangement. No redemption can occur if full cumulative dividends are not paid.
Although the dividend rates on adjustable and auction preferred stocks are
generally adjusted or reset frequently, the market values of these preferred
stocks may still fluctuate in response to changes in interest rates. Market
values of adjustable preferred stocks also may substantially fluctuate if
interest rates increase or decrease once the maximum or minimum dividend rate
for a particular stock is approached.

Investments in Equity Securities

     Consistent with its investment objective, the Fund may invest in equity
securities. The Fund will often have substantial exposure to equity securities
by virtue of the equity component of the convertible securities in which the
Fund invests. The Fund may also hold equity securities in its portfolio upon
conversion of a convertible security or through direct investment in these
securities. Equity securities, such as common stock, generally represent an
ownership interest in a company. Although equity securities have historically
generated higher average returns than debt securities, equity securities have
also experienced significantly more volatility in those returns. An adverse
event, such as an unfavorable earnings report, may depress the value of a
particular equity security held by the Fund. Also, the price of an equity
security, particularly a common stock, is sensitive to general movements in the
stock market. A drop in the stock market may depress the price of equity
securities held by the Fund.

                                       -10-

<PAGE>

Bank Obligations

     Bank obligations in which the Fund may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates that are issued against funds deposited in a
commercial bank for a definite period of time and that earn a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are generally no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. The Fund may also hold funds on deposit with its custodian bank in an
interest-bearing account for temporary purposes.

     The Fund may invest up to 25% of its total assets in U.S. dollar- and
foreign currency-denominated obligations of foreign banks. Obligations of
foreign banks involve certain risks associated with investing in foreign
securities described under "--Foreign (Non-U.S.) Securities" below, including
the possibilities that their liquidity could be impaired because of future
political and economic developments, that their obligations may be less
marketable than comparable obligations of U.S. banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
U.S. banks. Foreign banks are not generally subject to examination by any U.S.
Government agency or instrumentality.

Loan Participations and Assignments

     The Fund may purchase participations in commercial loans. Such indebtedness
may be secured or unsecured. Loan participations typically represent direct
participations in a loan to a corporate borrower, and generally are offered by
banks or other financial institutions or lending syndicates. The Fund may
participate in such syndications, or can buy part of a loan, becoming a part
lender. When purchasing loan participations, the Fund assumes the credit risk
associated with the corporate borrower and may assume the credit risk associated
with an interposed bank or other financial intermediary. The participation
interests in which the Fund intends to invest may not be rated by any nationally
recognized rating service. Given the current structure of the markets for loan
participations and assignments, the Fund expects to treat these securities as
illiquid.

     A loan is often administered by an agent bank acting as agent for all
holders. The agent bank administers the terms of the loan, as specified in the
loan agreement. In addition, the agent bank is normally responsible for the
collection of principal and interest payments from the

                                       -11-

<PAGE>

corporate borrower and the apportionment of these payments to the credit of all
institutions which are parties to the loan agreement. Unless, under the terms of
the loan or other indebtedness, the Fund has direct recourse against the
corporate borrower, the Fund may have to rely on the agent bank or other
financial intermediary to apply appropriate credit remedies against a corporate
borrower.

     A financial institution's employment as agent bank might be terminated in
the event that it fails to observe a requisite standard of care or becomes
insolvent. A successor agent bank would generally be appointed to replace the
terminated agent bank, and assets held by the agent bank under the loan
agreement should remain available to holders of such indebtedness. However, if
assets held by the agent bank for the benefit of the Fund were determined to be
subject to the claims of the agent bank's general creditors, the Fund might
incur certain costs and delays in realizing payment on a loan or loan
participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance
company or government agency) similar risks may arise.

     Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the corporate borrower for payment of principal and
interest. If the Fund does not receive scheduled interest or principal payments
on such indebtedness, the Fund's share price and yield could be adversely
affected. Loans that are fully secured offer the Fund more protection than an
unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the corporate borrower's obligation, or that the collateral
can be liquidated.

     The Fund may invest in loan participations with credit quality comparable
to that of issuers of its securities investments. Indebtedness of companies
whose creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Some companies may never pay off their indebtedness, or may
pay only a small fraction of the amount owed. Consequently, when investing in
indebtedness of companies with poor credit, the Fund bears a substantial risk of
losing the entire amount invested.

     The Fund limits the amount of its total assets that it will invest in any
one issuer or in issuers within the same industry (see "Investment
Restrictions"). For purposes of these limits, the Fund generally will treat the
corporate borrower as the "issuer" of indebtedness held by the Fund. In the case
of loan participations where a bank or other lending institution serves as a
financial intermediary between the Fund and the corporate borrower, if the
participation does not shift to the Fund the direct debtor-creditor relationship
with the corporate borrower, SEC interpretations require the Fund to treat both
the lending bank or other lending institution and the corporate borrower as
"issuers" for the purposes of determining whether the Fund has invested more
than 5% of its total assets in a single issuer. Treating a financial
intermediary as an issuer of indebtedness may restrict the Fund's ability to
invest in indebtedness related to a single financial intermediary, or a group of
intermediaries engaged in the same industry, even if the underlying borrowers
represent many different companies and industries.

     Loans and other types of direct indebtedness may not be readily marketable
and may be subject to restrictions on resale. In some cases, negotiations
involved in disposing of indebtedness may require weeks to complete.
Consequently, some indebtedness may be difficult

                                       -12-

<PAGE>

or impossible to dispose of readily at what NACM believes to be a fair price. In
addition, valuation of illiquid indebtedness involves a greater degree of
judgment in determining the Fund's net asset value than if that value were based
on available market quotations, and could result in significant variations in
the Fund's daily share price. At the same time, some loan interests are traded
among certain financial institutions and accordingly may be deemed liquid. As
the market for different types of indebtedness develops, the liquidity of these
instruments is expected to improve. In addition, the Fund currently intends to
treat indebtedness for which there is no readily available market as illiquid
for purposes of the Fund's limitation on illiquid investments. Investments in
loan participations are considered to be debt obligations for purposes of the
Fund's investment restriction relating to the lending of funds or assets.

     Investments in loans through a direct assignment of the financial
institution's interests with respect to the loan may involve additional risks to
the Fund. For example, if a loan is foreclosed, the Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that,
under emerging legal theories of lender liability, the Fund could be held liable
as co-lender. It is unclear whether loans and other forms of direct indebtedness
offer securities law protections against fraud and misrepresentation. In the
absence of definitive regulatory guidance, the Fund relies on NACM's research in
an attempt to avoid situations where fraud or misrepresentations could adversely
affect the Fund.

Zero-Coupon Bonds, Step-Ups and Payment-In-Kind Securities

     Zero-coupon securities are debt obligations that do not entitle the holder
to any periodic payments of interest either for the entire life of the
obligation or for an initial period after the issuance of the obligations. Like
zero-coupon bonds, "step-up" bonds pay no interest initially but eventually
begin to pay a coupon rate prior to maturity, which rate may increase at stated
intervals during the life of the security. Payment-in-kind securities ("PIKs")
pay dividends or interest in the form of additional securities of the issuer,
rather than in cash. Each of these instruments is typically issued and traded at
a deep discount from its face amount. The amount of the discount varies
depending on such factors as the time remaining until maturity of the
securities, prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. The market prices of zero-coupon bonds,
step-ups and PIKs generally are more volatile than the market prices of debt
instruments that pay interest currently and in cash and are likely to respond to
changes in interest rates to a greater degree than do other types of securities
having similar maturities and credit quality. In order to satisfy a requirement
for qualification as a "regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"), an investment company, such as the Fund,
must distribute each year at least 90% of its net investment income, including
the original issue discount accrued on zero-coupon bonds, step-ups and PIKs.
Because the Fund will not on a current basis receive cash payments from the
issuer of these securities in respect of any accrued original issue discount, in
some years the Fund may have to distribute cash obtained from selling other
portfolio holdings of the Fund. In some circumstances, such sales might be
necessary in order to satisfy cash distribution requirements even though
investment considerations might otherwise make it undesirable for the Fund to
sell securities at such time. Under many market conditions, investments in
zero-coupon bonds, step-ups and PIKs may be illiquid, making it difficult for
the Fund to dispose of them or determine their current value.

                                       -13-

<PAGE>

Foreign (Non-U.S.) Securities

     The Fund may invest up to 25% of its total assets in U.S. dollar- or
foreign currency-denominated securities of foreign issuers, and may invest a
portion of those assets in securities of issuers based in or securities
denominated in the currencies of developing or "emerging market" countries. For
this purpose, foreign securities include, but are not limited to, both U.S.
dollar- or foreign currency-denominated securities of foreign issuers, including
foreign convertible securities and non-convertible income-producing securities,
foreign equity securities (including preferred securities of foreign issuers),
foreign bank obligations, and U.S. dollar- or foreign currency-denominated
obligations of foreign governments or their subdivisions, agencies and
instrumentalities, international agencies and supranational entities. For this
purpose, foreign securities do not include American Depository Receipts ("ADRs")
or securities guaranteed by a United States person, but may include foreign
securities in the form of European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") or other securities representing underlying shares
of foreign issuers.

     ADRs are U.S. dollar-denominated receipts issued generally by domestic
banks and represent the deposit with the bank of a security of a foreign issuer.
EDRs are foreign currency-denominated receipts similar to ADRs and are issued
and traded in Europe, and are publicly traded on exchanges or over-the-counter
in the United States. GDRs may be offered privately in the United States and
also trade in public or private markets in other countries. ADRs, EDRs and GDRs
may be issued as sponsored or unsponsored programs. In sponsored programs, an
issuer has made arrangements to have its securities trade in the form of ADRs,
EDRs or GDRs. In unsponsored programs, the issuer may not be directly involved
in the creation of the program. Although regulatory requirements with respect to
sponsored and unsponsored programs are generally similar, in some cases it may
be easier to obtain financial information from an issuer that has participated
in the creation of a sponsored program.

     Other dollar-denominated foreign securities in which the Fund may invest
include Eurodollar obligations and "Yankee Dollar" obligations. Eurodollar
obligations are U.S. dollar-denominated certificates of deposit and time
deposits issued outside the U.S. capital markets by foreign branches of U.S.
banks and by foreign banks. Yankee Dollar obligations are U.S.
dollar-denominated obligations issued in the U.S. capital markets by foreign
banks. Eurodollar and Yankee Dollar obligations are generally subject to the
same risks that apply to domestic debt issues, notably credit risk, market risk
and liquidity risk. Additionally, Eurodollar (and to a limited extent, Yankee
Dollar) obligations are subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital, in the form of U.S.
dollars, from flowing across its borders. Other risks include adverse political
and economic developments; the extent and quality of government regulation of
financial markets and institutions; the imposition of foreign withholding taxes;
and the expropriation or nationalization of foreign issuers.

     The Fund also may invest in Brady Bonds. Brady Bonds are securities created
through the exchange of existing commercial bank loans to sovereign entities for
new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas
F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been
implemented in a number of countries, including: Argentina, Bolivia, Brazil,

                                       -14-

<PAGE>

Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Niger,
Nigeria, Panama, Peru, the Philippines, Poland, Uruguay, and Venezuela.

     Brady Bonds may be collateralized or uncollateralized, are issued in
various currencies (primarily the U.S. dollar) and are actively traded in the
over-the-counter secondary market. Brady Bonds are not considered to be U.S.
Government securities. U.S. dollar-denominated, collateralized Brady Bonds,
which may be fixed rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal by U.S. Treasury zero-coupon bonds having
the same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized on a one-year or longer rolling-forward basis by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (the uncollateralized amounts constitute the "residual
risk").

     Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero-coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have repayments at final
maturity collateralized by U.S. Treasury zero-coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.

     Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds. There can be no assurance that Brady
Bonds in which the Fund may invest will not be subject to restructuring
arrangements or to requests for new credit, which may cause the Fund to suffer a
loss of interest or principal on any of its holdings.

     Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
include: differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country), political instability which can
affect U.S. investments in foreign countries and potential restrictions on the
flow of international capital. In addition, foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
taxes withheld from payments on those securities. Foreign securities often trade
with less frequency and volume than domestic securities and therefore may
exhibit

                                       -15-

<PAGE>

greater price volatility. Changes in foreign exchange rates will affect the
value of those securities which are denominated or quoted in currencies other
than the U.S. dollar.

     Emerging Market Securities. The risks of investing in foreign securities
are particularly high when securities of issuers based in or denominated in
currencies of developing (or "emerging market") countries are involved.
Investing in emerging market countries involves certain risks not typically
associated with investing in U.S. securities, and imposes risks greater than, or
in addition to, risks of investing in foreign, developed countries. These risks
include: greater risks of nationalization or expropriation of assets or
confiscatory taxation; currency devaluations and other currency exchange rate
fluctuations; greater social, economic and political uncertainty and instability
(including the risk of war); more substantial government involvement in the
economy; less government supervision and regulation of the securities markets
and participants in those markets; controls on foreign investment and
limitations on repatriation of invested capital and on the Fund's ability to
exchange local currencies for U.S. dollars; unavailability of currency hedging
techniques in certain emerging market countries; the fact that companies in
emerging market countries may be smaller, less seasoned and newly organized
companies; the difference in, or lack of, auditing and financial reporting
standards, which may result in unavailability of material information about
issuers; the risk that it may be more difficult to obtain and/or enforce a
judgment in a court outside the United States; and greater price volatility,
substantially less liquidity and significantly smaller market capitalization of
securities markets. In addition, a number of emerging market countries restrict,
to various degrees, foreign investment in securities, and high rates of
inflation and rapid fluctuations in inflation rates have had, and may continue
to have, negative effects on the economies and securities markets of certain
emerging market countries. Also, any change in the leadership or politics of
emerging market countries, or the countries that exercise a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and adversely affect
existing investment opportunities.

     Sovereign Debt. Investment in sovereign debt can involve a high degree of
risk. The governmental entity that controls the repayment of sovereign debt may
not be able or willing to repay the principal and/or interest when due in
accordance with the terms of the debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole,
the governmental entity's policy toward the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also depend on expected disbursements from foreign
governments, multilateral agencies and others to reduce principal and interest
arrearages on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a
governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Fund) may be requested to participate
in the rescheduling of such debt and to extend further loans to

                                       -16-

<PAGE>

governmental entities. There is no bankruptcy proceeding by which sovereign debt
on which governmental entities have defaulted may be collected in whole or in
part.

     The Fund's investments in foreign currency-denominated income-producing
securities and hedging activities, if any, will likely produce a difference
between its book income and its taxable income. This difference may cause a
portion of the Fund's income distributions to constitute returns of capital for
tax purposes or require the Fund to make distributions exceeding book income to
qualify as a regulated investment company for federal tax purposes.

Foreign Currency Exchange-Related Securities

     Foreign Currency Warrants. Foreign currency warrants, such as Currency
Exchange Warrants(SM) ("CEWs(SM)"), are warrants that entitle their holders to
receive from their issuer an amount of cash (generally, for warrants issued in
the United States, in U.S. dollars) that is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified foreign
currency and the U.S. dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of
a specific date and time. Foreign currency warrants have been issued in
connection with U.S. dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk that, from
the point of view of the prospective purchasers of the securities, is inherent
in the international debt obligation marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplement payment in the event that the U.S.
dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time values" of the warrants (i.e., the difference between the
current market value and the exercise value of the warrants), and, if the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by the OCC, the
terms of foreign exchange warrants generally will not be amended in the event of
government or regulatory actions affecting exchange rates or in the event of the
imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is
generally considerably in excess

                                       -17-

<PAGE>

of the price that a commercial user of foreign currencies might pay in the
interbank market for a comparable option involving significantly larger amounts
of foreign currencies. Foreign currency warrants are subject to significant
foreign exchange risk, including risks arising from complex political or
economic factors.

     Principal Exchange Rate Linked Securities. Principal exchange rate linked
securities ("PERLs(SM)") are debt obligations the principal on which is payable
at maturity in an amount that may vary based on the exchange rate between the
U.S. dollar and a particular foreign currency at or about that time. The return
on "standard" principal exchange rate linked securities is enhanced if the
foreign currency to which the security is linked appreciates against the U.S.
dollar, and is adversely affected by increases in the foreign exchange value of
the U.S. dollar; "reverse" principal exchange rate linked securities are like
"standard" securities, except that their return is enhanced by increases in the
value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchaser of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based on the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.

     Performance Indexed Paper. Performance indexed paper ("PIPs(SM)") is U.S.
dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on performance
indexed paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is below,
and a potential maximum rate of return that is above, market yields on U.S.
dollar-denominated commercial paper, with both the minimum and maximum rates of
return on the investment corresponding to the minimum and maximum values of the
spot exchange rate two business days prior to maturity.

Real Estate Investment Funds ("REITs")

     REITs are pooled investment vehicles which invest primarily in
income-producing real estate or real estate related loans or interests. REITs
are generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. REITs are not taxed on income distributed to shareholders provided
they comply with the applicable requirements of the Code. The Fund will
indirectly bear its proportionate share of any management and other expenses
paid by REITs in which it invests in addition to the expenses paid by the Fund.
Debt securities issued by REITs are, for the most part, general and unsecured
obligations and are subject to risks associated with REITs.

                                       -18-

<PAGE>

     Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. An equity REIT
may be affected by changes in the value of the underlying properties owned by
the REIT. A mortgage REIT may be affected by changes in interest rates and the
ability of the issuers of its portfolio mortgages to repay their obligations.
REITs are dependent upon the skills of their managers and are not diversified.
REITs are generally dependent upon maintaining cash flows to repay borrowings
and to make distributions to shareholders and are subject to the risk of default
by lessees or borrowers. REITs whose underlying assets are concentrated in
properties used by a particular industry, such as health care, are also subject
to risks associated with such industry.

     REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. If the REIT invests in adjustable rate mortgage loans the interest
rates on which are reset periodically, yields on a REIT's investments in such
loans will gradually align themselves to reflect changes in market interest
rates. This causes the value of such investments to fluctuate less dramatically
in response to interest rate fluctuations than would investments in fixed rate
obligations.

     REITs may have limited financial resources, may trade less frequently and
in a limited volume and may be subject to more abrupt or erratic price movements
than larger company securities. Historically REITs have been more volatile in
price than the larger capitalization stocks included in Standard & Poor's 500
Stock Index.

Mortgage-Related and Other Asset-Backed Securities

     The Fund may invest in mortgage-related securities, and in other
asset-backed securities (unrelated to mortgage loans) that are offered to
investors currently or in the future. Mortgage-related securities are interests
in pools of residential or commercial mortgage loans, including mortgage loans
made by savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private organizations.
The value of some mortgage-related or asset-backed securities in which the Fund
may invest may be particularly sensitive to changes in prevailing interest
rates, and, like other debt obligations, the ability of the Fund to successfully
utilize these instruments may depend in part upon the ability of NACM to
forecast interest rates and other economic factors correctly. See "--Mortgage
Pass-Through Securities" below. Certain debt obligations are also secured with
collateral consisting of mortgage-related securities. See "--Collateralized
Mortgage Obligations ("CMOs")" below.

     Commercial Mortgage-Backed Securities. Commercial mortgage-backed
securities include securities that reflect an interest in, and are secured by,
mortgage loans on commercial real property. The market for commercial
mortgage-backed securities developed more recently and in terms of total
outstanding principal amount of issues is relatively small compared to the
market for residential single-family mortgage-backed securities. Many of the
risks of investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of

                                       -19-

<PAGE>

a property to attract and retain tenants. Commercial mortgage-backed securities
may be less liquid and exhibit greater price volatility than other types of
mortgage- or asset-backed securities.

     Mortgage Pass-Through Securities. Mortgage pass-through securities are
securities representing interests in "pools" of mortgage loans secured by
residential or commercial real property. Interests in pools of mortgage-related
securities differ from other forms of debt obligations, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association (the "GNMA")) are described as
"modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.

     The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. Early repayment of principal on some mortgage-related
securities (arising from prepayments of principal due to the sale of the
underlying property, refinancing, or foreclosure, net of fees and costs which
may be incurred) may expose the Fund to a lower rate of return upon reinvestment
of principal. Also, if a security subject to prepayment has been purchased at a
premium, the value of the premium would be lost in the event of prepayment. Like
other debt obligations, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
are declining, the value of mortgage-related securities with prepayment features
may not increase as much as other debt obligations. To the extent that
unanticipated rates of prepayment on underlying mortgages increase the effective
maturity of a mortgage-related security, the volatility of such security can be
expected to increase.

     Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the GNMA) or guaranteed by agencies or instrumentalities of the
U.S. Government (in the case of securities guaranteed by the Federal National
Mortgage Association (the "FNMA") or the Federal Home Loan Mortgage Corporation
(the "FHLMC"). The principal governmental guarantor of mortgage-related
securities is the GNMA. GNMA is a wholly-owned U.S. Government corporation
within the Department of Housing and Urban Development. GNMA is authorized to
guarantee, with the full faith and credit of the U.S. Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of mortgages insured by the Federal Housing
Administration (the "FHA"), or guaranteed by the Department of Veterans Affairs
(the "VA").

                                       -20-

<PAGE>

     Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the FNMA and the FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved sellers/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks, and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government. Instead, they are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations.

     FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the U.S. Government. Instead, they are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations.

     Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in such pools.
However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Fund will not purchase mortgage-related securities or any other
assets which in NACM's opinion are illiquid if, as a result, more than 20% of
the value of the Fund's total assets (taken at market value at the time of
investment) will be invested in illiquid securities.

     Mortgage-related securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Fund's
industry concentration restrictions (see "Investment Restrictions") by virtue of
the exclusion from that test available to all U.S. Government securities. In the
case of privately issued mortgage-related securities, the Fund takes the
position that mortgage-related securities do not represent interests in any
particular "industry" or group of industries. The assets underlying such
securities may be represented by a portfolio of first lien residential mortgages
(including both whole mortgage loans and mortgage participation interests) or
portfolios of mortgage pass-through securities issued or guaranteed by

                                       -21-

<PAGE>

GNMA, FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may
in turn be insured or guaranteed by the FHA or the VA. In the case of private
issue mortgage-related securities whose underlying assets are neither U.S.
Government securities nor U.S. Government-insured mortgages, to the extent that
real properties securing such assets may be located in the same geographical
region, the security may be subject to a greater risk of default than other
comparable securities in the event of adverse economic, political or business
developments that may affect such region and, ultimately, the ability of
residential homeowners to make payments of principal and interest on the
underlying mortgages.

     Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semi-annually. CMOs may
be collateralized by whole mortgage loans, but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.

     CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.

     In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds (the "Bonds"). Proceeds of the Bond
offering are used to purchase mortgages or mortgage pass-through certificates
(the "Collateral"). The Collateral is pledged to a third party trustee as
security for the Bonds. Principal and interest payments from the Collateral are
used to pay principal on the Bonds in the order A, B, C, Z. The Series A, B and
C Bonds all bear current interest. Interest on the Series Z Bond is accrued and
added to principal and a like amount is paid as principal on the Series A, B or
C Bond currently being paid off. When the Series A, B and C Bonds are paid in
full, interest and principal on the Series Z Bond begin to be paid currently.
With some CMOs, the issuer serves as a conduit to allow loan originators
(primarily builders or savings and loan associations) to borrow against their
loan portfolios.

     CMOs that are issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities will be considered U.S. Government securities by
the Fund, while other CMOs, even if collateralized by U.S. Government
securities, will have the same status as other privately issued securities for
purposes of applying the Fund's diversification tests.

     FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semi-annually, as opposed to monthly. The amount of principal payable on each
semi-annual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which in turn, is equal to approximately 100%

                                       -22-

<PAGE>

of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payments of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.

     If collection of principal (including prepayments) on the mortgage loans
during any semi-annual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.

     Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.

     Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.

     CMO Residuals. CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.

     The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
IO class of stripped mortgage-backed securities. See "--Stripped Mortgage-Backed
Securities" below. In addition, if a series of a CMO includes a class that bears
interest at an adjustable rate, the yield to maturity on the related CMO
residual will also be extremely sensitive to changes in the level of the index
upon which interest rate adjustments are based. As

                                       -23-

<PAGE>

described below with respect to stripped mortgage-backed securities, in certain
circumstances the Fund may fail to recoup some or all of its initial investment
in a CMO residual.

     CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has developed fairly recently and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not,
have been registered under the Securities Act of 1933, as amended (the "1933
Act"). CMO residuals, whether or not registered under the 1933 Act, may be
subject to certain restrictions on transferability, and may be deemed "illiquid"
and subject to the Fund's limitations on investment in illiquid securities. As
used in this Statement of Additional Information, the term CMO residual does not
include residual interests in real estate mortgage investment conduits.

     Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.

     SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the Fund's
yield to maturity from these securities. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to recoup some or all of its initial investment in these securities even if the
security is in one of the highest rating categories.

     Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were developed fairly recently. As a result, established trading markets have
not yet developed and, accordingly, these securities may be deemed "illiquid"
and subject to the Fund's limitations on investment in illiquid securities.

     Other Asset-Backed Securities. Similarly, NACM expects that other
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future and may be purchased by the Fund. Several types of
asset-backed securities have already been offered to investors, including
Enhanced Equipment Trust Certificates ("EETCs") and Certificates for Automobile
ReceivablesSM ("CARSSM").

     Although any entity may issue EETCs, to date, U.S. airlines are the primary
issuers. An airline EETC is an obligation secured directly by aircraft or
aircraft engines as collateral. Airline

                                       -24-

<PAGE>

EETCs generally have credit enhancement in the form of overcollateralization and
cross-subordination (i.e., multiple tranches and multiple aircraft as
collateral). They also generally have a dedicated liquidity facility provided by
a third-party insurer to insure that coupon payments are made on a timely basis
until collateral is liquidated in the event of a default by the lessor of the
collateral. Aircraft EETCs issued by registered U.S. carriers also benefit from
a special section of the U.S. Bankruptcy Code, which allows the aircraft to be
sold by the trust holding the collateral to repay note holders without
participating in bankruptcy proceedings. EETCs tend to be less liquid than
corporate bonds.

         CARS(SM) represent undivided fractional interests in a trust whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARS(SM) are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. An investor's return on CARS(SM) may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, the trust may be prevented from realizing the
full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.

         Consistent with the Fund's investment objective and policies, NACM also
may invest in other types of asset-backed securities. Other asset-backed
securities may be collateralized by the fees earned by service providers. The
value of asset-backed securities may be substantially dependent on the servicing
of the underlying asset pools and are therefore subject to risks associated with
the negligence by, or defalcation of, their servicers. In certain circumstances,
the mishandling of related documentation may also affect the rights of the
security holders in and to the underlying collateral. The insolvency of entities
that generate receivables or that utilize the assets may result in added costs
and delays in addition to losses associated with a decline in the value of the
underlying assets.

Other Investment Companies

         The Fund may invest in securities of open-or closed-end investment
companies to the extent that such investments are consistent with the Fund's
investment objective and policies and permissible under the 1940 Act. The Fund
may invest in other investment companies either during periods when it has large
amounts of uninvested cash, such as the period shortly after the Fund receives
the proceeds of the offering of its Common Shares or Preferred Shares, during
periods when there is a shortage of attractive convertible securities and
non-convertible income-producing securities available in the market, or when
NACM believes share prices of other investment companies offer attractive
values. The Fund may invest in investment companies that are advised by NACM or
its affiliates to the extent permitted by applicable law and/or pursuant to
exemptive relief from the SEC. As a stockholder in an investment company, the
Fund will bear its ratable share of that investment company's expenses and would
remain subject to payment of the Fund's management fees with respect to assets
so invested. Holders of the Common Shares (the "Common Shareholders") would
therefore be subject to duplicative

                                      -25-

<PAGE>

expenses to the extent the Fund invests in other investment companies. NACM will
take expenses into account when evaluating the investment merits of an
investment in an investment company relative to available convertible securities
and non-convertible income-producing securities. In addition, the securities of
other investment companies may also be leveraged and will therefore be subject
to the same leverage risks described in the Prospectus and herein. As described
in the Prospectus in the section entitled "Risks--Leverage Risk," the net asset
value and market value of leveraged shares will be more volatile and the yield
to shareholders will tend to fluctuate more than the yield generated by
unleveraged shares.

Variable and Floating Rate Securities

         Variable and floating rate securities provide for a periodic adjustment
in the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.

         The Fund may invest in floating rate debt instruments ("floaters") and
engage in credit spread trades. The interest rate on a floater is a variable
rate that is tied to another interest rate, such as a corporate bond index or
Treasury bill rate. The interest rate on a floater resets periodically,
typically every six months. While, because of the interest rate reset feature,
floaters provide the Fund with a certain degree of protection against rising
interest rates, the Fund will participate in any declines in interest rates as
well. A credit spread trade is an investment position relating to a difference
in the prices or interest rates of two bonds or other securities, where the
value of the investment position is determined by movements in the difference
between the prices or interest rates, as the case may be, of the respective
securities or currencies.

         The Fund may also invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floating rate security may exhibit greater price
volatility than a fixed rate obligation of similar credit quality.

Event-Linked Bonds

         The Fund may invest in "event-linked bonds." Event-linked bonds, which
are sometimes referred to as "catastrophe bonds," are debt obligations for which
the return of principal and payment of interest is contingent on the
non-occurrence of a specific "trigger" event, such as a hurricane or an
earthquake. They may be issued by government agencies, insurance companies,
reinsurers, special purpose corporations or other on-shore or off-shore
entities. If a trigger event causes losses exceeding a specific amount in the
geographic region and time period specified in a bond, the Fund may lose a
portion or all of its principal invested in the bond. If no trigger event
occurs, the Fund will recover its principal plus interest. For some event-linked
bonds, the trigger event or losses may be based on company-wide losses,
index-portfolio losses, industry indexes or readings of scientific instruments
rather than specified actual losses. Often event-linked bonds provide for
extensions of maturity that are mandatory, or optional at the discretion of the
issuer, in order to process and audit loss claims in those cases when a trigger
event has, or possibly has, occurred. In addition to the specified trigger
events, event-linked bonds may also expose the

                                      -26-

<PAGE>

Fund to certain unanticipated risks including but not limited to issuer (credit)
default, adverse regulatory or jurisdictional interpretations and adverse tax
consequences.

         Event-linked bonds are a relatively new type of financial instrument.
As such, there is no significant trading history of these securities, and there
can be no assurance that a liquid market in these instruments will develop. Lack
of a liquid market may impose the risk of higher transaction costs and the
possibility that the Fund may be forced to liquidate positions when it would not
be advantageous to do so. Event-linked bonds are typically rated.

U.S. Government Securities

         U.S. Government securities are obligations of, or guaranteed by, the
U.S. Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Fund's shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the GNMA, are supported by the full faith and credit of the United States;
others, such as those of the Federal Home Loan Banks, are supported by the right
of the issuer to borrow from the U.S. Treasury; others, such as those of the
FNMA, are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported only by the credit of the
instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. See "--Zero-Coupon
Bonds, Step-Ups and Payment-In-Kind Securities." Custodial receipts issued in
connection with so-called trademark zero-coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero-coupon Treasury securities
(e.g., STRIPs and CUBEs) are direct obligations of the U.S. Government.

When-Issued, Delayed Delivery and Forward Commitment Transactions

         The Fund may purchase or sell securities on a when-issued, delayed
delivery, or forward commitment basis. When such purchases are outstanding, the
Fund will segregate until the settlement date assets determined to be liquid by
NACM in accordance with procedures established by the Board of Trustees, in an
amount sufficient to meet the purchase price. Typically, no income accrues on
securities the Fund has committed to purchase prior to the time delivery of the
securities is made, although the Fund may earn income on securities it has
segregated.

         When purchasing a security on a when-issued, delayed delivery, or
forward commitment basis, the Fund assumes the rights and risks of ownership of
the security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because the Fund
is not required to pay for the security until the delivery date, these risks are
in addition to the risks associated with the Fund's other investments. If the
Fund remains substantially fully invested at a time when when-issued,
delayed delivery, or forward commitment purchases are outstanding, the purchases
may result in a form of leverage.

                                      -27-

<PAGE>

         When the Fund has sold a security on a when-issued, delayed delivery,
or forward commitment basis, the Fund does not participate in future gains or
losses with respect to the security. If the other party to a transaction fails
to deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity or could suffer a loss. The Fund may dispose of or renegotiate
a transaction after it is entered into, and may sell when-issued, delayed
delivery or forward commitment securities before they are delivered, which may
result in a capital gain or loss. There is no percentage limitation on the
extent to which the Fund may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis.

Borrowing

         The Fund may borrow money to the extent permitted under the 1940 Act as
interpreted, modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time. The Fund may from time to time borrow money for
investment purposes or to add leverage to the portfolio, although it has no
current intention to do so. The Fund may borrow money in order to repurchase its
shares or as a temporary measure for extraordinary or emergency purposes,
including for the payment of dividends or the settlement of securities
transactions which otherwise might require untimely dispositions of Fund
securities.

         Under the 1940 Act, the Fund generally is not permitted to engage in
borrowings unless immediately after a borrowing the value of the Fund's total
assets less liabilities (other than the borrowing) is at least 300% of the
principal amount of such borrowing (i.e., such principal amount may not exceed
33 1/3% of the Fund's total assets). In addition, the Fund is not permitted to
declare any cash dividend or other distribution on Common Shares unless, at the
time of such declaration, the value of the Fund's total assets, less liabilities
other than borrowing, is at least 300% of such principal amount. If the Fund
borrows, it intends, to the extent possible, to prepay all or a portion of the
principal amount of the borrowing to the extent necessary in order to maintain
the required asset coverage. Failure to maintain certain asset coverage
requirements could result in an event of default and entitle the holders of
Preferred Shares ("Preferred Shareholders") to elect a majority of the Trustees
of the Fund.

         Any borrowing in which the Fund engages will tend to exaggerate the
effect on net asset value of any increase or decrease in the market value of the
Fund's portfolio. Money borrowed will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased. The Fund also
may be required to maintain minimum average balances in connection with such
borrowing or to pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate.

Short Sales

         The Fund may make short sales of securities as part of its overall
portfolio management strategy and to offset potential declines in long positions
in securities in the Fund's portfolio. 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.

                                      -28-

<PAGE>

         When the Fund makes a short sale on a security, it must borrow the
security sold short and deliver it to the broker-dealer through which it made
the short sale as collateral for its obligation to deliver the 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 accrued interest and dividends
on such borrowed securities.

         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
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. The successful use of short selling may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.

         To the extent that the Fund engages in short sales, it will provide
collateral to the broker-dealer. A short sale is "against the box" to the extent
that the Fund contemporaneously owns, or has the right to obtain at no added
cost, securities identical to those sold short. The Fund may also engage in
so-called "naked" short sales (i.e., short sales that are not "against the
box"), in which case the Fund's losses could theoretically be unlimited, in
cases where the Fund is unable for whatever reason to close out its short
position. The Fund has the flexibility to engage in short selling to the extent
permitted by the 1940 Act and rules and interpretations thereunder.

Illiquid Securities

         The Fund may invest up to 20% of its total assets in securities which
are illiquid at the time of investment. The term "illiquid securities" for this
purpose is determined using the Securities and Exchange Commission's standard
applicable to open-end investment companies, i.e., securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities are considered to include, among other things, written
over-the-counter options, securities or other liquid assets being used as cover
for such options, certain loan participation interests, fixed time deposits
which are not subject to prepayment or provide for withdrawal penalties upon
prepayment (other than overnight deposits), and other securities whose
disposition is restricted under the federal securities laws (other than
securities issued pursuant to Rule 144A under the 1933 Act and certain
commercial paper that NACM has determined to be liquid under procedures approved
by the Board of Trustees).

         Illiquid securities may include privately placed securities, which are
sold directly to a small number of investors, usually institutions. Unlike
public offerings, such securities are not registered under the federal
securities laws. Although certain of these securities may be readily sold,
others may be illiquid, and their sale may involve substantial delays and
additional costs.

Portfolio Trading and Turnover Rate

         Portfolio trading may be undertaken to accomplish the investment
objective of the Fund in relation to actual and anticipated movements in
interest rates and for other reasons. In addition, a security may be sold and
another of comparable quality purchased at approximately the same time to take
advantage of what NACM believes to be a temporary price disparity

                                      -29-

<PAGE>

between the two securities. Temporary price disparities between two comparable
securities may result from supply and demand imbalances where, for example, a
temporary oversupply of certain securities may cause a temporarily low price for
such security, as compared with other securities of like quality and
characteristics. The Fund may also engage in short-term trading consistent with
its investment objective. Securities may be sold in anticipation of a market
decline (a rise in interest rates) or purchased in anticipation of a market rise
(a decline in interest rates) and later sold, or to recognize a gain.

         A change in the securities held by the Fund is known as "portfolio
turnover." NACM manages the Fund without regard generally to restrictions on
portfolio turnover. The use of certain derivative instruments with relatively
short maturities may tend to exaggerate the portfolio turnover rate for the
Fund. High portfolio turnover (e.g., greater than 100%) involves correspondingly
greater expenses to the Fund, including brokerage commissions or dealer mark-ups
and other transaction costs on the sale of securities and reinvestments in other
securities. Trading in debt obligations does not generally involve the payment
of brokerage commissions, but does involve indirect transaction costs. The
higher the rate of portfolio turnover of the Fund, the higher the transaction
costs borne by the Fund generally will be. Transactions in the Fund's portfolio
securities may result in realization of taxable capital gains (including
short-term capital gains which are generally taxed to shareholders at ordinary
income tax rates). The trading costs and tax effects associated with portfolio
turnover may adversely affect the Fund's performance.

         The portfolio turnover rate of the Fund is calculated by dividing (a)
the lesser of purchases or sales of portfolio securities for the particular
fiscal year by (b) the monthly average of the value of the portfolio securities
owned by the Fund during the particular fiscal year. In calculating the rate of
portfolio turnover, there is excluded from both (a) and (b) all securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less.

Securities Loans

         Subject to the Fund's "Investment Restrictions" listed below, the Fund
may make secured loans of its portfolio securities to brokers, dealers and other
financial institutions amounting to no more than one-third of its total assets.
The risks in lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. However, such
loans will be made only to broker-dealers that are believed by NACM to be of
relatively high credit standing. Securities loans are made to broker-dealers
pursuant to agreements requiring that loans be continuously secured by
collateral consisting of U.S. Government securities, cash or cash equivalents
(negotiable certificates of deposit, bankers' acceptances or letters of credit)
maintained on a daily mark-to-market basis in an amount at least equal at all
times to the market value of the securities lent. The borrower pays to the Fund,
as the lender, an amount equal to any dividends or interest received on the
securities lent. The Fund may invest only the cash collateral received in
interest-bearing, short-term securities or receive a fee from the borrower. In
the case of cash collateral, the Fund typically pays a rebate to the lender.
Although voting rights or rights to consent with respect to the loaned
securities pass to the borrower, the Fund, as the lender, retains the right to
call the loans and obtain the return of the securities loaned at any time on
reasonable notice, and it will do so in order that the securities may be voted
by the Fund

                                      -30-

<PAGE>

if the holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund may also call such loans in order
to sell the securities involved. When engaged in securities lending, the Fund's
performance will continue to reflect changes in the value of the securities
loaned and will also reflect the receipt of either interest, through investment
of cash collateral by the Fund in permissible investments, or a fee, if the
collateral is U.S. Government securities.

Participation on Creditors Committees

         The Fund may from time to time participate on committees formed by
creditors to negotiate with the management of financially troubled issuers of
securities held by the Fund. Such participation may subject the Fund to expenses
such as legal fees and may make the Fund an "insider" of the issuer for purposes
of the federal securities laws, and therefore may restrict the Fund's ability to
trade in or acquire additional positions in a particular security when it might
otherwise desire to do so. Participation by the Fund on such committees also may
expose the Fund to potential liabilities under the federal bankruptcy laws or
other laws governing the rights of creditors and debtors. The Fund would
participate on such committees only when NACM believes that such participation
is necessary or desirable to enforce the Fund's rights as a creditor or to
protect the value of securities held by the Fund.

Short-Term Investments / Temporary Defensive Strategies

         Upon NACM's recommendation, for temporary defensive purposes and in
order to keep the Fund's cash fully invested, including the period during which
the net proceeds of the offering are being invested, the Fund may invest up to
100% of its net assets in investments (other than convertible securities and
non-convertible income-producing securities in which the Fund ordinarily
invests), such as high quality, short-term debt instruments. Such investments
may prevent the Fund from achieving its investment objective.

                             INVESTMENT RESTRICTIONS

Fundamental Investment Restrictions

         Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding Common
Shares and, if issued, Preferred Shares voting together as a single class, and
of the holders of a majority of the outstanding Preferred Shares voting as a
separate class:

                  (1) Concentrate its investments in a particular "industry," as
         that term is used in the Investment Company Act of 1940, as amended,
         and as interpreted, modified, or otherwise permitted by regulatory
         authority having jurisdiction, from time to time.

                  (2) With respect to 75% of the Fund's total assets, purchase
         the securities of any issuer, except securities issued or guaranteed by
         the U.S. Government or any of its agencies or instrumentalities or
         securities issued by other investment companies, if, as a result, (i)
         more than 5% of the Fund's total assets would be invested in the
         securities of

                                      -31-

<PAGE>

         that issuer, or (ii) the Fund would hold more than 10% of the
         outstanding voting securities of that issuer.

                  (3) Purchase or sell real estate, although it may purchase
         securities secured by real estate or interests therein, or securities
         issued by companies which invest in real estate, or interests therein.

                  (4) Purchase or sell commodities or commodities contracts or
         oil, gas or mineral programs. This restriction shall not prohibit the
         Fund, subject to restrictions described in the Prospectus and elsewhere
         in this Statement of Additional Information, from purchasing, selling
         or entering into futures contracts, options on futures contracts,
         forward contracts, or any interest rate, securities-related or other
         hedging instrument, including swap agreements and other derivative
         instruments, subject to compliance with any applicable provisions of
         the federal securities or commodities laws.

                  (5) Borrow money or issue any senior security, except to the
         extent permitted under the Investment Company Act of 1940, as amended,
         and as interpreted, modified, or otherwise permitted by regulatory
         authority having jurisdiction, from time to time.

                  (6) Make loans, except to the extent permitted under the
         Investment Company Act of 1940, as amended, and as interpreted,
         modified, or otherwise permitted by regulatory authority having
         jurisdiction, from time to time.

                  (7) Act as an underwriter of securities of other issuers,
         except to the extent that in connection with the disposition of
         portfolio securities, it may be deemed to be an underwriter under the
         federal securities laws.

         For purposes of the foregoing and "Description of Shares--Preferred
Shares--Voting Rights" below, "majority of the outstanding," when used with
respect to particular shares of the Fund (whether voting together as a single
class or voting as separate classes), means (i) 67% or more of such shares
present at a meeting, if the holders of more than 50% of such shares are present
or represented by proxy, or (ii) more than 50% of such shares, whichever is
less.

         Unless otherwise indicated, all limitations applicable to the Fund's
investments (as stated above and elsewhere in this Statement of Additional
Information) apply only at the time a transaction is entered into. Any
subsequent change in a rating assigned by any rating service to a security (or,
if unrated, deemed by NACM to be of comparable quality), or change in the
percentage of the Fund's total assets invested in certain securities or other
instruments, or change in the average maturity or duration of the Fund's
investment portfolio, resulting from market fluctuations or other changes in the
Fund's total assets, will not require the Fund to dispose of an investment until
NACM determines that it is practicable to sell or close out the investment
without undue market or tax consequences to the Fund. In the event that rating
agencies assign different ratings to the same security, NACM will determine
which rating it believes best reflects the security's quality and risk at that
time, which may be the higher of the several assigned ratings.

         Under the 1940 Act, a "senior security" does not include any promissory
note or evidence of indebtedness where such loan is for temporary purposes only
and in an amount not exceeding

                                      -32-

<PAGE>

5% of the value of the total assets of the issuer at the time the loan is made.
A loan is presumed to be for temporary purposes if it is repaid within sixty
days and is not extended or renewed.

         The Fund would be deemed to "concentrate" in a particular industry if
it invested more than 25% of its total assets in that industry. The Fund's
industry concentration policy does not preclude it from focusing investments in
issuers in a group of related industrial sectors (such as different types of
utilities).

         The Fund may not change its policy to invest at least 80% of its total
assets in a diversified portfolio of convertible securities and non-convertible
income-producing securities unless it provides shareholders with notice of such
change if and to the extent required by the 1940 Act and the rules thereunder.

         To the extent the Fund covers its commitment under a derivative
instrument by the segregation of assets determined by NACM to be liquid in
accordance with procedures adopted by the Trustees, equal in value to the amount
of the Fund's commitment, such instrument will not be considered a "senior
security" for purposes of the asset coverage requirements otherwise applicable
to borrowings by the Fund or the Fund's issuance of Preferred Shares.

         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 SEC.

         The Fund intends to apply for ratings for its Preferred Shares from
Moody's, S&P and/or Fitch. In order to obtain and maintain the required ratings,
the Fund may be required to comply with investment quality, diversification and
other guidelines established by Moody's, S&P and/or Fitch. Such guidelines will
likely be more restrictive than the restrictions set forth above. The Fund does
not anticipate that such guidelines would have a material adverse effect on
Common Shareholders or its ability to achieve its investment objective. The Fund
presently anticipates that any Preferred Shares that it intends to issue would
be initially given the highest ratings by Moody's ("Aaa"), S&P ("AAA") and/or
Fitch ("AAA"), but no assurance can be given that such ratings will be obtained.
No minimum rating is required for the issuance of Preferred Shares by the Fund.
Moody's, S&P and Fitch receive fees in connection with their ratings issuances.

                             MANAGEMENT OF THE FUND

Trustees and Officers

         The business of the Fund is managed under the direction of the Fund's
Board of Trustees. Subject to the provisions of the Fund's Amended and Restated
Agreement and Declaration of Trust (the "Declaration"), its Bylaws and
Massachusetts law, the Trustees have all powers necessary and convenient to
carry out this responsibility, including the election and removal of the Fund's
officers.

         The Trustees and officers of the Fund, their ages, the position they
hold with the Fund, their term of office and length of time served, a
description of their principal occupations during the past five years, the
number of portfolios in the fund complex that the Trustee oversees and

                                      -33-

<PAGE>

any other directorships held by the Trustee are listed in the two tables
immediately following. Except as shown, each Trustee's and officer's principal
occupation and business experience for the last five years have been with the
employer(s) indicated, although in some cases the Trustee may have held
different positions with such employer(s). Unless otherwise indicated, the
business address of the persons listed below is c/o PIMCO Advisors Fund
Management LLC, 1345 Avenue of the Americas, New York, New York 10105.


                              Independent Trustees*


<TABLE>
<CAPTION>
                                                                                         Number of
                                                                                         Portfolios
                                            Term of                                       in Fund
                             Position(s)   Office and                                     Complex            Other
                              Held with    Length of       Principal Occupation(s)       Overseen by      Directorships
   Name, Address and Age       Fund       Time Served      During the Past 5 Years        Trustee        Held by Trustee
<S>                        <C>            <C>             <C>                            <C>              <C>
Paul Belica                   Trustee      Since          Trustee, Fixed Income              14              None.
Age 81                                     inception      SHares, PIMCO Corporate
                                           (   , 2003).   Opportunity Fund, PIMCO
                                                           Corporate Income Fund, PIMCO
                                                          Municipal Income Fund, PIMCO
                                                          California Municipal Income
                                                          Fund, PIMCO New York
                                                          Municipal Income Fund, PIMCO
                                                          Municipal Income Fund II,
                                                          PIMCO California Municipal
                                                          Income Fund II, PIMCO New
                                                          York Municipal Income Fund
                                                          II, PIMCO Municipal Income
                                                          Fund III, PIMCO California
                                                          Municipal Income Fund III
                                                          and PIMCO New York Municipal
                                                          Income Fund III; Manager,
                                                          Stratigos Fund, LLC,
                                                          Whistler Fund, LLC, Xanthus
                                                          Fund, LLC and Wynstone Fund,
                                                          LLC; Director, Student Loan
                                                          Finance Corp., Education
                                                          Loans, Inc., Goal Funding,
                                                          Inc., Surety Loan Funding,
                                                          Inc. Formerly, Advisor,
                                                          Salomon Smith Barney Inc.;
                                                          Director, Central European
                                                          Value Fund, Inc., Deck House
                                                          Inc., The Czech Republic
                                                          Fund, Inc.


Robert E. Connor             Trustee       Since          Trustee, Fixed Income               15            None.
Age 68                                     inception      SHares, PIMCO Corporate
                                           (   , 2003).   Opportunity Fund, PIMCO
                                                          Corporate Income Fund, PIMCO
                                                          Municipal Income Fund,
                                                          PIMCO California
                                                          Municipal Income Fund,
</TABLE>

                                      -34-

<PAGE>

<TABLE>
<CAPTION>
                                                                                         Number of
                                                                                         Portfolios
                                            Term of                                       in Fund
                             Position(s)   Office and                                     Complex            Other
                              Held with    Length of       Principal Occupation(s)       Overseen by      Directorships
   Name, Address and Age       Fund       Time Served      During the Past 5 Years        Trustee        Held by Trustee
<S>                        <C>            <C>           <C>                           <C>              <C>
                                                          PIMCO New York
                                                          Municipal Income Fund,
                                                          PIMCO Municipal Income
                                                          Fund II, PIMCO
                                                          California Municipal
                                                          Income Fund II, PIMCO
                                                          New York Municipal
                                                          Income Fund II, PIMCO
                                                          Municipal Income Fund
                                                          III, PIMCO California
                                                          Municipal Income Fund
                                                          III and PIMCO New York
                                                          Municipal Income Fund
                                                          III; Director,
                                                          Municipal Advantage
                                                          Fund, Inc.; Corporate
                                                          Affairs Consultant.
                                                          Formerly, Senior Vice
                                                          President, Corporate
                                                          Office, Salomon Smith
                                                          Barney Inc.

John J. Dalessandro II*      Trustee       Since          President and Director, J.J.        12            None.
Age 65                                     inception      Dalessandro II Ltd.,
                                           (   , 2003).   registered broker-dealer and
                                                          member of the New York Stock
                                                          Exchange; Trustee,
                                                          PIMCO Corporate
                                                          Opportunity Fund,
                                                          PIMCO Corporate Income
                                                          Fund, PIMCO Municipal
                                                          Income Fund, PIMCO
                                                          California Municipal
                                                          Income Fund, PIMCO New
                                                          York Municipal Income
                                                          Fund, PIMCO Municipal
                                                          Income Fund II, PIMCO
                                                          California Municipal
                                                          Income Fund II, PIMCO
                                                          New York Municipal
                                                          Income Fund II, PIMCO
                                                          Municipal Income Fund
                                                          III, PIMCO California
                                                          Municipal Income Fund
                                                          III and PIMCO New York
                                                          Municipal Income Fund
                                                          III.
</TABLE>

- ----------------

* Mr. Dalessandro is treated by the Fund as not being an "interested person" (as
defined in Section 2(a)(19) of the 1940 Act) of the Fund, the Manager, NACM or
the Underwriters, despite his affiliation with J.J. Dalessandro II Ltd.,

                                      -35-

<PAGE>

a member of the New York Stock Exchange, Inc. (the "Exchange") that operates as
a floor broker and does not effect portfolio transactions for entities other
than other members of the Exchange.

                               Interested Trustees

         Currently no Trustees are treated as "interested persons" (as defined
in Section 2(a)(19) of the 1940 Act) of the Fund.

         In accordance with the Fund's staggered board (see "Anti-Takeover and
Other Provisions in the Declaration of Trust"), the Common Shareholders of the
Fund will elect Trustees to fill the vacancies of Trustees whose terms expire at
each annual meeting of Common Shareholders, unless any Preferred Shares are
outstanding, in which event Preferred Shareholders, voting as a separate class,
will elect two Trustees and the remaining Trustee shall be elected by Common
Shareholders and Preferred Shareholders, voting together as a single class.
Preferred Shareholders will be entitled to elect a majority of the Fund's
Trustees under certain circumstances.

                                    Officers
<TABLE>
<CAPTION>
                                            Term of
                           Position(s)     Office and
                           Held with       Length of
 Name, Address and Age      Fund           Time Served          Principal Occupation(s) During the Past 5 Years
<S>                        <C>            <C>                 <C>
Stephen J. Treadway        Chairman       Since               Managing Director, Allianz Dresdner Asset Management
2187 Atlantic Street                      inception           of America L.P.; Managing Director and Chief
Stamford, CT 06902                        (   , 2003).        Executive Officer, PIMCO Advisors Fund Management
Age 55                                                        LLC (formerly PIMCO Funds Advisors LLC); Managing
                                                              Director and Chief Executive Officer, PIMCO Advisors
                                                              Distributors LLC ("PAD"); Trustee and Chairman, PIMCO Funds:
                                                              Multi-Manager Series; Chairman, Fixed Income SHares; Trustee,
                                                              Chairman and President, OCC Cash Reserves, Inc. and OCC
                                                              Accumulation Trust; Trustee and Chairman, PIMCO Corporate
                                                              Income Fund, PIMCO Municipal Income Fund, PIMCO California
                                                              Municipal Income Fund, PIMCO New York Municipal Income Fund,
                                                              PIMCO Municipal Income Fund II, PIMCO California Municipal
                                                              Income Fund II, PIMCO New York Municipal Income Fund II and
                                                              Municipal Advantage Fund, Inc.; Chairman, PIMCO Corporate
                                                              Opportunity Fund, PIMCO Municipal Income Fund III, PIMCO
                                                              California Municipal Income Fund III and PIMCO New York
                                                              Municipal Income Fund III.

Brian S. Shlissel           President       Since             Senior Vice President, PIMCO Advisors Fund
Age 38                      and Chief       inception         Management LLC; Executive Vice President and
                            Executive       (     , 2003).    Treasurer, OCC Cash Reserves, Inc. and OCC
                            Officer                           Accumulation Trust; President and Chief Executive
                                                              Officer, Fixed Income SHares, PIMCO Corporate Opportunity Fund,
                                                              PIMCO Corporate Income Fund, PIMCO Municipal Income
</TABLE>

                                      -36-

<PAGE>

<TABLE>
<CAPTION>
                                             Term of
                          Position(s)      Office and
                           Held with        Length of
 Name, Address and Age       Fund          Time Served          Principal Occupation(s) During the Past 5 Years
<S>                    <C>              <C>                   <C>
                                                              Fund, PIMCO California Municipal Income Fund, PIMCO New York
                                                              Municipal Income Fund, PIMCO Municipal Income Fund II, PIMCO
                                                              California Municipal Income Fund II, PIMCO New York Municipal
                                                              Income Fund II, PIMCO Municipal Income Fund III, PIMCO California
                                                              Municipal Income Fund III, PIMCO New York Municipal Income Fund
                                                              III and Municipal Advantage Fund, Inc.; Formerly, Vice President,
                                                              Mitchell Hutchins Asset Management Inc.

Lawrence G. Altadonna           Treasurer;    Since           Vice President, PIMCO Advisors Fund Management LLC;
Age 36                          Principal     inception       Treasurer and Principal Financial and Accounting
                                Financial     (   , 2003).    Officer, PIMCO Corporate Opportunity Fund, PIMCO
                                and                           Corporate Income Fund, PIMCO Municipal Income Fund,
                                Accounting                    PIMCO California Municipal Income Fund, PIMCO New
                                Officer                       York Municipal Income Fund, PIMCO Municipal Income
                                                              Fund II, PIMCO California Municipal Income Fund II, PIMCO
                                                              New York Municipal Income Fund II, PIMCO Municipal Income
                                                              Fund III, PIMCO California Municipal Income Fund III, PIMCO
                                                              New York Municipal Income Fund III and Municipal Advantage
                                                              Fund, Inc.; Treasurer, Fixed Income SHares; Assistant
                                                              Treasurer, OCC Cash Reserves, Inc. and OCC Accumulation
                                                              Trust. Formerly, Director of Fund Administration, Prudential
                                                              Investments.

Newton B. Schott, Jr.           Vice          Since           Managing Director, Chief Administrative Officer,
2187 Atlantic Street            President,    inception       Secretary and General Counsel, PAD; Managing
Stamford, CT 06902              Secretary     (   , 2003).    Director, Chief Legal Officer and Secretary, PIMCO
Age 60                                                        Advisors Fund Management LLC; President, Chief
                                                              Executive Officer and Secretary, PIMCO Funds: Multi-Manager
                                                              Series; Vice President and Secretary, PIMCO Corporate Opportunity
                                                              Fund, PIMCO Corporate Income Fund, PIMCO Municipal Income Fund,
                                                              PIMCO California Municipal Income Fund, PIMCO New York Municipal
                                                              Income Fund, PIMCO Municipal Income Fund II, PIMCO California
                                                              Municipal Income Fund II, PIMCO New York Municipal Income Fund
                                                              II, PIMCO Municipal Income Fund III, PIMCO California Municipal
                                                              Income Fund III, PIMCO New York Municipal Income Fund III and
                                                              Municipal Advantage Fund, Inc.; Secretary, Fixed Income SHares.

Douglas Forsyth                 Vice          Since           [                ]
Age                             President     inception
                                              (   , 2003).
</TABLE>

                                      -37-

<PAGE>

     For interested Trustees and officers, positions held with affiliated
persons or principal underwriters of the Fund are listed in the following table:

<TABLE>
<CAPTION>
                                                           Positions Held with Affiliated Persons or
                    Name                                       Principal Underwriters of the Fund
             <S>                                                  <C>
             Stephen J. Treadway                                           See above.

              Brian S. Shlissel                                            See above.

             Lawrence Altadonna                                            See above.

            Newton B. Schott, Jr.                                          See above.

               Douglas Forsyth                                             See above.
</TABLE>

Committees of the Board of Trustees

     Audit Oversight Committee

     Provides oversight with respect to the internal and external accounting and
auditing procedures of the Fund and, among other things, considers the selection
of independent public accountants for the Fund and the scope of the audit,
approves all significant services proposed to be performed by those accountants
on behalf of the Fund, and considers other services provided by those
accountants to the Fund, the Manager and NACM and the possible effect of those
services on the independence of those accountants. Messrs. Belica and Connor
serve on this committee.

     Nominating Committee

     Responsible for reviewing and recommending qualified candidates to the
Board in the event that a position is vacated or created. The Nominating
Committee will review and consider nominees recommended by shareholders to serve
as Trustee, provided any such recommendation is submitted in writing to the
Fund, c/o Newton B. Schott, Jr., Secretary, at the address of the principal
executive offices of the Fund. The Nominating Committee has full discretion to
reject nominees recommended by shareholders, and there is no assurance that any
such person so recommended and considered by a committee will be nominated for
election to the Board. Messrs. Belica and Connor serve on this committee.

     Valuation Committee

     Reviews procedures for the valuation of securities and periodically reviews
information from the Manager and NACM regarding fair value and liquidity
determination made pursuant to the Board-approved procedures, and makes related
recommendations to the full Board and assists the full Board in resolving
particular valuation matters. Messrs. Belica and Connor serve on this committee.

                                       -38-

<PAGE>

     Compensation Committee

     The Compensation Committee periodically reviews and sets compensation
payable to the Trustees of the Fund who are not directors, officers, partners or
employees of the Manager, NACM or any entity controlling, controlled by or under
common control with the Manager or NACM. Messrs. Belica and Connor serve on this
committee.

Securities Ownership

     For each Trustee, the following table discloses the dollar range of equity
securities beneficially owned by the Trustee in the Fund and, on an aggregate
basis, in any registered investment companies overseen by the Trustee within the
Fund's family of investment companies as of December 31, 2002:

<TABLE>
<CAPTION>
                                                               Aggregate Dollar Range of Equity Securities in All
                                   Dollar Range of Equity     Registered Investment Companies Overseen by Trustee
        Name of Trustee            Securities in the Fund              in Family of Investment Companies
     <S>                            <C>                                <C>
          Paul Belica                      None.                            (greater than) $100,000

       Robert E. Connor                    None.                                     None.

    John J. Dalessandro II                 None.                                     None.
</TABLE>

     For independent Trustees and their immediate family members, the following
table provides information regarding each class of securities owned beneficially
in an investment adviser or principal underwriter of the Fund, or a person
(other than a registered investment company) directly or indirectly controlling,
controlled by, or under common control with an investment adviser or principal
underwriter of the Fund as of December 31, 2002:

<TABLE>
<CAPTION>
                           Name of Owners and
                            Relationships to                                       Value of       Percent of
     Name of Trustee             Trustee           Company      Title of Class    Securities        Class
<S>                        <C>                     <C>          <C>               <C>             <C>
Paul Belica                   TO BE PROVIDED

Robert E. Connor

John J. Dalessandro II
</TABLE>

     As of        , 2003, the Fund's officers and Trustees as a group owned less
than 1% of the outstanding Common Shares.

                                       -39-

<PAGE>

     As of          , 2003, the following persons owned of record the number of
Common Shares noted below, representing the indicated percentage of the Fund's
outstanding shares as of such date.

<TABLE>
<CAPTION>
                                                               Percentage of the
                                          Number of            Fund's outstanding
                                           Common                 shares as of
Shareholder                                Shares                         , 2003
- -----------                                ------               ----------------
<S>                                        <C>                     <C>
PIMCO Advisors Fund Management LLC
1345 Avenue of the Americas
New York, New York  10105                   [ ]                       100%
</TABLE>

Compensation

     Messrs. Belica, Connor and Dalessandro also serve as Trustees of PIMCO
Municipal Income Fund, PIMCO California Municipal Income Fund, PIMCO New York
Municipal Income Fund, PIMCO Municipal Income Fund II, PIMCO California
Municipal Income Fund II, PIMCO New York Municipal Income Fund II, PIMCO
Municipal Income Fund III, PIMCO California Municipal Income Fund III and PIMCO
New York Municipal Income Fund III (together, the "Municipal Funds"), PIMCO
Corporate Opportunity Fund and PIMCO Corporate Income Fund, eleven closed-end
funds for which the Manager serves as investment manager and Pacific Investment
Management Company LLC ("PIMCO"), an affiliate of the Manager, serves as
portfolio manager. In addition to the Fund, the Municipal Funds, PIMCO Corporate
Opportunity Fund, and PIMCO Corporate Income Fund, Mr. Belica is a director or
trustee, as the case may be, of one open-end investment company (comprising two
separate investment portfolios) advised by the Manager, and Mr. Connor is a
director or trustee, as the case may be, of one open-end investment company
(comprising two separate investment portfolios) and one closed-end investment
company advised by the Manager. To the best of the Fund's knowledge, none of the
"independent" Trustees has ever been a director, officer, or employee of, or a
consultant to, the Manager, NACM, any one or more of the Underwriters or any one
or more affiliates of any of the foregoing, except that Mr. Connor provides
occasional editorial consulting services as an independent contractor to an
administrative unit of Salomon Smith Barney Inc. As indicated above, certain of
the officers and Trustees of the Fund are affiliated with the Manager and/or
NACM.

     The Municipal Funds, PIMCO Corporate Income Fund, PIMCO Corporate
Opportunity Fund, and the Fund (together, the "PIMCO Closed-End Funds") are
expected to hold joint meetings of their Boards of Trustees whenever possible.
Each Trustee, other than any Trustee who is a director, officer, partner or
employee of the Manager, NACM, PIMCO or any entity controlling, controlled by or
under common control with the Manager, NACM or PIMCO, receives $[24,000] for
each joint meeting for the first four joint meetings in each year and $[12,000]
for each additional joint meeting in such year if the meetings are attended in
person. Trustees receive $[6,000] per joint meeting if the meetings are attended
telephonically. Members of the Audit Oversight Committee will receive $[6,000]
per joint meeting of the

                                       -40-

<PAGE>

PIMCO Closed-End Funds' Audit Oversight Committees if the meeting takes place on
a day other than the day of a regularly scheduled Board meeting. Trustees will
also be reimbursed for meeting-related expenses.

     The PIMCO Closed-End Funds will allocate the Trustees' compensation and
other costs of their joint meetings pro rata based on each PIMCO Closed-End
Fund's net assets, including assets attributable to any Preferred Shares.

     It is estimated that the Trustees will receive the amounts set forth in the
following table from the Fund for its initial fiscal year ending February 28,
2004. For the calendar year ended December 31, 2002, the Trustees received the
compensation set forth in the following table for serving as trustees of other
funds in the "Fund Complex." Each officer and Trustee who is a director,
officer, partner or employee of the Manager, NACM or any entity controlling,
controlled by or under common control with the Manager or NACM serves without
any compensation from the Fund.

<TABLE>
<CAPTION>
                                                                                 Total Compensation
                                           Estimated Compensation            from the Fund Complex Paid
                                           from the Fund for the              to the Trustees for the
                                             Fiscal Year Ending                 Calendar Year Ending
          Name of Trustee                    February 28, 2004*                 December 31, 2002**
          ---------------                    ------------------                 -----------------
<S>                                              <C>                                  <C>
Paul Belica                                      $[12,000]                            $78,400

Robert E. Connor                                 $[12,000]                            $87,170

John J. Dalessandro II                           $[12,000]                            $76,400
</TABLE>

- ----------

     * Since the Fund has not completed its first full fiscal year, compensation
is estimated based upon future payments to be made by the Fund during the
current fiscal year and upon estimated relative net assets of the PIMCO
Closed-End Funds.

     ** In addition to the PIMCO Closed-End Funds, during the year ended
December 31, 2002, Mr. Belica served as a trustee of one open-end investment
company (comprising two separate investment portfolios) advised by the Manager,
and Mr. Connor served as a director or trustee of one open-end investment
company (comprising two separate investment portfolios) and one closed-end
investment company advised by the Manager. These investment companies are
considered to be in the same "Fund Complex" as the Fund.

     The Fund has no employees. Its officers are compensated by the Manager
and/or NACM.

Codes of Ethics

     The Fund, the Manager and NACM have each adopted a separate code of ethics
governing personal trading activities of, as applicable, all Trustees and
officers of the Fund, directors, officers and employees of the Manager, [and
partners and employees of NACM], who, in connection with their regular
functions, play a role in the recommendation of any purchase or sale of a
security by the Fund or obtain information pertaining to such purchase or sale
or who have the power to influence the management or policies of the Fund, the
Manager or NACM, as

                                       -41-

<PAGE>

applicable. Such persons are prohibited from effecting certain transactions,
allowed to effect certain exempt transactions (including with respect to
securities that may be purchased or held by the Fund), and are required to
preclear certain security transactions with the applicable compliance officer or
his designee and to report certain transactions on a regular basis. The Fund,
the Manager and NACM have each developed procedures for administration of their
respective codes. Text-only versions of the codes of ethics can be viewed online
or downloaded from the EDGAR Database on the SEC's internet web site at
www.sec.gov. You may also review and copy those documents by visiting the SEC's
Public Reference Room in Washington, DC. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at 202-942-8090. In
addition, copies of the codes of ethics may be obtained, after mailing the
appropriate duplicating fee, by writing to the SEC's Public Reference Section,
450 5th Street, N.W., Washington, DC 20549-0102 or by e-mail request at
publicinfo@sec.gov.

                    INVESTMENT MANAGER AND PORTFOLIO MANAGER

Investment Manager

     The Manager serves as investment manager to the Fund pursuant to an
investment management agreement (the "Investment Management Agreement") between
it and the Fund. The Manager, a Delaware limited liability company organized in
2000, is wholly-owned by PIMCO Advisors Retail Holdings LLC (formerly known as
PIMCO Advisory Services Holdings LLC), a wholly-owned subsidiary of Allianz
Dresdner Asset Management of America L.P. ("ADAM of America," formerly PIMCO
Advisors L.P.). ADAM of America was organized as a limited partnership under
Delaware law in 1987. ADAM of America's sole general partner is Allianz Paclife
Partners LLC. Allianz Paclife Partners LLC is a Delaware limited liability
company with two members, ADAM U.S. Holding LLC, a Delaware limited liability
company, and Pacific Asset Management LLC, a Delaware limited liability company.
ADAM U.S. Holdings LLC is a wholly-owned subsidiary of Allianz Dresdner Asset
Management of America LLC, a wholly-owned subsidiary of Allianz of America, Inc.
("AZOA"), which is a wholly-owned subsidiary of Allianz AG. Allianz AG is a
publicly traded German Aktiengesellschaft (a German publicly traded company),
which, together with its subsidiaries, comprise one of the world's largest
insurance groups (the "Allianz Group"). Allianz AG's address is Koeniginstrasse
28, D-80802, Munich, Germany. Pacific Asset Management LLC is a wholly-owned
subsidiary of Pacific Life Insurance Company ("Pacific Life"), which is a
wholly-owned subsidiary of Pacific Mutual Holding Company. Pacific Mutual
Holding Company is a Newport Beach, California-based insurance holding company.
Pacific Life's address is 700 Newport Center Drive, Newport Beach, California.

     The general partner of ADAM of America has substantially delegated its
management and control of ADAM of America to an Executive Committee. The
Executive Committee of ADAM of America is comprised of Udo Frank, William S.
Thompson, Jr. and Marcus Riess.

     The Manager is located at 1345 Avenue of the Americas, New York, New York
10105. As of December 31, 2002, the Manager had approximately $     in assets
under management. As of December 31, 2002, ADAM of America and its subsidiary
partnerships, including NACM, had approximately $    in assets under management.

                                       -42-

<PAGE>

     AZOA has entered into a put/call arrangement for the possible disposition
of Pacific Life's indirect interest in the Manager. The put option held by
Pacific Life will allow it to require AZOA, on the last business day of each
calendar quarter following May 5, 2000, to purchase at a formula-based price all
units of the Manager owned directly or indirectly by Pacific Life. The call
option held by AZOA will allow it, beginning January 31, 2003 or upon a change
in control of Pacific Life, to require Pacific Life to sell or cause to be sold
to AZOA, at the same formula-based price, all units of the Manager owned
directly or indirectly by Pacific Life.

     As of the date of this Statement of Additional Information, significant
institutional shareholders of Allianz AG currently include Munchener
Ruckversicherungs-Gesellschaft AG ("Munich Re") and HypoVereinsbank. Allianz AG
in turn owns more than 95% of Dresdner Bank AG. Credit Lyonnais, Munich Re and
HypoVereinsbank, as well as certain broker-dealers that might be controlled by
or affiliated with these entities or Dresdner Bank AG, such as Dresdner
Klienwort Benson North America LLC may be considered to be affiliated persons of
the Manager and NACM. (Broker-dealer affiliates of such significant
institutional shareholders are sometimes referred to herein as "Affiliated
Brokers.") Absent an SEC exemption or other relief, the Fund generally is
precluded from effecting principal transactions with the Affiliated Brokers, and
its ability to purchase securities being underwritten by an Affiliated Broker or
a syndicate including an Affiliated Broker is subject to restrictions.
Similarly, the Fund's ability to utilize the Affiliated Brokers for agency
transactions is subject to the restrictions of Rule 17e-1 under the 1940 Act.
NACM does not believe that the restrictions on transactions with the Affiliated
Brokers described above will materially adversely affect its ability to provide
services to the Fund, the Fund's ability to take advantage of market
opportunities, or the Fund's overall performance.

     The Manager, subject to the supervision of the Board of Trustees, is
responsible for managing, either directly or through others selected by the
Manager, the investments of the Fund. The Manager also furnishes to the Board of
Trustees periodic reports on the investment performance of the Fund. As more
fully discussed below, the Manager has retained NACM to serve as the Fund's
portfolio manager.

     Under the terms of the Investment Management Agreement, subject to such
policies as the Trustees of the Fund may determine, the Manager, at its expense,
will furnish continuously an investment program for the Fund and will make
investment decisions on behalf of the Fund and place all orders for the purchase
and sale of portfolio securities subject always to the Fund's investment
objective, policies and restrictions; provided that, so long as NACM serves as
the portfolio manager for the Fund, the Manager's obligation under the
Investment Management Agreement with respect to the Fund is, subject always to
the control of the Trustees, to determine and review with NACM the investment
policies of the Fund.

     Subject to the control of the Trustees, the Manager also manages,
supervises and conducts the other affairs and business of the Fund, furnishes
office space and equipment, provides bookkeeping and certain clerical services
(excluding determination of the net asset value of the Fund, shareholder
accounting services and the accounting services for the Fund) and pays all
salaries, fees and expenses of officers and Trustees of the Fund who are
affiliated with

                                       -43-

<PAGE>

the Manager. As indicated under "Portfolio Transactions--Brokerage and Research
Services," the Fund's portfolio transactions may be placed with broker-dealers
which furnish the Manager and NACM, without cost, certain research, statistical
and quotation services of value to them or their respective affiliates in
advising the Fund or their other clients. In so doing, the Fund may incur
greater brokerage commissions and other transactions costs than it might
otherwise pay.

      Pursuant to the Investment Management Agreement, the Fund has agreed to
pay the Manager an annual management fee, payable on a monthly basis, at the
annual rate of 0.75% of the Fund's average daily net assets (including net
assets attributable to Preferred Shares) for the services and facilities it
provides. All fees and expenses are accrued daily and deducted before payment of
dividends to investors.

      Except as otherwise described in the Prospectus, the Fund pays, in
addition to the investment management fee described above, all expenses not
assumed by the Manager, including, without limitation, fees and expenses of
Trustees who are not "interested persons" of the Manager or the Fund, interest
charges, taxes, brokerage commissions, expenses of issue of shares, fees and
expenses of registering and qualifying the Fund and its classes of shares for
distribution under federal and state laws and regulations, charges of
custodians, auditing and legal expenses, expenses of determining net asset value
of the Fund, reports to shareholders, expenses of meetings of shareholders,
expenses of printing and mailing prospectuses, proxy statements and proxies to
existing shareholders, and its proportionate share of insurance premiums and
professional association dues or assessments. The Fund is also responsible for
such nonrecurring expenses as may arise, including litigation in which the Fund
may be a party, and other expenses as determined by the Trustees. The Fund may
have an obligation to indemnify its officers and Trustees with respect to such
litigation.

Portfolio Manager

      NACM, a Delaware limited liability company, serves as portfolio manager
for the Fund pursuant to a portfolio management agreement (the "Portfolio
Management Agreement") between NACM and the Manager. Under the Portfolio
Management Agreement, subject always to the control of the Trustees and the
supervision of the Manager, NACM's obligation is to furnish continuously an
investment program for the Fund, to make investment decisions on behalf of the
Fund and to place all orders for the purchase and sale of portfolio securities
and all other investments for the Fund.

      Under the Portfolio Management Agreement, the Manager pays a portion of
the fees it receives from the Fund to NACM in return for NACM's services, at the
annual rate of _% of the Fund's average daily net assets (including assets
attributable to any Preferred Shares).

      NACM was organized in August 1984 to manage discretionary accounts
investing primarily in publicly traded equity securities and securities
convertible into or exercisable for publicly traded equity securities, with the
goal of capital appreciation. On January 31, 2001, NACM was acquired by AZOA,
which is a wholly owned subsidiary of Allianz AG. The Allianz Group currently
has assets under management of approximately $_____. NACM currently manages
approximately $___ in discretionary accounts for numerous clients, including

                                      -44-

<PAGE>

investment companies, employee benefit plans, corporations, public retirements
systems and unions, university endowments, foundations and other institutional
investors and individuals. NACM is located at 600 West Broadway, 30th Floor, San
Diego, California 92101.

      Certain Terms of the Investment Management Agreement and Portfolio
Management Agreement. The Investment Management Agreement and the Portfolio
Management Agreement were each approved by the Trustees of the Fund (including
all of the Trustees who are not "interested persons" of the Manager or NACM).
The Investment Management Agreement and Portfolio Management Agreement will each
continue in force with respect to the Fund for two years from their respective
dates, and from year to year thereafter, but only so long as their continuance
is approved at least annually by (i) vote, cast in person at a meeting called
for that purpose, of a majority of those Trustees who are not "interested
persons" of the Manager, NACM or the Fund, and (ii) the majority vote of either
the full Board of Trustees or the vote of a majority of the outstanding shares
of all classes of the Fund. Each of the Investment Management Agreement and
Portfolio Management Agreement automatically terminates on assignment. The
Investment Management Agreement may be terminated on not less than 60 days'
notice by the Manager to the Fund or by the Fund to the Manager. The Portfolio
Management Agreement may be terminated on not less than 60 days' notice by the
Manager to NACM or by NACM to the Manager, or by the Fund at any time by notice
to the Manager and NACM.

      The Investment Management Agreement and the Portfolio Management Agreement
each provide that the Manager or NACM, as applicable, shall not be subject to
any liability in connection with the performance of its services thereunder in
the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.

      Basis for Approval of the Investment Management Agreement and Portfolio
Management Agreement. In determining to approve the Investment Management
Agreement and the Portfolio Management Agreement, the Trustees met with the
relevant investment advisory personnel from the Manager and NACM and considered
information relating to the education, experience and number of investment
professionals and other personnel who would provide services under the
applicable agreement. See "Management of the Fund" in the Prospectus and this
Statement of Additional Information. The Trustees also took into account the
time and attention to be devoted by senior management to the Fund and the other
funds in the complex. The Trustees evaluated the level of skill required to
manage the Fund and concluded that the human resources to be available at the
Manager and NACM were appropriate to fulfill effectively the duties of the
Manager and NACM on behalf of the Fund under the applicable agreement. The
Trustees also considered the business reputation of the Manager and NACM, their
financial resources and professional liability insurance coverage and concluded
that they would be able to meet any reasonably foreseeable obligations under the
applicable agreement.

         The Trustees received information concerning the investment philosophy
and investment process to be applied by NACM in managing the Fund. In this
connection, the Trustees considered NACM's in-house research capabilities as
well as other resources available to NACM's personnel, including research
services available to NACM as a result of securities transactions effected for
the Fund and other investment advisory clients. The Trustees concluded

                                      -45-

<PAGE>

that NACM's investment process, research capabilities and philosophy were well
suited to the Fund, given the Fund's investment objective and policies.

      The Trustees considered the scope of the services provided by the Manager
and NACM to the Fund under the Investment Management Agreement and Portfolio
Management Agreement, respectively, relative to services provided by third
parties to other mutual funds. The Trustees noted that the Manager's and NACM's
standard of care was comparable to that found in most investment company
advisory agreements. See "--Certain Terms of the Investment Management Agreement
and the Portfolio Management Agreement" above. The Trustees concluded that the
scope of the Manager's and NACM's services to be provided to the Fund was
consistent with the Fund's operational requirements, including, in addition to
its investment objective, compliance with the Fund's investment restrictions,
tax and reporting requirements and related shareholder services.

      The Trustees considered the quality of the services to be provided by
the Manager and NACM to the Fund. The Trustees also evaluated the procedures of
the Manager and NACM designed to fulfill the their fiduciary duty to the Fund
with respect to possible conflicts of interest, including their codes of ethics
(regulating the personal trading of their officers and employees) (see
"Management of the Fund--Code of Ethics" above), the procedures by which NACM
allocates trades among its various investment advisory clients, the integrity of
the systems in place to ensure compliance with the foregoing and the record of
NACM in these matters. The Trustees also received information concerning
standards of the Manager and NACM with respect to the execution of portfolio
transactions. See "Portfolio Transactions" below.

      In approving the agreements, the Trustees also gave substantial
consideration to the fees payable under the agreements. The Trustees reviewed
information concerning fees paid to investment advisers of similar funds. The
Trustees also considered the fees of the Fund as a percentage of assets at
different asset levels and possible economies of scale to the Manager. The
Trustees evaluated the Manager's profitability with respect to the Fund,
concluding that such profitability was not inconsistent with levels of
profitability that had been determined by courts not to be "excessive." In
evaluating the Fund's advisory fees, the Trustees also took into account the
complexity of investment management for the Fund relative to other types of
funds.

                             PORTFOLIO TRANSACTIONS

Investment Decisions and Portfolio Transactions

      Investment decisions for the Fund and for the other investment advisory
clients of the Manager and NACM are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved
(including the Fund). Some securities considered for investments by the Fund may
also be appropriate for other clients served by the Manager and NACM. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. If a purchase
or sale of securities consistent with the investment policies of the Fund and
one or more of these clients served by the Manager

                                      -46-

<PAGE>

or NACM is considered at or about the same time, transactions in such securities
will be allocated among the Fund and clients in a manner deemed fair and
reasonable by the Manager or NACM, as applicable. The Manager or NACM may
aggregate orders for the Fund with simultaneous transactions entered into on
behalf of its other clients so long as price and transaction expenses are
averaged either for that transaction or for the day. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged as to price and
allocated between such clients in a manner which the Manager or NACM believes is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio securities
for one or more clients will have an adverse effect on other clients.

Brokerage and Research Services

      There is generally no stated commission in the case of debt securities,
which are traded in the over-the-counter markets, but the price paid by the Fund
usually includes an undisclosed dealer commission or mark-up. In underwritten
offerings, the price paid by the Fund includes a disclosed, fixed commission or
discount retained by the underwriter or dealer. Transactions on U.S. stock
exchanges and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
Also, a particular broker may charge different commissions according to such
factors as the difficulty and size of the transaction.

      Subject to the supervision of the Manager, NACM places all orders for the
purchase and sale of portfolio securities, options and other instruments for the
Fund and buys and sells such securities, options and other instruments for the
Fund through a substantial number of brokers and dealers. In so doing, NACM uses
its best efforts to obtain for the Fund the most favorable price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable price and
execution, NACM, having in mind the Fund's best interests, considers all factors
it deems relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions.

      Subject to the supervision of the Manager, NACM places orders for the
purchase and sale of portfolio investments for the Fund's account with brokers
or dealers selected by it in its discretion. In effecting purchases and sales of
portfolio securities for the account of the Fund, NACM will seek the best price
and execution of the Fund's orders. In doing so, the Fund may pay higher
commission rates than the lowest available when NACM believes it is reasonable
to do so in light of the value of the brokerage and research services provided
by the broker effecting the transaction, as discussed below.

      It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services

                                      -47-

<PAGE>

from broker-dealers which execute portfolio transactions for the clients of such
advisers. Consistent with this practice, NACM may receive research services from
many broker-dealers with which NACM places the Fund's portfolio transactions.
NACM may also receive research or research credits from brokers which are
generated from underwriting commissions when purchasing new issues of debt
securities or other assets for the Fund. These services, which in some cases may
also be purchased for cash, include such matters as general economic and
security market reviews, industry and company reviews, evaluations of securities
and recommendations as to the purchase and sale of securities. Some of these
services are of value to NACM in advising various of its clients (including the
Fund), although not all of these services are necessarily useful and of value in
managing the Fund. Neither the management fee paid by the Fund to the Manager
nor the portfolio management fee paid by the Manager to NACM is reduced because
NACM and its affiliates receive such services.

      As permitted by Section 28(e) of the Securities Exchange Act of 1934, NACM
may cause the Fund to pay a broker-dealer which provides "brokerage and research
services" (as defined in such Act) to NACM an amount of disclosed commission for
effecting a securities transaction for the Fund in excess of the commission
which another broker-dealer would have charged for effecting that transaction.

      The Fund may use broker-dealers that are affiliates (or affiliates of
affiliates) of the Fund, the Manager and/or NACM, subject to certain
restrictions discussed above under "Investment Manager and Portfolio
Manager--Investment Advisor."

      References to NACM in this section would apply equally to the Manager if
the Manager were to assume portfolio management responsibilities for the Fund
and place orders for the purchase and sale of the Fund's portfolio investments.

                                  DISTRIBUTIONS

      As described in the Prospectus, initial distributions to Common
Shareholders are expected to be declared approximately 45 days, and paid
approximately 60 to 90 days, from the completion of the offering of the Common
Shares, depending on market conditions. To permit the Fund to maintain a more
stable monthly distribution, the Fund will initially (prior to its first
distribution), and may from time to time thereafter, distribute less than the
entire amount of net investment income earned in a particular period. Such
undistributed net investment income would be available to supplement future
distributions, including distributions that might otherwise have been reduced by
a decrease in the Fund's monthly net income due to fluctuations in investment
income or expenses, or due to an increase in the dividend rate on the Fund's
outstanding Preferred Shares. As a result, the distributions paid by the Fund
for any particular period may be more or less than the amount of net investment
income actually earned by the Fund during such period. Undistributed net
investment income will be added to the Fund's net asset value and,
correspondingly, distributions from undistributed net investment income will be
deducted from the Fund's net asset value.

      For tax purposes, the Fund is currently required to allocate net capital
gain and other taxable income, if any, between and among Common Shares and any
series of Preferred Shares

                                      -48-

<PAGE>

in proportion to total distributions paid to each class for the year in which
such net capital gain or other taxable income is realized. For information
relating to the impact of the issuance of Preferred Shares on the distributions
made by the Fund to Common Shareholders, see the Prospectus under "Preferred
Shares and Related Leverage."

     While any Preferred Shares are outstanding, the Fund may not declare any
cash dividend or other distribution on its Common Shares unless at the time of
such declaration (1) all accumulated dividends on the Preferred Shares have been
paid and (2) the net asset value of the Fund's portfolio (determined after
deducting the amount of such dividend or other distribution) is at least 200% of
the liquidation value of any outstanding Preferred Shares. This latter
limitation on the Fund's ability to make distributions on its Common Shares
could cause the Fund to incur income and excise tax and, under certain
circumstances, impair the ability of the Fund to maintain its qualification for
taxation as a regulated investment company. See "Tax Matters."

                              DESCRIPTION OF SHARES

Common Shares

     The Fund's Declaration authorizes the issuance of an unlimited number of
Common Shares. The Common Shares will be issued with a par value of $0.00001 per
share. All Common Shares of the Fund have equal rights as to the payment of
dividends and the distribution of assets upon liquidation of the Fund. Common
Shares will, when issued, be fully paid and, subject to matters discussed in
"Anti-Takeover and Other Provisions in the Declaration of Trust--Shareholder
Liability" below, non-assessable, and will have no pre-emptive or conversion
rights or rights to cumulative voting. At any time when the Fund's Preferred
Shares are outstanding, Common Shareholders will not be entitled to receive any
distributions from the Fund unless all accrued dividends on Preferred Shares
have been paid, and unless asset coverage (as defined in the 1940 Act) with
respect to Preferred Shares would be at least 200% after giving effect to such
distributions. See "--Preferred Shares" below.

     The Common Shares are expected to be listed on the New York Stock Exchange.
The Fund intends to hold annual meetings of shareholders so long as the Common
Shares are listed on a national securities exchange and such meetings are
required as a condition to such listing.

     Shares of closed-end investment companies may frequently trade at prices
lower than net asset value. Shares of closed-end investment companies like the
Fund that invest predominantly in corporate debt obligations have during some
periods traded at prices higher than net asset value and during other periods
traded at prices lower than net asset value. There can be no assurance that
Common Shares or shares of other similar funds will trade at a price higher than
net asset value in the future. Net asset value will be reduced immediately
following the offering of Common Shares after payment of the sales load and
organization and offering expenses and immediately following any offering of
Preferred Shares by the costs of that offering paid by the Fund. Net asset value
generally increases when interest rates decline, and decreases when interest
rates rise, and these changes are likely to be greater in the case of a fund,
such as the Fund, having a leveraged capital structure. Whether investors will
realize gains or losses upon

                                      -49-

<PAGE>

the sale of Common Shares will not depend upon the Fund's net asset value but
will depend entirely upon whether the market price of the Common Shares at the
time of sale is above or below the original purchase price for the shares. Since
the market price of the Fund's Common Shares will be determined by factors
beyond the control of the Fund, the Fund cannot predict whether the Common
Shares will trade at, below, or above net asset value or at, below or above the
initial public offering price. Accordingly, the Common Shares are designed
primarily for long-term investors, and investors in the Common Shares should not
view the Fund as a vehicle for trading purposes. See "Repurchase of Common
Shares; Conversion to Open-End Fund" and the Prospectus under "Preferred Shares
and Related Leverage" and "Description of Shares--Common Shares."

Preferred Shares

      The Declaration authorizes the issuance of an unlimited number of
Preferred Shares. The Preferred Shares may be issued in one or more classes or
series, with such par value and rights as determined by the Board of Trustees of
the Fund, by action of the Board of Trustees without the approval of the Common
Shareholders.

      The Fund's Board of Trustees has indicated its intention to authorize an
offering of Preferred Shares (representing approximately 38% of the Fund's
capital immediately after the time the Preferred Shares are issued) within
approximately one to three months after completion of the offering of Common
Shares, subject to market conditions and to the Board's continuing belief that
leveraging the Fund's capital structure through the issuance of Preferred Shares
is likely to achieve the benefits to the Common Shareholders described in the
Prospectus and this Statement of Additional Information. Although the terms of
the Preferred Shares, including their dividend rate, voting rights, liquidation
preference and redemption provisions, will be determined by the Board of
Trustees (subject to applicable law and the Declaration) if and when it
authorizes a Preferred Shares offering, the Board has stated that the initial
series of Preferred Shares would likely pay cumulative dividends at relatively
short-term periods (such as 7 days), by providing for the periodic
redetermination of the dividend rate through an auction or remarketing
procedure. The liquidation preference, preference on distribution, voting rights
and redemption provisions of the Preferred Shares are expected to be as stated
below.

      As used in this Statement of Additional Information, unless otherwise
noted, the Fund's "net assets" include assets of the Fund attributable to any
outstanding Preferred Shares, with no deduction for the liquidation preference
of the Preferred Shares. Solely for financial reporting purposes, however, the
Fund is required to exclude the liquidation preference of Preferred Shares from
"net assets," so long as the Preferred Shares have redemption features that are
not solely within the control of the Fund. For all regulatory and tax purposes,
the Fund's Preferred Shares will be treated as stock (rather than indebtedness).

      Limited Issuance of Preferred Shares. Under the 1940 Act, the Fund could
issue Preferred Shares with an aggregate liquidation value of up to one-half of
the value of the Fund's total net assets (total assets less all liabilities and
indebtedness not represented by "senior securities," as defined in the 1940
Act), measured immediately after issuance of the Preferred Shares. "Liquidation
value" means the original purchase price of the shares being liquidated plus any
accrued and unpaid dividends. In addition, the Fund is not permitted to declare
any

                                      -50-

<PAGE>

cash dividend or other distribution on its Common Shares unless the liquidation
value of the Preferred Shares is less than one-half of the value of the Fund's
total net assets (determined after deducting the amount of such dividend or
distribution) immediately after the distribution. To the extent that the Fund
has outstanding any senior securities representing indebtedness, the aggregate
amount of such senior securities will be added to the total liquidation value of
any outstanding Preferred Shares for purposes of these asset coverage
requirements. The liquidation value of the Preferred Shares is expected to be
approximately 38% of the value of the Fund's total net assets. The Fund intends
to purchase or redeem Preferred Shares, if necessary, to keep the liquidation
value of the Preferred Shares plus the aggregate amount of other senior
securities representing indebtedness at or below one-half of the value of the
Fund's total net assets.

      Distribution Preference. The Preferred Shares will have complete priority
over the Common Shares as to distribution of assets.

      Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Fund, Preferred
Shareholders will be entitled to receive a preferential liquidating distribution
(expected to equal the original purchase price per share plus accumulated and
unpaid dividends thereon, whether or not earned or declared) before any
distribution of assets is made to holders of Common Shares. After payment of the
full amount of the liquidating distribution to which they are entitled,
Preferred Shareholders 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 Massachusetts business trust or corporation or a sale of all or
substantially all of the assets of the Fund shall not be deemed to be a
liquidation, dissolution or winding up of the Fund.

      Voting Rights. In connection with any issuance of Preferred Shares, the
Fund must comply with Section 18(i) of the 1940 Act which requires, among other
things, that Preferred Shares be voting shares. Except as otherwise provided in
the Declaration or the Fund's Bylaws or otherwise required by applicable law,
Preferred Shareholders will vote together with Common Shareholders as a single
class.

      In connection with the election of the Fund's Trustees, Preferred
Shareholders, voting as a separate class, will also be entitled to elect two of
the Fund's Trustees, and the remaining Trustees shall be elected by Common
Shareholders and Preferred Shareholders, voting together as a single class. In
addition, if at any time dividends on the Fund's outstanding Preferred Shares
shall be unpaid in an amount equal to two full years' dividends thereon, the
holders of all outstanding Preferred Shares, voting as a separate class, will be
entitled to elect a majority of the Fund's Trustees until all dividends in
arrears have been paid or declared and set apart for payment.

      The affirmative vote of the holders of a majority of the outstanding
Preferred Shares, voting as a separate class, shall be required to approve any
action requiring a vote of security holders under Section 13(a) of the 1940 Act
including, among other things, changes in the Fund's investment objective, the
conversion of the Fund from a closed-end to an open-end company, or changes in
the investment restrictions described as fundamental policies under "Investment
Restrictions." The class or series vote of Preferred Shareholders described
above

                                      -51-

<PAGE>

shall in each case be in addition to any separate vote of the requisite
percentage of Common Shares and Preferred Shares necessary to authorize the
action in question.

      The foregoing voting provisions will not apply with respect to the Fund's
Preferred Shares if, at or prior to the time when a vote is required, such
shares shall have been (1) redeemed or (2) called for redemption and sufficient
funds shall have been deposited in trust to effect such redemption.

      Redemption, Purchase and Sale of Preferred Shares by the Fund. The terms
of the Preferred Shares may provide that they are redeemable at certain times,
in whole or in part, at the original purchase price per share plus accumulated
dividends, that the Fund may tender for or purchase Preferred Shares and that
the Fund may subsequently resell any shares so tendered for or purchased. Any
redemption or purchase of Preferred Shares by the Fund will reduce the leverage
applicable to Common Shares, while any resale of shares by the Fund will
increase such leverage.

      The discussion above describes the present intention of the Board of
Trustees of the Fund with respect to a possible offering of Preferred Shares. If
the Board of Trustees determines to authorize such an offering, the terms of the
Preferred Shares may be the same as, or different from, the terms described
above, subject to applicable law and the Declaration.

         ANTI-TAKEOVER AND OTHER PROVISIONS IN THE DECLARATION OF TRUST

Shareholder Liability

      Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Declaration contains an express disclaimer of shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Fund or
the Trustees. The Declaration also provides for indemnification out of the
Fund's property for all loss and expense of any shareholder held personally
liable on account of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which such disclaimer is inoperative or the Fund is
unable to meet its obligations, and thus should be considered remote.

Anti-Takeover Provisions

      As described below, the Declaration 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 Trustees, and
could have the effect of depriving shareholders of opportunities to sell their
shares at a premium over prevailing market prices by discouraging a third party
from seeking to obtain control of the Fund.

      The Fund's Trustees are divided into three classes (Class I, Class II
and Class III), having initial terms of one, two and three years, respectively.
At each annual meeting of shareholders, the term of one class will expire and
each Trustee elected to that class will hold office for a term of three years.
The classification of the Board of Trustees in this manner could delay for an

                                      -52-

<PAGE>

additional year the replacement of a majority of the Board of Trustees. In
addition, the Declaration provides that a Trustee may be removed only for cause
and only (i) by action of at least seventy-five percent (75%) of the outstanding
shares of the classes or series of shares entitled to vote for the election of
such Trustee, or (ii) by at least seventy-five percent (75%) of the remaining
Trustees.

      Except as provided in the next paragraph, the affirmative vote or consent
of at least seventy-five percent (75%) of the Board of Trustees and at least
seventy-five percent (75%) of the shares of the Fund outstanding and entitled to
vote thereon are required to authorize any of the following transactions (each a
"Material Transaction"): (1) a merger, consolidation or share exchange of the
Fund or any series or class of shares of the Fund with or into any other person
or company, or of any such person or company with or into the Fund or any such
series or class of shares; (2) the issuance or transfer by the Fund or any
series or class of shares (in one or a series of transactions in any
twelve-month period) of any securities of the Fund or such series or class to
any other person or entity for cash, securities or other property (or
combination thereof) having an aggregate fair market value of $1,000,000 or
more, excluding sales of securities of the Fund or such series or class in
connection with a public offering, issuances of securities of the Fund or such
series or class pursuant to a dividend reinvestment plan adopted by the Fund and
issuances of securities of the Fund or such series or class upon the exercise of
any stock subscription rights distributed by the Fund; or (3) a sale, lease,
exchange, mortgage, pledge, transfer or other disposition by the Fund or any
series or class of shares (in one or a series of transactions in any
twelve-month period) to or with any person of any assets of the Fund or such
series or class having an aggregate fair market value of $1,000,000 or more,
except for transactions in securities effected by the Fund or such series or
class in the ordinary course of its business. The same affirmative votes are
required with respect to any shareholder proposal as to specific investment
decisions made or to be made with respect to the Fund's assets or the assets of
any series or class of shares of the Fund.

      Notwithstanding the approval requirements specified in the preceding
paragraph, the Declaration requires no vote or consent of the Fund's
shareholders to authorize a Material Transaction if the transaction is approved
by a vote of both a majority of the Board of Trustees and seventy-five percent
(75%) of the Continuing Trustees (as defined below), so long as all other
conditions and requirements, if any, provided for in the Fund's Bylaws and
applicable law (including any shareholder voting rights under the 1940 Act) have
been satisfied.

      In addition, the Declaration provides that the Fund may be terminated at
any time by vote or consent of at least seventy-five percent (75%) of the Fund's
shares or, alternatively, by vote or consent of both a majority of the Board of
Trustees and seventy-five percent (75%) of the Continuing Trustees (as defined
below).

      In certain circumstances, the Declaration also imposes shareholder voting
requirements that are more demanding than those required under the 1940 Act in
order to authorize a conversion of the Fund from a closed-end to an open-end
investment company. See "Repurchase of Common Shares; Conversion to Open-End
Fund" below.

      As noted, the voting provisions described above could have the effect of
depriving Common Shareholders of an opportunity to sell their Common Shares at a
premium over

                                      -53-

<PAGE>

prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction. In the view of the
Fund's Board of Trustees, however, these provisions offer several possible
advantages, including: (1) requiring persons seeking control of the Fund to
negotiate with its management regarding the price to be paid for the amount of
Common Shares required to obtain control; (2) promoting continuity and
stability; and (3) enhancing the Fund's ability to pursue long-term strategies
that are consistent with its investment objective and management policies. The
Board of Trustees has determined that the voting requirements described above,
which are generally greater than the minimum requirements under the 1940 Act,
are in the best interests of the Fund's Common Shareholders generally.

      A "Continuing Trustee," as used in the discussion above, is any member of
the Fund's Board of Trustees who either (i) has been a member of the Board for a
period of at least thirty-six months (or since the commencement of the Fund's
operations, if less than thirty-six months) or (ii) was nominated to serve as a
member of the Board of Trustees by a majority of the Continuing Trustees then
members of the Board.

      The foregoing is intended only as a summary and is qualified in its
entirety by reference to the full text of the Declaration and the Fund's Bylaws,
both of which have been filed as exhibits to the Fund's registration statement
on file with the SEC.

Liability of Trustees

      The Declaration provides that the obligations of the Fund are not binding
upon the Trustees of the Fund individually, but only upon the assets and
property of the Fund, and that the Trustees shall not be liable for errors of
judgment or mistakes of fact or law. Nothing in the Declaration, however,
protects a Trustee against any liability to which he 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 office.

            REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND

      The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Fund's Common Shares will trade in the open market at a price that will be a
function of several factors, including dividend levels (which are in turn
affected by expenses), net asset value, call protection, price, dividend
stability, relative demand for and supply of such shares in the market, general
market and economic conditions and other factors. Shares of a closed-end
investment company may frequently trade at prices lower than net asset value.
The Fund's Board of Trustees regularly monitors the relationship between the
market price and net asset value of the Common Shares. If the Common Shares were
to trade at a substantial discount to net asset value for an extended period of
time, the Board may consider the repurchase of its Common Shares on the open
market or in private transactions, or the making of a tender offer for such
shares. There can be no assurance, however, that the Board of Trustees will
decide to take or propose any of these actions, or that share repurchases or
tender offers, if undertaken, will reduce market discount.

                                      -54-

<PAGE>

The Fund has no present intention to repurchase its Common Shares and would do
so only in the circumstances described in this section.

      Notwithstanding the foregoing, at any time when the Fund's Preferred
Shares are outstanding, the Fund may not purchase, redeem or otherwise acquire
any of its Common Shares unless (1) all accrued dividends on Preferred Shares
have been paid and (2) at the time of such purchase, redemption or acquisition,
the net asset value of the Fund's portfolio (determined after deducting the
acquisition price of the Common Shares) is at least 200% of the liquidation
value of the outstanding Preferred Shares (expected to equal the original
purchase price per share plus any accrued and unpaid dividends thereon).

      Subject to its investment limitations, the Fund may borrow to finance the
repurchase of shares or to make a tender offer. Interest on any borrowings to
finance share repurchase transactions or the accumulation of cash by the Fund in
anticipation of share repurchases or tenders will reduce the Fund's net income.
Any share repurchase, tender offer or borrowing that might be approved by the
Board of Trustees would have to comply with the Securities Exchange Act of 1934,
as amended, and the 1940 Act and the rules and regulations thereunder.

      The Fund's Board of Trustees may also from time to time consider
submitting to the holders of the shares of beneficial interest of the Fund a
proposal to convert the Fund to an open-end investment company. In determining
whether to exercise its sole discretion to submit this issue to shareholders,
the Board of Trustees would consider all factors then relevant, including the
relationship of the market price of the Common Shares to net asset value, the
extent to which the Fund's capital structure is leveraged and the possibility of
re-leveraging, the spread, if any, between the yields on securities in the
Fund's portfolio and interest and dividend charges on Preferred Shares issued by
the Fund and general market and economic conditions.

      The Declaration requires the affirmative vote or consent of holders of at
least seventy-five percent (75%) of each class of the Fund's shares entitled to
vote on the matter to authorize a conversion of the Fund from a closed-end to an
open-end investment company, unless the conversion is authorized by both a
majority of the Board of Trustees and seventy-five percent (75%) of the
Continuing Trustees (as defined above under "Anti-Takeover and Other Provisions
in the Declaration of Trust--Anti-Takeover Provisions"). This seventy-five
percent (75%) shareholder approval requirement is higher than is required under
the 1940 Act. In the event that a conversion is approved by the Trustees and the
Continuing Trustees as described above, the minimum shareholder vote required
under the 1940 Act would be necessary to authorize the conversion. Currently,
the 1940 Act would require approval of the holders of a "majority of the
outstanding" Common Shares and, if issued, Preferred Shares voting together as a
single class, and the holders of a "majority of the outstanding" Preferred
Shares voting as a separate class, in order to authorize a conversion.

      If the Fund converted to an open-end company, it would be required to
redeem all Preferred Shares then outstanding (requiring in turn that it
liquidate a portion of its investment portfolio), and the Fund's Common Shares
likely would no longer be listed on the New York Stock Exchange. Shareholders of
an open-end investment company may require the company to redeem their shares on
any business day (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

                                      -55-

<PAGE>

effect at the time of redemption. In order to avoid maintaining large cash
positions or liquidating favorable investments to meet redemptions, open-end
companies typically engage in a continuous offering of their shares. Open-end
companies are thus subject to periodic asset in-flows and out-flows that can
complicate portfolio management.

         The repurchase by the Fund of its shares at prices below net asset
value will result in an increase in the net asset value of those shares that
remain outstanding. However, there can be no assurance that share repurchases or
tenders at or below net asset value will result in the Fund's shares trading at
a price equal to their net asset value. Nevertheless, the fact that the Fund's
shares may be the subject of repurchase or tender offers at net asset value from
time to time, or that the Fund may be converted to an open-end company, may
reduce any spread between market price and net asset value that might otherwise
exist.

         In addition, a purchase by the Fund of its Common Shares will decrease
the Fund's total assets. This would likely have the effect of increasing the
Fund's expense ratio. Any purchase by the Fund of its Common Shares at a time
when Preferred Shares are outstanding will increase the leverage applicable to
the outstanding Common Shares then remaining. See the Prospectus under
"Risks--Leverage Risk."

         Before deciding whether to take any action if the Fund's Common Shares
trade below net asset value, the Board of Trustees would consider all relevant
factors, including the extent and duration of the discount, the liquidity of the
Fund's portfolio, the impact of any action that might be taken on the Fund or
its shareholders and market considerations. Based on these considerations, even
if the Fund's shares should trade at a discount, the Board of Trustees may
determine that, in the interest of the Fund and its shareholders, no action
should be taken.

                                   TAX MATTERS

         Taxation of the Fund. The Fund intends to qualify each year as a
regulated investment company under Subchapter M of the Code. In order to qualify
for the special tax treatment accorded regulated investment companies and their
shareholders, the Fund must, among other things:

         (a) derive at least 90% of its gross income from dividends, interest,
         payments with respect to certain securities loans, and gains from the
         sale of stock, securities or foreign currencies, or other income
         (including but not limited to gains from options, futures, or forward
         contracts) derived with respect to its business of investing in such
         stock, securities, or currencies;

         (b) distribute with respect to each taxable year at least 90% of the
         sum of its net tax-exempt income, taxable ordinary income and the
         excess, if any, of net short-term capital gains over net long-term
         capital losses for such year; and

         (c) diversify its holdings so that, at the end of each quarter of the
         Fund's taxable year, (i) at least 50% of the market value of the Fund's
         total assets is represented by cash and cash items, U.S. Government
         securities, securities of other regulated investment companies, and
         other securities limited in respect of any one issuer to a value not
         greater than 5% of the value of the Fund's total assets and not more
         than 10% of the outstanding

                                      -56-

<PAGE>

         voting securities of such issuer, and (ii) not more than 25% of the
         value of the Fund's total assets is invested in the securities (other
         than those of the U.S. Government or other regulated investment
         companies) of any one issuer or of two or more issuers which the Fund
         controls and which are engaged in the same, similar, or related trades
         or businesses.

         If the Fund qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to federal income
tax on income distributed in a timely manner to its shareholders in the form of
dividends (including Capital Gain Dividends, as defined below).

         If the Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to shareholders as ordinary
income. Such distributions generally would be eligible for the dividends
received deduction in the case of corporate shareholders. In addition, the Fund
could be required to recognize unrealized gains, pay substantial taxes and
interest and make substantial distributions before requalifying as a regulated
investment company that is accorded special tax treatment.

         The Fund intends to distribute at least annually to its shareholders
all or substantially all of its investment company taxable income and any net
tax-exempt interest, and may distribute its net capital gain. The Fund may also
retain for investment its net capital gain. If the Fund does retain any net
capital gain or any investment company taxable income, it will be subject to tax
at regular corporate rates on the amount retained. If the Fund retains any net
capital gain, it may designate the retained amount as undistributed capital
gains in a notice to its shareholders who, if subject to federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund on such undistributed amount against their
federal income tax liabilities, if any, and to claim refunds to the extent the
credit exceeds such liabilities. For federal income tax purposes, the tax basis
of shares owned by a shareholder of the Fund will be increased by an amount
equal under current law to the difference between the amount of undistributed
capital gains included in the shareholder's gross income and the tax deemed paid
by the shareholder under clause (ii) of the preceding sentence.

         Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain, to elect
to treat all or part of any net capital loss, any net long-term capital loss or
any net foreign currency loss incurred after October 31 as if it had been
incurred in the succeeding year.

         If the Fund fails to distribute in a calendar year at least an amount
equal to the sum of 98% of its ordinary income for such year and 98% of its
capital gain net income for the one-year period ending October 31 of such year,
plus any retained amount from the prior year, the Fund will be subject to a 4%
excise tax on the undistributed amounts. For these purposes, the Fund will be
treated as having distributed any amount for which it is subject to income tax.
A dividend paid to shareholders in January of a year generally is deemed to have
been paid by the Fund on December 31 of the preceding year, if the dividend was
declared and payable to

                                      -57-

<PAGE>

shareholders of record on a date in October, November or December of that
preceding year. The Fund intends generally to make distributions sufficient to
avoid imposition of the 4% excise tax.

         Fund Distributions. Distributions from the Fund will be taxable to
shareholders as ordinary income to the extent derived from investment income and
net short-term capital gains. Distributions of net capital gains (that is, the
excess of net gains from the sale of capital assets held more than one year over
net losses from the sale of capital assets held for not more than one year)
properly designated as capital gain dividends ("Capital Gain Dividends") will be
taxable to shareholders as long-term gain, regardless of how long a shareholder
has held the shares in the Fund.

         Dividends (including Capital Gain Dividends) will be taxable as
described above whether received in cash or in shares. A shareholder whose
distributions are reinvested in shares will be treated as having received a
dividend equal to either (i) the fair market value of the new shares issued to
the shareholder, or (ii) if the shares are trading below net asset value, the
amount of cash allocated to the shareholder for the purchase of shares on its
behalf in the open market.

         Dividends of net investment income received by corporate shareholders
of the Fund will qualify for the 70% dividends received deduction generally
available to corporations to the extent of the amount of qualifying dividends
received by the Fund from domestic corporations for the taxable year. A dividend
received by the Fund will not be treated as a qualifying dividend (1) if the
stock on which the dividend is paid is considered to be "debt-financed"
(generally, acquired with borrowed funds), (2) if it has been received with
respect to any share of stock that the Fund has held for less than 46 days (91
days in the case of certain preferred stock) during the 90-day period beginning
on the date which is 45 days before the date on which such share becomes
ex-dividend with respect to such dividend (during the 180-day period beginning
90 days before such date in the case of certain preferred stock) or (3) to the
extent that the Fund is under an obligation (pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially
similar or related property. Moreover, the dividends received deduction may be
disallowed or reduced (1) if the corporate shareholder fails to satisfy the
foregoing requirements with respect to its shares of the Fund or (2) by
application of the Code.

         The Internal Revenue Service currently requires that a regulated
investment company that has two or more classes of stock allocate to each such
class proportionate amounts of each type of its income (such as ordinary income
and capital gains) based upon the percentage of total dividends distributed to
each class for the tax year. Accordingly, the Fund intends each year to allocate
Capital Gain Dividends between and among its Common Shares and any series of its
Preferred Shares in proportion to the total dividends paid to each class with
respect to such tax year. Dividends qualifying and not qualifying for the
dividends received deduction will similarly be allocated between and among the
two (or more) classes.

         Return of Capital Distributions. If the Fund makes a distribution to a
shareholder in excess of the Fund's current and accumulated earnings and profits
in any taxable year, the excess distribution will be treated as a return of
capital to the extent of such shareholder's tax basis in its shares, and
thereafter as capital gain. A return of capital is not taxable, but it reduces a
shareholder's tax basis in its shares, thus reducing any loss or increasing any
gain on a subsequent taxable disposition by the shareholder of its shares. Where
one or more such

                                      -58-

<PAGE>

distributions occur in any taxable year of the Fund, the available earnings and
profits will be allocated, first, to the distributions made to the holders of
Preferred Shares, and only thereafter to distributions made to holders of Common
Shares. As a result, the holders of Preferred Shares will receive a
disproportionate share of the distributions treated as dividends, and the
holders of the Common Shares will receive a disproportionate share of the
distributions treated as a return of capital.

         Dividends and distributions on the Fund's shares are generally subject
to federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when the Fund's net asset value also reflects unrealized
losses. Distributions are taxable to a shareholder even if they are paid from
income or gains earned by the Fund prior to the shareholder's investment (and
thus included in the price paid by the shareholders).

         Securities Issued or Purchased at a Discount. The Fund's investment in
securities issued at a discount and certain other obligations will (and
investments in securities purchased at a market discount may) require the Fund
to accrue and distribute income not yet received. In order to generate
sufficient cash to make the requisite distributions, the Fund may be required to
sell securities in its portfolio that it otherwise would have continued to hold.

         Capital Loss Carryover. Distributions from capital gains are generally
made after applying any available capital loss carryovers.

         Sale or Redemption of Shares. The sale, exchange or redemption of Fund
shares may give rise to a gain or loss. In general, any gain or loss realized
upon a taxable disposition of shares will be treated as long-term capital gain
or loss if the shares have been held for more than 12 months. Otherwise, the
gain or loss on the taxable disposition of Fund shares will be treated as
short-term capital gain or loss. However, any loss realized upon a taxable
disposition of shares held for six months or less will be treated as long-term,
rather than short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the shares. All or a
portion of any loss realized upon a taxable disposition of Fund shares will be
disallowed if other shares of the Fund are purchased within 30 days before or
after the disposition. In such a case, the basis of the newly purchased shares
will be adjusted to reflect the disallowed loss.

         From time to time the Fund may make a tender offer for its Common
Shares. It is expected that the terms of any such offer will require a tendering
shareholder to tender all Common Shares and dispose of all Preferred Shares
held, or considered under certain attribution rules of the Code to be held, by
such shareholder. Shareholders who tender all Common Shares and dispose of all
Preferred Shares held, or considered to be held, by them will be treated as
having sold their shares and generally will realize a capital gain or loss. If a
shareholder tenders fewer than all of its Common Shares, or retains a
substantial portion of its Preferred Shares, such shareholder may be treated as
having received a taxable dividend upon the tender of its Common Shares. In such
a case, there is a remote risk that non-tendering shareholders will be treated
as

                                      -59-

<PAGE>

having received taxable distributions from the Fund. Likewise, if the Fund
redeems some but not all of the Preferred Shares held by a Preferred Shareholder
and such shareholder is treated as having received a taxable dividend upon such
redemption, there is a remote risk that Common Shareholders and non-redeeming
Preferred Shareholders will be treated as having received taxable distributions
from the Fund. To the extent that the Fund recognizes net gains on the
liquidation of portfolio securities to meet such tenders of Common Shares, the
Fund will be required to make additional distributions to its Common
Shareholders.

         Original Issue Discount and Payment-in-Kind Securities. Current federal
tax law requires the holder of a U.S. Treasury or other fixed income zero-coupon
security to accrue as income each year a portion of the discount at which the
security was issued, even though the holder receives no interest payment in cash
on the security during the year. In addition, payment-in-kind securities will
give rise to income which is required to be distributed and is taxable even
though the Fund holding the security receives no interest payment in cash on the
security during the year.

         Some of the debt obligations (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt obligations that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. A portion of the OID includable in income with respect to
certain high yield corporate debt obligations (including certain payment-in-kind
securities) may be treated as a dividend for certain U.S. federal income tax
purposes.

         Some of the debt obligations (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. The Fund may make one or more of the elections applicable to debt
obligations having market discount, which could affect the character and timing
of recognition of income.

         Some debt obligations (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
obligations. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt obligations having acquisition discount, or OID, which could affect the
character and timing of recognition of income.

         If the Fund holds the foregoing kinds of securities, it may be required
to pay out as an income distribution each year an amount which is greater than
the total amount of cash interest the Fund actually received. Such distributions
may be made from the cash assets of the Fund or by liquidation of portfolio
securities, if necessary. The Fund may realize gains or losses from

                                      -60-

<PAGE>

such liquidations. In the event the Fund realizes net capital gains from such
transactions, its shareholders may receive a larger capital gain distribution
than they would in the absence of such transactions.

         Higher-Risk Securities. The Fund may invest to a significant extent in
debt obligations that are in the lowest rating categories or are unrated,
including debt obligations of issuers not currently paying interest or who are
in default. Investments in debt obligations that are at risk of or in default
present special tax issues for the Fund. Tax rules are not entirely clear about
issues such as when the Fund may cease to accrue interest, original issue
discount or market discount, when and to what extent deductions may be taken for
bad debts or worthless securities and how payments received on obligations in
default should be allocated between principal and income. These and other
related issues will be addressed by the Fund when, as and if it invests in such
securities, in order to seek to ensure that it distributes sufficient income to
preserve its status as a regulated investment company and does not become
subject to U.S. federal income or excise tax.

         Issuer Deductibility of Interest. A portion of the interest paid or
accrued on certain high yield discount obligations may not (and interest paid on
debt obligations, if any, that are considered for tax purposes to be payable in
the equity of the issuer or a related party will not) be deductible to the
issuer. This may affect the cash flow of the issuer. If a portion of the
interest paid or accrued on certain high yield discount obligations is not
deductible, that portion will be treated as a dividend for purposes of the
corporate dividends received deduction. In such cases, if the issuer of the high
yield discount obligations is a domestic corporation, dividend payments by the
Fund will be eligible for the dividends received deduction to the extent of the
deemed dividend portion of such accrued interest.

         [Certain Investments in REITs. The Fund may invest in REITs that hold
residual interests in real estate mortgage investment conduits ("REMICs"). Under
Treasury regulations that have not yet been issued, but may apply retroactively,
a portion of the Fund's income from a REIT that is attributable to the REIT's
residual interest in a REMIC (referred to in the Code as an "excess inclusion")
will be subject to federal income tax in all events. These regulations are also
expected to provide that excess inclusion income of a regulated investment
company, such as the Fund, will be allocated to shareholders of the regulated
investment company in proportion to the dividends received by such shareholders,
with the same consequences as if the shareholders held the related REMIC
residual interest directly.

         In general, excess inclusion income allocated to shareholders (i)
cannot be offset by net operating losses (subject to a limited exception for
certain thrift institutions), (ii) will constitute unrelated business taxable
income to entities (including a qualified pension plan, an individual retirement
account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax
on unrelated business income, thereby potentially requiring such an entity that
is allocated excess inclusion income, and otherwise might not be required to
file a tax return, to file a tax return and pay tax on such income, and (iii) in
the case of a non-U.S. shareholder, will not qualify for any reduction in U.S.
federal withholding tax. If a charitable remainder trust (defined in section 664
of the Code) realizes any unrelated business taxable income for a taxable year,
it will lose its tax-exempt status for the year. In addition, if at any time
during any taxable year a "disqualified organization" (as defined in the Code)
is a record holder of a share in a regulated investment company, then the
regulated investment company will be subject to a tax equal to that portion of
its excess inclusion income for the taxable year that is allocable to the
disqualified organization, multiplied by the highest federal income tax rate
imposed on corporations. The Fund does not intend to invest in REITS in which a
substantial portion of the assets will consist of residual interests in REMICs.]

         [Options, Futures, Forward Contracts and Swap Agreements. To the extent
the Fund enters into any transactions in options, futures contracts, hedging
transactions, forward contracts, swap agreements, straddles and foreign
currencies, such transactions will be subject to special tax rules (including
mark-to-market, constructive sale, straddle, wash sale and short sale rules),
the effect of which may be to accelerate income to the Fund, defer losses to the
Fund, cause

                                      -61-

<PAGE>

adjustments in the holding periods of the Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.

     To the extent the Fund undertakes any hedging activities (including its
transactions, if any, in foreign currencies or foreign currency-denominated
instruments), such hedging activities are likely to produce a difference between
its book income and its taxable income. If the Fund's book income exceeds its
taxable income, the distribution (if any) of such excess generally will be
treated as (i) a dividend to the extent of the Fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt income), (ii)
thereafter, as a return of capital to the extent of the recipient basis in the
shares, and (iii) thereafter, as gain from the sale or exchange of a capital
asset. If the Fund's book income is less than taxable income, the Fund could be
required to make distributions exceeding book income to qualify as a regulated
investment company that is accorded special tax treatment.]

     Foreign Currency Transactions. [The Fund's transactions in foreign
currencies, foreign currency-denominated debt obligations and certain foreign
currency options, futures contracts and forward contracts (and similar
instruments) may give rise to ordinary income or loss to the extent such income
or loss results from fluctuations in the value of the foreign currency
concerned.]

     Foreign Taxation. Income received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. Shareholders generally will not be entitled to claim a
credit or deduction with respect to foreign taxes.

     Passive Foreign Investment Companies. Investment by the Fund in certain
"passive foreign investment companies" ("PFICs") could potentially subject the
Fund to a U.S. federal income tax (including interest charges) on distributions
received from the company or on proceeds received from the disposition of shares
in the company, which tax cannot be eliminated by making distributions to Fund
shareholders. However, the Fund may elect to avoid the imposition of that tax.
For example, the Fund may elect to treat a PFIC as a "qualified electing fund"
(a "QEF election"), in which case the Fund will be required to include its share
of the company's income and net capital gains annually, regardless of whether it
receives any distribution from the company. The Fund also may make an election
to mark the gains (and to a limited extent losses) in such holdings "to the
market" as though it had sold and repurchased its holdings in those PFICs on the
last day of the Fund's taxable year. Such gains and losses are treated as
ordinary income and loss. The QEF and mark-to-market elections may accelerate
the recognition of income (without the receipt of cash) and increase the amount
required to be distributed by the Fund to avoid taxation. Making either of these
elections therefore may require the Fund to liquidate other investments
(including when it is not advantageous to do so) to meet its distribution
requirement, which also may accelerate the recognition of gain and affect the
Fund's total return.

     Shares purchased through tax-qualified plans. Special tax rules apply to
investments through defined contribution plans and other tax-qualified plans.
Shareholders should consult

                                      -62-

<PAGE>

their tax advisers to determine the suitability of shares of the Fund as an
investment through such plans and the precise effect of and investment on their
particular tax situation.

     Non-U.S. Shareholders. Under U.S. federal tax law, dividends other than
Capital Gain Dividends paid on shares beneficially held by a person who is a
"foreign person" within the meaning of the Code, are, in general, subject to
withholding of U.S. federal income tax at a rate of 30% of the gross dividend,
which rate may, in some cases, be reduced by an applicable tax treaty. Dividends
are subject to withholding even if they are funded by income or gains (such as
portfolio interest, short-term capital gains, or foreign-source dividend and
interest income) that, if paid to a foreign person directly, would not be
subject to withholding. However, Capital Gain Dividends will not be subject to
withholding of U.S. federal income tax. If a beneficial holder who is a foreign
person has a trade or business in the United States, and the dividends are
effectively connected with the conduct by the beneficial holder of a trade or
business in the United States, the dividend will be subject to U.S. federal net
income taxation at regular income tax rates.

     Under U.S. federal tax law, a beneficial holder of shares who is a foreign
person is not, in general, subject to U.S. federal income tax on gains (and is
not allowed a deduction for losses) realized on the sale of such shares unless
(i) such gain is effectively connected with the conduct of a trade or business
carried on by such holder within the United States or (ii) in the case of an
individual holder, the holder is present in the United States for a period or
periods aggregating 183 days or more during the year of the sale and certain
other conditions are met.

     If you are eligible for the benefits of a tax treaty, any effectively
connected income or gain will generally be subject to U.S. federal income tax on
a net basis only if it is also attributable to a permanent establishment
maintained by you in the United States.

     A beneficial holder of shares who is a foreign person may be subject to
state and local tax and to the U.S. federal estate tax in addition to the
federal tax on income referred to above.

     Backup Withholding. The Fund generally is required to withhold and remit to
the U.S. Treasury a percentage of the taxable dividends and other distributions
paid to any individual shareholder who fails to properly furnish the Fund with a
correct taxpayer identification number ("TIN"), who has under-reported dividend
or interest income, or who fails to certify to the Fund that he or she is not
subject to such withholding. The backup withholding tax rate is (i) 30% for
amounts paid during 2003, (ii) 29% for amounts paid during 2004 and 2005, and
(iii) 28% for amounts paid during 2006 through 2010. The backup withholding rate
will be 31% for amounts paid after December 31, 2010, unless Congress enacts tax
legislation providing otherwise.

     In order for a foreign investor to qualify for exemption from the back-up
withholding tax rates under income tax treaties, the foreign investor must
comply with special certification and filing requirements. Foreign investors in
the Fund should consult their tax advisers in this regard.

     Recent Tax Proposal. The Bush Administration has announced a proposal to
reduce or eliminate the tax on dividends; however, many of the details of the
proposal (including how the proposal would apply to dividends paid by a
regulated investment company) have not been

                                      -63-

<PAGE>

specified. Moreover, the prospects for this proposal are unclear. Accordingly,
it is not currently possible to evaluate how this proposal might affect the tax
discussion above.

     General. The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their tax advisers
regarding the specific federal tax consequences of purchasing, holding, and
disposing of shares of the Fund, as well as the effects of state, local and
foreign tax law and any proposed tax law changes.

                 PERFORMANCE RELATED AND COMPARATIVE INFORMATION

     The Fund may quote certain performance-related information and may compare
certain aspects of its portfolio and structure to other substantially similar
closed-end funds as categorized by Lipper, Inc. ("Lipper"), Morningstar Inc. or
other independent services. Comparison of the Fund to an alternative investment
should be made with consideration of differences in features and expected
performance. The Fund may obtain data from sources or reporting services, such
as Bloomberg Financial ("Bloomberg") and Lipper, that the Fund believes to be
generally accurate.

     The Fund, in its advertisements, may refer to pending legislation from time
to time and the possible impact of such legislation on investors, investment
strategy and related matters. At any time in the future, yields and total return
may be higher or lower than past yields and there can be no assurance that any
historical results will continue.

     Past performance is not indicative of future results. At the time Common
Shareholders sell their shares, they may be worth more or less than their
original investment.

     See Appendix A for additional performance related and comparative and other
information.

            CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSEMENT AGENT

                            serves as custodian for assets of the Fund.  The
custodian performs custodial and fund accounting services.

     PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809, serves as the
transfer agent, registrar and dividend disbursement agent for the Common Shares,
as well as agent for the Dividend Reinvestment Plan relating to the Common
Shares.

                             INDEPENDENT ACCOUNTANTS

     PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as independent accountants for the Fund. PricewaterhouseCoopers
LLP provides

                                      -64-

<PAGE>

audit services, tax return preparation and assistance and consultation in
connection with review of SEC filings to the Fund.

                                     COUNSEL

     Ropes & Gray, One International Place, Boston, MA 02110, passes upon
certain legal matters in connection with shares offered by the Fund, and also
acts as counsel to the Fund.

                             REGISTRATION STATEMENT

     A Registration Statement on Form N-2, including any amendments thereto,
relating to the shares of the Fund offered hereby, has been filed by the Fund
with the Securities and Exchange Commission (the "SEC"), Washington, D.C. The
Prospectus and this Statement of Additional Information do not contain all of
the information set forth in the Registration Statement, including any exhibits
and schedules thereto. For further information with respect to the Fund and the
shares offered or to be offered hereby, reference is made to the Fund's
Registration Statement. Statements contained in the Prospectus and this
Statement of Additional Information 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. Copies of the Registration Statement may be inspected without
charge at the SEC's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the SEC upon the payment of certain fees
prescribed by the SEC.

                                      -65-

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

                                [TO BE PROVIDED]

                                      -66-

<PAGE>

                              FINANCIAL STATEMENTS

                  NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND

                       STATEMENT OF ASSETS AND LIABILITIES

                                        , 2003

                                [TO BE PROVIDED]

                             STATEMENT OF OPERATIONS

                             ON DAY ENDED     , 2002

                                [TO BE PROVIDED]

                                      -67-

<PAGE>

                                   APPENDIX A

                             PERFORMANCE RELATED AND
                        COMPARATIVE AND OTHER INFORMATION

     From time to time, the Fund, the Manager and/or NACM may report to
shareholders or to the public in advertisements concerning the performance of
the Manager and/or NACM as adviser to clients other than the Fund, or on the
comparative performance or standing of the Manager and/or NACM in relation to
other money managers. The Manager and/or NACM also may provide current or
prospective private account clients, in connection with standardized performance
information for the Fund, performance information for the Fund gross of fees and
expenses for the purpose of assisting such clients in evaluating similar
performance information provided by other investment managers or institutions.
Comparative information may be complied or provided by independent ratings
services or by news organizations. Any performance information, whether related
to the Fund, the Manager or NACM, should be considered in light of the Fund's
investment objective and policies, characteristics and quality of the Fund, and
the market conditions during the time period indicated, and should not be
considered to be representative of what may be achieved in the future.
Performance information for the Fund may be compared to various unmanaged
indexes.


                     [ADDITIONAL INFORMATION TO BE PROVIDED]

<PAGE>

                           PART C - OTHER INFORMATION

Item 24: Financial Statements and Exhibits

      1. Financial Statements:


            Registrant has not conducted any business as of the date of this
      filing, other than in connection with its organization. Financial
      Statements indicating that the Registrant has met the net worth
      requirements of Section 14(a) of the 1940 Act are filed herewith as part
      of the Statement of Additional Information.


               2. Exhibits:

a.    Agreement and Declaration of Trust dated January 17, 2003, filed
      herewith.

b.    Bylaws of Registrant dated January 17, 2003, filed herewith.

c.    None.

d.1   Article III (Shares) and Article V (Shareholders' Voting Powers and
      Meetings) of the Agreement and Declaration of Trust, filed herewith.

d.2   Article 10 (Shareholders' Voting Powers and Meetings) of the Bylaws of
      Registrant, filed herewith.



d.3   Form of Share Certificate of the Common Shares.*

e.    Terms and Conditions of Dividend Reinvestment Plan.*

f.    None.


g.1   Form of Investment Management Agreement between Registrant and PIMCO
      Advisors Fund Management LLC.*

g.2   Form of Portfolio Management Agreement between PIMCO Advisors Fund
      Management LLC and Nicholas-Applegate Capital Management LLC.*

h.1   Form of Underwriting Agreement.*

h.2   Form of Master Selected Dealer Agreement.*

h.3   Form of Master Agreement Among Underwriters.*

i.    None.


j.    Form of Custodian Agreement between Registrant and             .*

k.1   Form of Transfer Agency Services Agreement between Registrant and
      PFPC Inc.*

                                       C-1

<PAGE>

k.2    Form of Organizational and Offering Expenses Reimbursement Agreement
       between Registrant and PIMCO Advisors Fund Management LLC.*

l.     Opinion and consent of Ropes & Gray.*

m.     None.

n.     Consent of Registrant's independent accountants.*

o.     None.

p.     Subscription Agreement of PIMCO Advisors Fund Management LLC dated
       _________ 2003.*


q.     None.


r.1    Code of Ethics of Registrant dated ________ 2003.*

r.2    Code of Ethics of PIMCO Advisors Fund Management LLC.*

r.3    Code of Ethics of Nicholas-Applegate Capital Management LLC.*


- --------------------------

       * To be filed by amendment.

                                       C-2

<PAGE>

Item 25: Marketing Arrangements

         To be filed by amendment.


Item 26: Other Expenses of Issuance and Distribution

         Securities and Exchange Commission Fees               $       *
         National Association of Securities Dealers, Inc. Fees         *
         Printing and engraving expenses                               *
         Legal fees                                                    *
         New York Stock Exchange listing fees                          *
         Accounting expenses                                           *
         Transfer Agent fees                                           *
         Marketing expenses                                            *
         Miscellaneous expenses                                        *
                                                               ---------
             Total                                                     *

         * To be completed by amendment. Expenses may be reduced pursuant to an
           expected contractual arrangement of PIMCO Advisors Fund Management
           LLC to pay the amount by which the aggregate of all the Fund's
           organizational expenses and all offering costs (other than the sales
           load) exceed $0.03 per share.

Item 27: Persons Controlled by or under Common Control with Registrant

      Not applicable.

Item 28: Number of Holders of Securities

      At January   , 2003
                                              Number of
               Title of Class               Record Holders
               --------------               --------------

         Common Shares, par value $0.00001       0

Item 29: Indemnification

     Reference is made to Article VIII, Sections 1 through 4, of the
Registrant's Agreement and Declaration of Trust, which is incorporated by
reference herein.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to trustees, officers and
controlling persons of the Registrant by the Registrant pursuant to the Trust's
Agreement and Declaration of Trust, its Bylaws or otherwise, the Registrant is
aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and, therefore,
is 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 trustees, officers or controlling persons of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustees, officers or controlling persons 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 Act and will be governed by the final
adjudication of such issue.

                                       C-3

<PAGE>
Item 30: Business and Other Connections of Investment Adviser

       Descriptions of the business of PIMCO Advisors Fund Management LLC, the
Registrant's investment manager, and Nicholas-Applegate Capital Management LLC,
the Registrant's portfolio manager, are set forth under the captions "Investment
Manager" and "Portfolio Manager" under "Management of the Fund" in both the
prospectus and Statement of Additional Information forming part of this
Registration Statement. The following sets forth business and other connections
of each director and executive officer (and persons performing similar
functions) of PIMCO Advisors Fund Management LLC and Nicholas-Applegate Capital
Management LLC.
                       PIMCO Advisors Fund Management LLC
                           1345 Avenue of the Americas
                               New York, NY 10105

Name                Position with Advisor         Other Connections
- ----------------    --------------------------    ------------------------------

Larry A. Altadonna  Vice President

Andrew Bocko        Senior Vice President and     Senior Vice President,
                    Director of IT                PIMCO Advisors Fund Management
                                                  LLC, Allianz Dresdner Asset
                                                  Management U.S. Equities LLC,
                                                  PIMCO Advisors Fund Management
                                                  LLC, Allianz Dresdner Asset
                                                  Management of America L.P.

Tim Clark           Managing Director

Cindy Columbo       Vice President

Patrick Coyne       Vice President

David C. Flattum    Managing Director,            Managing Director, General
                    General Counsel               Counsel and Head of Corporate
                                                  Functions, Allianz Dresdner
                                                  Asset Management of America
                                                  L.P., Managing Director,
                                                  Allianz Dresdner Asset
                                                  Management U.S. Equities LLC,
                                                  Allianz Hedge Fund Partners
                                                  Holding L.P., Nicholas
                                                  Applegate Capital Management
                                                  Holdings, PIMCO Advisors
                                                  Holdings LLC

Derek Hayes         Senior Vice President

Steve Jobe          Senior Vice President

Alan Kwan           Vice President

John C. Maney       Executive Vice President      Executive Vice President and
                    and Chief Financial           Chief Financial Officer,
                                                  Allianz Dresdner Asset
                                                  Management of America L.P.,
                                                  Chief Financial Officer, PIMCO
                                                  Advisors Fund Management
                                                  LLC, Allianz Dresdner Asset
                                                  Management U.S. Equities
                                                  LLC, Cadence Capital
                                                  Management LLC, NFJ
                                                  Investment Group L.P., OCE
                                                  Distributors LLC, OpCap
                                                  Advisors LLC, Oppenheimer
                                                  Capital LLC, Pacific
                                                  Investment Management
                                                  Company LLC, PIMCO Advisors
                                                  Managed Accounts LLC, PIMCO
                                                  Advisors CD Distributors
                                                  LLC, PIMCO Equity Advisors
                                                  LLC, PIMCO Equity Partners
                                                  LLC, PIMCO Advisors
                                                  Advertising Agency Inc.,
                                                  PIMCO Advisors Distributors
                                                  LLC, Allianz Private Client
                                                  Services LLC, StocksPLUS
                                                  Management Inc. and Value
                                                  Advisors LLC

Vinh T. Nguyen      Vice President and            Vice President and Controller,
                    Controller                    PIMCO Advisors Fund Management
                                                  LLC, Allianz Dresdner Asset
                                                  Management of America L.P.,
                                                  Allianz Dresdner Asset
                                                  Management U.S. Equities LLC,
                                                  Cadence Capital Management
                                                  LLC, NFJ Investment Group
                                                  L.P., OCE Distributors LLC,
                                                  OpCap Advisors LLC,
                                                  Oppenheimer Capital LLC,
                                                  Pacific Investment Management
                                                  Company LLC, PIMCO Advisors
                                                  Managed Accounts LLC, PIMCO
                                                  Advisors CD Distributors LLC,
                                                  PIMCO Equity Advisors LLC,


                                       C-4

<PAGE>

                                                  PIMCO Equity Partners LLC,
                                                  PIMCO Advisors Advertising
                                                  Agency Inc., PIMCO Advisors
                                                  Distributors LLC, Allianz
                                                  Private Client Services LLC,
                                                  StocksPLUS Management Inc.
                                                  and Value Advisors LLC

Francis C. Poli        Executive Vice President,  Chief Legal and Compliance
                       Director of Compliance     Officer, PIMCO Advisors Fund
                       and Assistant Secretary    Management LLC, Allianz
                                                  Dresdner Asset Management Of
                                                  America L.P., Allianz Dresdner
                                                  Asset Management U.S. Equities
                                                  LLC, Allianz Hedge Fund
                                                  Partners L.P., Allianz Private
                                                  Client Services LLC, Cadence
                                                  Capital Management LLC, NFJ
                                                  Investment Group L.P., OCC
                                                  Distributors LLC, OpCap
                                                  Advisors LLC, Oppenheimer
                                                  Capital LLC, PIMCO Advisors
                                                  Holdings LLC, PIMCO Advisors
                                                  Managed Accounts LLC, PIMCO
                                                  Advisors CD Distributors LLC,
                                                  PIMCO Equity Advisors LLC

Bob Rokose             Vice President and
                       Assistant Controller

Newton B. Schott, Jr.  Managing Director,         Vice President, PIMCO Advisors
                       Chief Legal Officer        Managed Accounts LLC,
                       and Secretary              Executive Vice President,
                                                  Chief Legal Officer and
                                                  Secretary, PIMCO Advisors
                                                  Advertising Agency Inc., PIMCO
                                                  Advisors Distributors LLC

Brian S. Shlissel     Senior Vice President

Stewart A. Smith       Vice President and         Secretary, PIMCO Advisors Fund
                       Assistant Secretary        Management LLC, Allianz
                                                  Dresdner Asset Management of
                                                  America L.P., Allianz Dresdner
                                                   Asset Management U.S.
                                                  Equities LLC, Allianz Hedge
                                                  Fund Partners L.P., Allianz
                                                  Private Client Services LLC,
                                                  Cadence Capital Management
                                                  LLC, NFJ Investment Group
                                                  L.P., PIMCO Advisors Holdings
                                                   LLC, PIMCO Advisors Managed
                                                  Accounts LLC, PIMCO Advisors
                                                  CD Distributors LLC and PIMCO
                                                  Equity Advisors LLC,
                                                  Assistant Secretary,
                                                  Oppenheimer Capital LLC,
                                                  OpCap Advisors and OCC
                                                  Distributors LLC

Stephen J. Treadway    Managing Director and      Chairman, President and Chief
                       Chief Executive Officer    Executive Officer, PIMCO
                                                  Advisors Advertising Agency
                                                  Inc.; Managing Director and
                                                  Chief Executive Officer,
                                                  PIMCO Advisors Distributors
                                                  LLC, Managing Director,
                                                  PIMCO Advisors Managed
                                                  Accounts LLC, Allianz
                                                  Private Client Services LLC,
                                                  Allianz Dresdner Asset
                                                  Management of America L.P.

James G. Ward          Executive Vice President   Executive Vice President,
                       and Director of Human      Allianz Asset Management of
                       Resources                  America L.P., Director of
                                                  Human Resources, Allianz Asset
                                                  Management U.S. Equities LLC,
                                                  PIMCO Advisors Distributors
                                                  LLC


                                       C-5

<PAGE>

                      Nicholas-Applegate Capital Management LLC
                          600 West Broadway 3rd Floor
                               San Diego, CA 92101

<TABLE>
<CAPTION>

PORTFOLIO MANAGER

NAME AND POSITION WITH                BUSINESS AND OTHER                  POSITION WITH OTHER
INVESTMENT ADVISER                    CONNECTIONS                         COMPANY
<S>                                   <C>                                 <C>
Arthur Edward Nicholas                Nicholas-Applegate                  Chief Executive Officer
Chairman & Chief                      Holdings, LLC
Executive Officer
                                      Nicholas-Applegate                  Chairman
                                      Securities, LLC

                                      Nicholas-Applegate                  President
                                      Securities International
                                      LDC

                                      Nicholas-Applegate US               Director
                                      Growth Equity Fund, Ltd.

Edward Blake Moore, Jr.               Nichoals-Applegate                  Secretary and General
General Counsel                       Holdings, LLC                       Counsel

                                      Nicholas-Applegate                  General Counsel and
                                      Securities, LLC                     Secretary

                                      Nicholas-Applegate                  President, Trustee and
                                      Institutional Funds                 Chairman of the Board

Marna P. Whittington, Ph.D            Allianz Dresner Asset               Chief Operating Officer
President; Executive                  Management
Committee
                                      Nicholas-Applegate                  President
                                      Holdings, LLC

                                      Nicholas-Applegate                  President
                                      Securities, LLC

Eric Spencer Sagerman                 Nicholas-Applegate                  Director
Head of Global Marketing;             Southeast Asia Fund
Executive Committee

                                      Nicholas-Applegate India            Director
</TABLE>

                                       C-6

<PAGE>

<TABLE>
<S>                                   <C>                                 <C>
                                      Fund, Ltd PCC

William Charles Maher,                Nicholas-Applegate                  Chief Financial Officer /
CPA                                   Holdings, LLC                       Treasurer
Chief Financial Officer

                                      Nicholas-Applegate                  Treasurer
                                      Institutional Funds

                                      Nicholas-Applegate                  Chief Financial Officer
                                      Securities, LLC

Horacio Valeirus                      None
Chief Investment Officer
Global Equity Management

Peter James Johnson                   Nicholas-Applegate                  Vice President
Sr. Vice President, Director          Securities, LLC
of Institutional Sales

Nicholas-Applegate                    Allianz Dresner Asset               Limited Partner
Holdings LLC                          Management
Managing Member

Allianz Dresner Asset                 Allianz of America, Inc.            Sole Shareholder
Management of America,
LLC
Limited Partner
</TABLE>

                                       C-7

<PAGE>

Item 31: Location of Accounts and Records

      The account books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of
                                                 and/or PFPC Inc., 400 Bellevue
Parkway, Wilmington, Delaware 19809.

Item 32: Management Services

      Not applicable.

Item 33: Undertakings

      1. Registrant undertakes to suspend the offering of its Common Shares
until it amends the prospectus filed herewith if (1) subsequent to the effective
date of its registration statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the registration
statement, or (2) the net asset value increases to an amount greater than its
net proceeds as stated in the prospectus.

      2. Not applicable.

      3. Not applicable.

      4. Not applicable.

      5. The Registrant undertakes that:

            a. For purposes of determining any liability under the Securities
      Act of 1933, 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 under Rule
      497(h) under the Securities Act of 1933 shall be deemed to be part of this
      registration statement as of the time it was declared effective; and

            b. For the purpose of determining any liability under the Securities
      Act of 1933, 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 the securities at that
      time shall be deemed to be the initial bona fide offering thereof.

      6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.

                                     Notice

     A copy of the Agreement and Declaration of Trust of Nicholas-Applegate
Convertible & Income Fund (the "Fund"), together with all amendments thereto, is
on file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the Fund by
any officer of the Fund as an officer and not individually and that the
obligations of or arising out of this instrument are not binding upon any of the
Trustees of the Fund or shareholders of the Fund individually, but are binding
only upon the assets and property of the Fund.


                                      C-8

<PAGE>

                                   SIGNATURES

   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
City of New York, and the State of New York on the 21st day of January, 2003.

                                          Nicholas-Applegate Convertible &
                                          Income Fund

                                              /s/ Brian S. Shlissel
                                          By: ---------------------------------
                                              Brian S. Shlissel,
                                              President

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


<TABLE>
<CAPTION>
           Name                          Capacity                    Date
           ----                          --------                    ----

<S>                                   <C>                         <C>
/s/ Brian S. Shlissel                  Trustee and President      January 21, 2003
- ---------------------------------
Brian S. Shlissel

/s/ Lawrence Altadonna                 Treasurer and Principal    January 21, 2003
- ---------------------------------      Financial and Accounting
Lawrence Altadonna                     Officer

</TABLE>




<PAGE>

                               INDEX TO EXHIBITS

Exhibit      Exhibit Name
- -------      ------------



a.           Agreement and Declaration of Trust dated January 17, 2003.

b.           Bylaws of Registrant dated January 17, 2003.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.A
<SEQUENCE>3
<FILENAME>dex99a.txt
<DESCRIPTION>AGREEMENT AND DECLARATION OF TRUST
<TEXT>
<PAGE>
                                                                      Exhibit a.

                  NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND

                       AGREEMENT AND DECLARATION OF TRUST
                       ----------------------------------


                                January 17, 2003

<PAGE>

                  NICHOLAS-APPLEGATE CONVERTIBLE & INCOME FUND


                            ------------------------

                       AGREEMENT AND DECLARATION OF TRUST

                            ------------------------


         AGREEMENT AND DECLARATION OF TRUST made this 17/th/ day of January,
2003, by the Trustees hereunder, and by the holders of shares of beneficial
interest to be issued hereunder as hereinafter provided.

         WITNESSETH that

         WHEREAS, this Trust has been formed to carry on the business of an
investment company; and

         WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.

         NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.

                                   ARTICLE I

                              NAME AND DEFINITIONS

Name

         Section 1. This Trust shall be known as "Nicholas-Applegate Convertible
& Income Fund" and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.

Definitions

         Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:

                                       -2-

<PAGE>

               (a) The "Trust" refers to the Massachusetts business trust
         established by this Declaration, as amended or restated from time to
         time;

               (b) "Trustees" refers to the Trustees of the Trust named herein
         or elected in accordance with Article IV;

               (c) "Shares" means the equal proportionate transferable units of
         interest into which the beneficial interest in the Trust shall be
         divided from time to time or, if more than one class or series of
         Shares is authorized by the Trustees, the equal proportionate
         transferable units into which each class or series of shares shall be
         divided from time to time;

               (d) "Shareholder" means a record owner of Shares;

               (e) The "1940 Act" refers to the Investment Company Act of 1940
         and the rules and regulations thereunder, all as amended from time to
         time;

               (f) The terms "Affiliated Person", "Interested Person", and
         "Principal Underwriter" shall have the applicable meanings given them
         in the 1940 Act;

               (g) "Declaration" shall mean this Agreement and Declaration of
         Trust, as amended or restated from time to time;

               (h) "Bylaws" shall mean the Bylaws of the Trust as amended or
         restated from time to time;

               (i) The term "class" or "class of Shares" refers to the division
         of Shares into two or more classes as provided in Article III, Section
         1 hereof;

               (j) The term "series" or "series of Shares" refers to the
         division of Shares representing any class into two or more series as
         provided in Article III, Section 1 hereof; and

               (k) The term "Continuing Trustee" shall have the meaning given to
         such term in Article IV, Section 2 hereof.

                                   ARTICLE II

                                     PURPOSE

         The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights of a
financial character and to carry on such other business as the Trustees may from
time to time determine pursuant to their authority under this Declaration.

                                       -3-

<PAGE>

                                  ARTICLE III

                                     SHARES

Division of Beneficial Interest

         Section 1. The Trustees may, without Shareholder approval, authorize
one or more classes of Shares (which classes may be divided into two or more
series), Shares of each such class or series having such par value and such
preferences, voting powers, terms of redemption, if any, and special or relative
rights or privileges (including conversion rights, if any) as the Trustees may
determine. Subject to applicable law, the Trustees may, without Shareholder
approval, authorize the Trust to issue subscription or other rights representing
interests in Shares to existing Shareholders or other persons subject to such
terms and conditions as the Trustees may determine. The number of Shares of each
class or series authorized shall be unlimited, except as the Bylaws may
otherwise provide, and the Shares so authorized may be represented in part by
fractional shares. The Trustees may from time to time divide or combine the
Shares of any class or series into a greater or lesser number without thereby
changing the proportionate beneficial interest in the class or series.

Ownership of Shares

         Section 2. The ownership of Shares shall be recorded on the books of
the Trust or a transfer or similar agent. Except as provided in the Bylaws or as
the Trustees may otherwise determine from time to time, no certificates
certifying the ownership of Shares shall be issued. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates, the
transfer of Shares and similar matters. The record books of the Trust as kept by
the Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders of each class and series and as to the
number of Shares of each class and series held from time to time by each
Shareholder.

Investments in the Trust

         Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as the Trustees or the Bylaws from time to time authorize.

No Preemptive Rights

         Section 4. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust.

                                       -4-

<PAGE>

Derivative Claims

         Section 5. No Shareholder shall have the right to bring or maintain any
court action, proceeding or claim on behalf of the Trust or any series or class
of Shares without first making demand on the Trustees requesting the Trustees to
bring or maintain such action, proceeding or claim. Such demand shall not be
excused under any circumstances, including claims of alleged interest on the
part of the Trustees, unless the plaintiff makes a specific showing that
irreparable nonmonetary injury to the Trust or series or class of Shares would
otherwise result. Such demand shall be mailed to the Secretary of the Trust at
the Trust's principal office and shall set forth with particularity the nature
of the proposed court action, proceeding or claim and the essential facts relied
upon by the Shareholder to support the allegations made in the demand. The
Trustees shall consider such demand within 45 days of its receipt by the Trust.
In their sole discretion, the Trustees may submit the matter to a vote of
Shareholders of the Trust or a series or class of Shares, as appropriate. Any
decision by the Trustees to bring, maintain or settle (or not to bring, maintain
or settle) such court action, proceeding or claim, or to submit the matter to a
vote of Shareholders, shall be binding upon the Shareholders. Any decision by
the Trustees to bring or maintain a court action, proceeding or suit on behalf
of the Trust or a series or class of Shares shall be subject to the right of the
Shareholders under Article V hereof to vote on whether or not such court action,
proceeding or suit should or should not be brought or maintained.

Direct Claims

         Section 6. No class of Shareholders shall have the right to bring or
maintain a direct action or claim for monetary damages against the Trust or the
Trustees predicated upon an express or implied right of action under this
Declaration or the 1940 Act (excepting rights of action permitted under section
36(b) of the 1940 Act), nor shall any single Shareholder, who is similarly
situated to one or more other Shareholders with respect to the alleged injury,
have the right to bring such an action, unless the class of Shareholders or
Shareholder has obtained authorization from the Trustees to bring the action.
The requirement of authorization shall not be excused under any circumstances,
including claims of alleged interest on the part of the Trustees. A request for
authorization shall be mailed to the Secretary of the Trust at the Trust's
principal office and shall set forth with particularity the nature of the
proposed court action, proceeding or claim and the essential facts relied upon
by the class of Shareholders or Shareholder to support the allegations made in
the request. The Trustees shall consider such request within 45 days of its
receipt by the Trust. In their sole discretion, the Trustees may submit the
matter to a vote of Shareholders of the Trust or series or class of Shares, as
appropriate. Any decision by the Trustees to settle or to authorize (or not to
settle or to authorize) such court action, proceeding or claim, or to submit the
matter to a vote of Shareholders, shall be binding upon the class of
Shareholders or Shareholder seeking authorization. Any decision by the Trustees
to authorize a court action, proceeding or suit by a class of Shareholders shall
be subject to the right of the Shareholders under Article V hereof to vote on
whether or not such court action, proceeding or suit should or should not be
brought or maintained.

                                       -5-

<PAGE>

Status of Shares and Limitation of Personal Liability

         Section 7. Shares shall be deemed to be personal property giving only
the rights provided in this Declaration or the Bylaws. Every Shareholder by
virtue of having become a Shareholder shall be held to have expressly assented
and agreed to the terms of this Declaration and the Bylaws and to have become a
party hereto and thereto. The death of a Shareholder during the continuance of
the Trust shall not operate to terminate the same nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the rights of said
decedent under this Trust. Ownership of Shares shall not entitle the Shareholder
to any title in or to the whole or any part of the Trust property or right to
call for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust, shall have any
power to bind personally any Shareholder, nor except as specifically provided
herein to call upon any Shareholder for the payment of any sum of money or
assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay.

                                   ARTICLE IV

                                  THE TRUSTEES

Number and Classes of Trustees and Term of Office

         Section 1. Subject to the voting powers of one or more classes or
series of Shares as set forth in the Bylaws, the number of Trustees shall be
such number as shall be fixed from time to time by a written instrument signed
by a majority of the Trustees; provided, however, that the number of Trustees
shall in no event be less than three (3) from and after the date when Shares are
first sold pursuant to a public offering. The initial Trustees, each of whom
shall serve until the first meeting of Shareholders at which Trustees are
elected and until his or her successor is elected and qualified, or until he or
she sooner dies, resigns or is removed, shall be Kevin J. Ouellette and such
other persons as the Trustee or Trustees then in office shall, prior to any sale
of Shares pursuant to a public offering, elect, subject in each case to the
Classes of Trustees and terms created pursuant to this Article IV.

         An initial annual meeting of Shareholders or special meeting in lieu
thereof shall be called to be held not more than fifteen months after Shares are
first sold pursuant to a public offering; subsequent annual meetings of
Shareholders or special meetings in lieu thereof (each an "annual meeting")
shall be held as specified in the Bylaws. Prior to any sale of Shares pursuant
to a public offering, the Trustees shall classify themselves, with respect to
the time for which they severally hold office, into the following three classes:
Class I, whose term expires at the initial annual meeting; Class II, whose term
expires at the next succeeding annual meeting after the initial annual meeting
(the "second annual meeting"); and Class III, whose term expires at the next
succeeding annual meeting after the second annual meeting. Each Class shall
consist, as nearly as may be possible, of one-third of the total number of
Trustees constituting the entire Board of Trustees. At each annual meeting
beginning with the initial annual meeting, the

                                       -6-

<PAGE>

successors of the Class of Trustees whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting held in the
third year following the year of their election, with each Trustee holding
office until the expiration of the term of the relevant Class and the election
and qualification of his or her successor, or until he or she sooner dies,
resigns, retires, or is disqualified or removed from office. The Trustees shall
assign by resolution from their number Trustees to each of the three Classes.
The Trustees may also determine by resolution those Trustees in each Class that
shall be elected by Shareholders of a particular class of Shares (e.g., by a
class of preferred Shares issued by the Fund) prior to the initial public
offering of such class of Shares.

         If the number of Trustees is changed, any increase or decrease shall be
apportioned among the Classes, as of the annual meeting of Shareholders next
succeeding any such change, so as to maintain a number of Trustees in each Class
as nearly equal as possible. No reduction in the number of Trustees shall have
the effect of removing any Trustee from office prior to the expiration of his or
her term unless the Trustee is specifically removed pursuant to Section 3 of
this Article at the time of the decrease. Except as provided in this Section 1
or Section 3 of this Article, Trustees shall be elected only at an annual
meeting of Shareholders.

Continuing Trustee; Definition

         Section 2. For purposes of this Declaration and the Bylaws, the term
"Continuing Trustee" shall mean any member of the Board of Trustees who either
(a) has been a member of the Board of Trustees for a period of at least
thirty-six months (or since the commencement of the Trust's operations, if less
than thirty-six months) or (b) was nominated to serve as a member of the Board
of Trustees by a majority of the Continuing Trustees then members of the Board
of Trustees.

Vacancies; Resignation; Removal

         Section 3. From and after the date when Shares are first sold pursuant
to a public offering and subject to any voting powers of one or more classes or
series of Shares as set forth in this Declaration or in the Bylaws or by
resolution of the Board of Trustees, any vacancies occurring in the Board of
Trustees may be filled by the Trustees as set forth below. Prior to the date
when Shares are first sold pursuant to a public offering, subject to any
limitations imposed by the 1940 Act or other applicable law, any vacancies
occurring in the Board of Trustees may be filled by the Trustees without any
action by or meeting of Shareholders.

         Subject to any limitations imposed by the 1940 Act or other applicable
law, any vacancy occurring in the Board of Trustees that results from an
increase in the number of Trustees may be filled by a majority of the entire
Board of Trustees, and any other vacancy occurring in the Board of Trustees may
be filled by a majority of the Trustees then in office, whether or not
sufficient to constitute a quorum, or by a sole remaining Trustee; provided,
however, that if the Shareholders of any class or series of Shares are entitled
separately to elect one or more Trustees, a majority of the remaining Trustees
elected by that class or series or the sole remaining Trustee elected by that
class or series may fill any vacancy among the number of Trustees elected by
that class or

                                       -7-

<PAGE>

series. A Trustee elected by the Board of Trustees to fill any vacancy occurring
in the Board of Trustees shall serve until the next annual meeting of
Shareholders and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. At any annual meeting of Shareholders, any Trustee elected
to fill any vacancy occurring in the Board of Trustees that has arisen since the
preceding annual meeting of Shareholders (whether or not any such vacancy has
been filled by election of a new Trustee by the Board of Trustees) shall hold
office for a term which coincides with the remaining term of the Class of
Trustee to which such office was previously assigned, if such vacancy arose
other than by an increase in the number of Trustees, and until his successor
shall be elected and shall qualify. In the event such vacancy arose due to an
increase in the number of Trustees, any Trustee so elected to fill such vacancy
at an annual meeting shall hold office for a term which coincides with that of
the Class of Trustee to which such office has been apportioned as heretofore
provided, and until his successor shall be elected and shall qualify.

         Any Trustee may resign his trust or retire as a Trustee (without need
for prior or subsequent accounting except in the event of removal) by an
instrument in writing signed by him and delivered to the President or Secretary
or a Trustee of the Trust, and such resignation or retirement shall be effective
upon such delivery, or at a later date according to the terms of the instrument.
Any Trustee may be removed from office only for "Cause" (as hereinafter defined)
and only (i) by action of at least seventy-five percent (75%) of the outstanding
Shares of the classes or series of Shares entitled to vote for the election of
such Trustee, or (ii) by written instrument, signed by at least seventy-five
percent (75%) of the remaining Trustees, specifying the date when such removal
shall become effective. "Cause" for these purposes shall require willful
misconduct, dishonesty or fraud on the part of the Trustee in the conduct of his
office or such Trustee being convicted of a felony.

Effect of Death, Resignation, etc. of a Trustee

         Section 4. The death, declination, resignation, retirement, removal,
disqualification or incapacity of the Trustees, or any one of them, shall not
operate to annul the Trust or to revoke any existing agency created pursuant to
the terms of this Declaration.

Powers

         Section 5. Subject to the provisions of this Declaration, the business
of the Trust shall be managed by the Trustees, and they shall have all powers
necessary or convenient to carry out that responsibility. Without limiting the
foregoing, the Trustees may adopt Bylaws not inconsistent with this Declaration
providing for the conduct of the business of the Trust and may amend and repeal
them to the extent and as provided in Article IX, Section 7(c) of this
Declaration. Subject to the voting power of one or more classes or series of
Shares as set forth in this Declaration or in the Bylaws or by resolution of the
Board of Trustees, the Trustees may fill vacancies in or add to their number,
including vacancies resulting from increases in their number, and may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of one or more Trustees, including an executive
committee which may,

                                       -8-

<PAGE>

when the Trustees are not in session, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; they may appoint an
advisory board, the members of which shall not be Trustees and need not be
Shareholders; they may employ one or more custodians of the assets of the Trust
and may authorize such custodians to employ subcustodians and to deposit all or
any part of such assets in a system or systems for the central handling of
securities, retain a transfer agent or a shareholder servicing agent, or both,
provide for the distribution of Shares by the Trust, through one or more
principal underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.

         Without limiting the foregoing, the Trustees shall have power and
authority:

               (a) To invest and reinvest cash, and to hold cash uninvested;

               (b) To sell, exchange, lend, pledge, mortgage, hypothecate, write
         options on and lease any or all of the assets of the Trust;

               (c) To vote or give assent, or exercise any rights of ownership,
         with respect to stock or other securities or property; and to execute
         and deliver proxies or powers of attorney to such person or persons as
         the Trustees shall deem proper, granting to such person or persons such
         power and discretion with relation to securities or property as the
         Trustees shall deem proper;

               (d) To exercise powers and rights of subscription or otherwise
         which in any manner arise out of ownership of securities;

               (e) To hold any security or property in a form not indicating any
         trust, whether in bearer, unregistered or other negotiable form, or in
         the name of the Trustees or of the Trust or in the name of a custodian,
         subcustodian or other depository or a nominee or nominees or otherwise;

               (f) To the extent necessary or appropriate to give effect to the
         preferences, special or relative rights and privileges of any classes
         or series of Shares, to allocate assets, liabilities, income and
         expenses of the Trust to a particular class or classes or series of
         Shares or to apportion the same among two or more classes or series;

               (g) To consent to or participate in any plan for the
         reorganization, consolidation or merger of any corporation or issuer,
         any security of which is or was held in the Trust; to consent to any
         contract, lease, mortgage, purchase or sale of property by such
         corporation or issuer, and to pay calls or subscriptions with respect
         to any security held in the Trust;

               (h) To join with other security holders in acting through a
         committee, depositary, voting trustee or otherwise, and in that
         connection to deposit any security with, or transfer any security to,
         any such committee, depositary or trustee, and to

                                      -9-

<PAGE>

         delegate to them such power and authority with relation to any security
         (whether or not so deposited or transferred) as the Trustees shall deem
         proper, and to agree to pay, and to pay, such portion of the expenses
         and compensation of such committee, depositary or trustee as the
         Trustees shall deem proper;

               (i) To compromise, arbitrate or otherwise adjust claims in favor
         of or against the Trust on any matter in controversy, including but not
         limited to claims for taxes;

               (j) To enter into joint ventures, general or limited
         partnerships, limited liability companies, and any other combinations
         or associations;

               (k) To borrow funds;

               (l) To endorse or guarantee the payment of any notes or other
         obligations of any person; to make contracts of guaranty or suretyship,
         or otherwise assume liability for payment thereof; and to mortgage and
         pledge the Trust property or any part thereof to secure any of or all
         of such obligations;

               (m) To purchase and pay for entirely out of Trust property such
         insurance as they may deem necessary or appropriate for the conduct of
         the business of the Trust, including, without limitation, insurance
         policies insuring the assets of the Trust and payment of distributions
         and principal on its portfolio investments, and insurance policies
         insuring the Shareholders, Trustees, officers, employees, agents,
         investment advisers, sub-advisers or managers, principal underwriters
         or independent contractors of the Trust individually against all claims
         and liabilities of every nature arising by reason of holding, being or
         having held any such office or position, or by reason of any action
         alleged to have been taken or omitted by any such person as
         Shareholder, Trustee, officer, employee, agent, investment adviser,
         sub-adviser or manager, principal underwriter or independent
         contractor, including any action taken or omitted that may be
         determined to constitute negligence, whether or not the Trust would
         have the power to indemnify such person against such liability;

               (n) To pay pensions for faithful service, as deemed appropriate
         by the Trustees, and to adopt, establish and carry out pension,
         profit-sharing, share bonus, share purchase, savings, thrift and other
         retirement, incentive and benefit plans, trusts and provisions,
         including the purchasing of life insurance and annuity contracts as a
         means of providing such retirement and other benefits, for any or all
         of the Trustees, officers, employees and agents of the Trust;

               (o) To purchase or otherwise acquire Shares; and

               (p) To engage in any other lawful act or activity in which
         business corporations organized under the laws of The Commonwealth of
         Massachusetts may engage.

                                      -10-

<PAGE>

         The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees. Except as otherwise
provided herein or from time to time in the Bylaws, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
the Trustees (a quorum being present), within or without Massachusetts. Except
as otherwise provided herein or from time to time in the Bylaws, any action to
be taken by the Trustees may be taken at a meeting held by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting, or
by written consents of a majority of the Trustees then in office (or such
greater number as may be required by this Declaration, the Bylaws or applicable
law).

Payment of Expenses by the Trust

         Section 6. The Trustees are authorized to pay, or to cause to be paid
out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser, sub-adviser or manager, principal
underwriter, auditor, counsel, custodian, transfer agent, shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur.

Ownership of Assets of the Trust

         Section 7. Title to all of the assets of the Trust and each series and
class of Shares shall at all times be considered as vested in the Trustees.

Advisory, Management and Distribution

         Section 8. The Trustees may, at any time and from time to time,
contract for exclusive or nonexclusive advisory and/or management services with
any corporation, trust, association or other organization (the "Manager"), every
such contract to comply with such requirements and restrictions as may be set
forth in the Bylaws; and any such contract may provide for one or more
sub-advisers or other agents who shall perform all or part of the obligations of
the Manager under such contract and contain such other terms interpretive of or
in addition to said requirements and restrictions as the Trustees may determine,
including, without limitation, authority to determine from time to time what
investments shall be purchased, held, sold, or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes in
the Trust's investments. The Trustees may also, at any time and from time to
time, contract with the Manager or any other corporation, trust, association or
other organization, appointing it exclusive or nonexclusive distributor or
principal underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.

                                      -11-

<PAGE>

         The fact that:

                       (i)  any of the Shareholders, Trustees or officers of the
               Trust is a shareholder, director, officer, partner, trustee,
               employee, manager, adviser, sub-adviser, principal underwriter or
               distributor or agent of or for any corporation, trust,
               association or other organization, or of or for any parent or
               affiliate of any organization, with which an advisory,
               sub-advisory or management contract, or principal underwriter's
               or distributor's contract, or transfer, shareholder servicing or
               other agency contract may have been or may hereafter be made or
               that any such organization, or any parent or affiliate thereof,
               is a Shareholder or has an interest in the Trust, or that

                       (ii) any corporation, trust, association or other
               organization with which an advisory, sub-advisory or management
               contract or principal underwriter's or distributor's contract or
               transfer, shareholder servicing or other agency contract may have
               been or may hereafter be made also has an advisory, sub-advisory
               or management contract, or principal underwriter's or
               distributor's contract or transfer, shareholder servicing or
               other agency contract with one or more other corporations,
               trusts, associations or other organizations, or has other
               business or interests,

shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.

Agent for Service of Process

         Section 9. The name and address of the resident agent of the Trust on
the date hereof in the Commonwealth of Massachusetts is Corporation Service
Company, 84 State Street, Boston, Massachusetts 02109. For the avoidance of
doubt, the Trustees may appoint a new or successor resident agent of the Trust
at any time in his or their sole discretion.

                                    ARTICLE V

                    SHAREHOLDERS' VOTING POWERS AND MEETINGS

General

         Section 1. Except as otherwise provided in this Article V or elsewhere
in this Declaration, Shareholders shall have such power to vote as is provided
for in, and shall and may hold meetings and take actions pursuant to, the
provisions of the Bylaws.

                                      -12-

<PAGE>

Voting Powers as to Certain Transactions

Section 2.

     (a) Except as otherwise provided in paragraph (b) of this Section 2, the
affirmative vote or consent of at least seventy-five percent (75%) of the
Trustees of the Trust and at least seventy-five percent (75%) of the Shares
outstanding and entitled to vote thereon shall be necessary to authorize any of
the following actions:

         (i)   the merger or consolidation or share exchange of the Trust or any
         series or class of Shares with or into any other person or company
         (including, without limitation, a partnership, corporation, joint
         venture, business trust, common law trust or any other business
         organization) or of any such person or company with or into the Trust
         or any series or class of Shares;

         (ii)  the issuance or transfer by the Trust or any series or class of
         Shares (in one or more series of transactions in any twelve-month
         period) of any securities of the Trust or such series or class to any
         other person or entity for cash, securities or other property (or
         combination thereof) having an aggregate fair market value of
         $1,000,000 or more, excluding (i) sales of any securities of the Trust
         or a series or class in connection with a public offering thereof, (ii)
         issuance of securities of the Trust or a series or class pursuant to a
         dividend reinvestment plan adopted by the Trustees and (iii) issuances
         of securities of the Trust or a series or class upon the exercise of
         any stock subscription rights distributed by the Trust or a series or
         class;

         (iii) a sale, lease, exchange, mortgage, pledge, transfer or other
         disposition by the Trust or any series or class of Shares (in one or a
         series of transactions in any twelve-month period) to or with any
         person of any assets of the Trust or such series or class having an
         aggregate fair market value of $1,000,000 or more, except for
         transactions in securities effected by the Trust or a series or class
         in the ordinary course of business;

         (iv)  any Shareholder proposal as to specific investment decisions made
         or to be made with respect to the assets of the Trust or a series or
         class of Shares.

     (b) Notwithstanding anything to the contrary in paragraph (a) of this
Section 2, so long as each action is approved by both a majority of the entire
Board of Trustees and seventy-five percent (75%) of the Continuing Trustees, and
so long as all other conditions and requirements, if any, provided for in the
Bylaws and applicable law have been satisfied, then no Shareholder vote or
consent shall be necessary or required to approve any of the actions listed in
paragraphs (a)(i), (a)(ii), (a)(iii) or (a)(iv) of this Section 2, except to the
extent such Shareholder vote or consent is required by the 1940 Act or other
applicable law.

                                       -13-

<PAGE>

Conversion to Open-End Company

     Section 3. Notwithstanding any other provisions in this Declaration or the
Bylaws, the conversion of the Trust or any series of Shares from a "closed-end
company" to an "open-end company", as those terms are defined in Sections
5(a)(2) and 5(a)(1), respectively, of the 1940 Act (as in effect on the date of
this Declaration), together with any necessary amendments to this Declaration to
permit such a conversion, shall require the affirmative vote or consent of at
least seventy-five percent (75%) of each class of Shares outstanding and
entitled to vote on the matter, unless a majority of the Trustees and
seventy-five percent (75%) of the Continuing Trustees entitled to vote on the
matter approve such conversion and related actions. In the event of such
approval by the Trustees and the Continuing Trustees as referred to in the
preceding sentence, the 1940 Act shall govern whether and to what extent a vote
or consent of Shares shall be required to approve such conversion and related
actions. Any affirmative vote or consent required under this Section 3 shall be
in addition to the vote or consent of the Shareholders otherwise required by law
or by any agreement between the Trust and any national securities exchange.

                                   ARTICLE VI

               DISTRIBUTIONS AND DETERMINATION OF NET ASSET VALUE

Distributions

     Section 1. The Trustees may each year, or more frequently if they so
desire, but need not, distribute to the Shareholders of any or all classes or
series of Shares such income and gains, accrued or realized, as the Trustees may
determine, after providing for actual and accrued expenses and liabilities
(including such reserves as the Trustees may establish) determined in accordance
with good accounting practices and subject to the preferences, special or
relative rights and privileges of the various classes or series of Shares. The
Trustees shall have full discretion to determine which items shall be treated as
income and which items as capital and their determination shall be binding upon
the Shareholders. Distributions of income for each year or other period, if any
be made, may be made in one or more payments, which shall be in Shares, in cash
or otherwise and on a date or dates and as of a record date or dates determined
by the Trustees. At any time and from time to time in their discretion, the
Trustees may distribute to the Shareholders as of a record date or dates
determined by the Trustees, in Shares, in cash or otherwise, all or part of any
gains realized on the sale or disposition of property or otherwise, or all or
part of any other principal of the Trust. Each distribution pursuant to this
Section 1 to the Shareholders of a particular class or series shall be made
ratably according to the number of Shares of such class or series held by the
several Shareholders on the applicable record date thereof, provided that no
distribution need be made on Shares purchased pursuant to orders received, or
for which payment is made, after such time or times as the Trustees may
determine. Any such distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with Section 2 of this Article VI, or
at such other value as may be specified by the Bylaws or as the Trustees may
from time to time determine, subject to applicable laws and regulations then in
effect.

                                       -14-

<PAGE>

Determination of Net Asset Value

     Section 2. The net asset value per share of each class and each series of
Shares of the Trust shall be determined in accordance with the 1940 Act and any
related procedures adopted by the Trustees from time to time. Determinations
made under and pursuant to this Section 2 in good faith and in accordance with
the provisions of the 1940 Act shall be binding on all parties concerned.


                                   ARTICLE VII

                           COMPENSATION AND LIMITATION
                            OF LIABILITY OF TRUSTEES

Compensation

     Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking, underwriting,
brokerage or other services and payment for the same by the Trust.

Limitation of Liability

     Section 2. The Trustees shall not be responsible or liable in any event for
any neglect or wrongdoing of any officer, agent, employee, adviser, sub-adviser,
manager or principal underwriter of the Trust, nor shall any Trustee be
responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he or she
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.

     Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.

                                  ARTICLE VIII

                                 INDEMNIFICATION

Trustees, Officers etc.

     Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to

                                      -15-

<PAGE>

as a "Covered Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Covered Person, except with respect to any matter as to which such
Covered Person shall have been finally adjudicated in a decision on the merits
in any such action, suit or other proceeding not to have acted in good faith in
the reasonable belief that such Covered Person's action was in the best
interests of the Trust and except that no Covered Person shall be indemnified
against any liability to the Trust or its Shareholders to which such Covered
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
such Covered Person's office. Expenses, including counsel fees so incurred by
any such Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid from time to
time by the Trust in advance of the final disposition of any such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such Covered
Person to repay amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this Article, provided,
that (a) such Covered Person shall provide security for his or her undertaking,
(b) the Trust shall be insured against losses arising by reason of such Covered
Person's failure to fulfill his or her undertaking, or (c) a majority of the
Trustees who are disinterested persons and who are not Interested Persons of the
Trust (provided that a majority of such Trustees then in office act on the
matter), or independent legal counsel in a written opinion shall determine,
based on a review of readily available facts (but not a full trial-type
inquiry), that there is reason to believe such Covered Person ultimately will be
entitled to indemnification.

Compromise Payment

     Section 2. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication in a decision
on the merits by a court, or by any other body before which the proceeding was
brought, that such Covered Person either (a) did not act in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust or (b) is liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office, indemnification shall
be provided if (x) approved as in the best interest of the Trust, after notice
that it involves such indemnification, by at least a majority of the Trustees
who are disinterested persons and are not Interested Persons of the Trust
(provided that a majority of such Trustees then in office act on the matter),
upon a determination, based upon a review of readily available facts (but not a
full trial-type inquiry) that such Covered Person acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust and is not liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office, or (y) there has
been obtained an opinion in writing of independent legal counsel, based upon a
review of readily available facts

                                      -16-

<PAGE>

(but not a full trial-type inquiry), to the effect that such Covered Person
appears to have acted in good faith in the reasonable belief that such Covered
Person's action was in the best interests of the Trust and that such
indemnification would not protect such Covered Person against any liability to
the Trust to which such Covered 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. Any approval pursuant to
this Section 2 shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with this Section 2 as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust or to
have been liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.

Rebuttable Presumption

     Section 3.  For purposes of the determination or opinion referred to in
clause (c) of Section 1 of this Article VIII or clauses (x) or (y) of Section 2
of this Article VIII, the majority of disinterested Trustees acting on the
matter or independent legal counsel, as the case may be, shall be entitled to
rely upon a rebuttable presumption that the Covered Person has not engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.

Indemnification Not Exclusive

     Section 4.  The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators, and a "disinterested person"
is a person against whom none of the actions, suits or other proceedings in
question or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article VIII
shall affect any rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be entitled by contract
or otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of such person; provided, however, that the Trust
shall not purchase or maintain any such liability insurance in contravention of
the 1940 Act or other applicable law.

Shareholders

     Section 5.  In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled to
be held harmless from and indemnified against all loss and expense arising from
such liability.

                                      -17-

<PAGE>

                                   ARTICLE IX

                                  MISCELLANEOUS

Trustees, Shareholders etc. Not Personally Liable; Notice

     Section 1.  All persons extending credit to, contracting with or having any
claim against the Trust or a particular series or class of Shares shall look
only to the assets of the Trust or the assets of that particular series or class
of Shares for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.
Nothing in this Declaration shall protect any Trustee against any liability to
which such Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.

     Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officer or officers shall give notice that this
Declaration is on file with the Secretary of State of The Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustee or Trustees or as officer or officers
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustee or Trustees or officer or officers or Shareholder or
Shareholders individually.

Trustees and Officers Good Faith Action, Expert Advice, No Bond or Surety

     Section 2.  The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee or officer shall
be liable for his or her own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee or officer, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees or officers may take advice of
counsel or other experts with respect to the meaning and operation of this
Declaration, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
and officers shall not be required to give any bond as such, nor any surety if a
bond is required.

Liability of Third Persons Dealing with Trustees

     Section 3.  No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.

                                      -18-

<PAGE>

Duration and Termination of Trust

     Section 4.  Unless terminated as provided herein, the Trust shall continue
without limitation of time. Subject to the voting powers of one or more classes
or series of Shares as set forth in the Bylaws, the Trust may be terminated at
any time (i) by vote or consent of Shareholders holding at least seventy-five
percent (75%) of the Shares entitled to vote or (ii) by vote or consent of
majority of the entire Board of Trustees and seventy-five percent (75%) of the
Continuing Trustees upon written notice to the Shareholders. Any series or class
of Shares may be terminated at any time (x) by vote or consent of Shareholders
holding at least seventy-five percent (75%) of the Shares of such series of
class entitled to vote or (y) by vote or consent of majority of the entire Board
of Trustees and seventy-five percent (75%) of the Continuing Trustees upon
written notice to the Shareholders of such series or class. For the avoidance of
any doubt and notwithstanding anything to the contrary in this Declaration,
Shareholders shall have no separate right to vote with respect to the
termination of the Trust or a series of class of Shares if the Trustees
(including the Continuing Trustees) exercise their right to terminate the Trust
or such series or class pursuant to clauses (ii) and (y) of this Section 4.

     Upon termination of the Trust or of any one or more series or classes of
Shares, after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular series or class, as may be determined by the Trustees, the Trust
shall in accordance with such procedures as the Trustees consider appropriate
reduce the remaining assets to distributable form in cash or shares or other
property, or any combination thereof, and distribute the proceeds to the
Shareholders of the series or class(es) involved, ratably according to the
number of Shares of such series or class held by the several Shareholders on the
date of termination, except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any classes or
series of Shares.

Filing of Copies, References, Headings

     Section 5.  The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust, where it may be inspected by
any Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein",
"hereof", and "hereunder", shall be deemed to refer to this instrument as
amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts, each of which shall be
deemed an original.

                                      -19-

<PAGE>

Applicable Law

     Section 6.  This Declaration is made in The Commonwealth of Massachusetts,
and it is created under and is to be governed by and construed and administered
according to the laws of said Commonwealth. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.

Amendments

     Section 7.  (a) Except to the extent that the Bylaws or applicable law may
require a higher vote or the separate vote of one or more classes or series of
Shares, and except as provided in paragraph (b) of this Section 7, this
Declaration may be amended at any time by an instrument in writing signed by a
majority of the then Trustees (1) when authorized so to do by a vote of
Shareholders holding a majority of the Shares entitled to vote or (2) without
Shareholder approval as may be necessary or desirable in order to authorize one
or more classes or series of Shares as in Section 1 of Article III. Amendments
having the purpose of changing the name of the Trust or of supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by Shareholder vote.

     (b) Except to the extent that the Bylaws or applicable law may require a
higher vote or the separate vote of one or more classes or series of Shares, no
amendment may be made under this Section 7 which shall amend, alter, change or
repeal any of the provisions of Article III, Sections 4, 5, 6 or 7; Article IV,
Sections 1, 2 and 3; each Section of Article V; Article VII, Section 2; each
Section of Article VIII; or this Article IX, Sections 1, 2, 3, 4, 7(b) or 7(c)
unless, in each case, the amendment effecting such amendment, alteration, change
or repeal shall be effected by an instrument in writing signed by a majority of
the then Trustees and seventy-five percent (75%) of the Continuing Trustees and
shall receive the affirmative vote or consent of at least seventy-five percent
(75%) of the Shares entitled to vote; provided, however, that such affirmative
vote or consent shall be in addition to the vote or consent of the Shareholders
otherwise required by applicable law or by the terms of any agreement between
the Trust and any national securities exchange.

     (c) Except to the extent that the Bylaws or applicable law requires a vote
or consent of Shareholders, the Board of Trustees shall have the sole power and
authority to adopt, amend, alter, change or repeal any Bylaw of the Trust, if
the resolution or writing adopting, amending, altering, changing or repealing
any such Bylaw is approved or signed by a majority of the Board of Trustees;
provided, however, that the approval of a majority of the Board of Trustees and
seventy-five percent (75%) of the Continuing Trustees shall be required for (i)
any amendment, alteration, change or repeal of Section 10 of the Bylaws and (ii)
any amendment, alteration, change or repeal of any other Section or provision of
the Bylaws designated from time to time by resolution of a majority of the Board
of Trustees and seventy-five percent (75%) of the Continuing Trustees to require
such approval.

                                      -20-

<PAGE>

     IN WITNESS HEREOF, all of the Trustees as aforesaid do hereto set their
hands this 17th day of January, 2003.


                                     /s/ Kevin J. Ouellette
                                     ----------------------
                                     Kevin J. Ouellette

COMMONWEALTH OF MASSACHUSETTS )
                              )
COUNTY OF SUFFOLK             )  ss.

     Then personally appeared before me Kevin J. Ouellette, who acknowledged the
foregoing instrument to be his free act and deed.


                                    /s/ Diane Beane
                                    ----------------------------
                                    Notary Public
                                    My commission expires on: September 6, 2007


January 17, 2003

                                    Trustee and Address
                                    -------------------
                                    Kevin J. Ouellette
                                    c/o Ropes & Gray
                                    One International Place
                                    Boston, Massachusetts 02110

                                    Trust Address
                                    -------------
                                    Nicholas-Applegate Convertible & Income Fund
                                    c/o Ropes & Gray
                                    One International Place
                                    Boston, Massachusetts 02110

                                      -21-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.B
<SEQUENCE>4
<FILENAME>dex99b.txt
<DESCRIPTION>BYLAWS
<TEXT>
<PAGE>
                                                                      Exhibit b.

                                     BYLAWS
                                       of
                  Nicholas-Applegate Convertible & Income Fund

                         (Dated as of January 17, 2003)





                                   ARTICLE 1
             Agreement and Declaration of Trust and Principal Office

     1.1 Principal Office of the Trust. A principal office of the Trust shall be
located in New York, New York. The Trust may have other principal offices within
or without Massachusetts as the Trustees may determine or as they may authorize.

     1.2 Agreement and Declaration of Trust. These Bylaws shall be subject to
the Agreement and Declaration of Trust, as amended or restated from time to time
(the "Declaration of Trust"), of Nicholas-Applegate Convertible & Income Fund,
the Massachusetts business trust established by the Declaration of Trust (the
"Trust"). Capitalized terms used in these Bylaws and not otherwise defined
herein shall have the meanings given to such terms in the Declaration of Trust.


                                   ARTICLE 2
                              Meetings of Trustees

     2.1 Regular Meetings. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may from time to
time determine, provided that notice of the first regular meeting following any
such determination shall be given to absent Trustees. A regular meeting of the
Trustees may be held without call or notice immediately after and at the same
place as the annual meeting of the Shareholders.

     2.2 Special Meetings. Special meetings of the Trustees may be held at any
time and at any place designated in the call of the meeting when called by the
Chairman, the President or the Treasurer or by two or more Trustees, sufficient
notice thereof being given to each Trustee by the Secretary or an Assistant
Secretary or by the officer or the Trustees calling the meeting.

     2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting
to send notice by mail at least forty-eight hours, or by telegram, telex or
telecopy or other electronic facsimile transmission method at least twenty-four
hours, before the meeting addressed to the

<PAGE>

Trustee at his or her usual or last known business or residence address or to
give notice to him or her in person or by telephone at least twenty-four hours
before the meeting. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her, before or after the meeting,
is filed with the records of the meeting, or to any Trustee who attends the
meeting without protesting prior thereto or at its commencement the lack of
notice to him or her. Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.

     2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then
in office shall constitute a quorum. Any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further notice.

                                    ARTICLE 3
                                    Officers

     3.1 Enumeration; Qualification. The officers of the Trust shall be a
President, a Treasurer, a Secretary, and such other officers including a
Chairman, if any, as the Trustees from time to time may in their discretion
elect. The Trust may also have such agents as the Trustees from time to time may
in their discretion appoint. Any officer may but need not be a Trustee or a
Shareholder. Any two or more offices may be held by the same person.

     3.2 Election. The President, the Treasurer, and the Secretary shall be
elected annually by the Trustees. Other officers, if any, may be elected or
appointed by the Trustees at the same meeting at which the President, Treasurer
and Secretary are elected, or at any other time. Vacancies in any office may be
filled at any time.

     3.3 Tenure. The Chairman of the Trustees, if one is elected, the President,
the Treasurer and the Secretary shall hold office until their respective
successors are chosen and qualified, or in each case until he or she sooner
dies, resigns, is removed with or without cause or becomes disqualified. Each
other officer shall hold office and each agent of the Trust shall retain
authority at the pleasure of the Trustees.

     3.4 Powers. Subject to the other provisions of these Bylaws, each officer
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to the
office occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.

     3.5 Chairman; President; Vice President. Unless the Trustees otherwise
provide, the Chairman or, if there is none or in the absence of the Chairman,
the President shall preside at all meetings of the Shareholders and of the
Trustees. The President shall be the chief executive officer. Any Vice President
shall have such duties and powers as may be designated from time to time by the
Trustees or the President.

                                       -2-

<PAGE>

     3.6 Treasurer; Assistant Treasurer. The Treasurer shall be the chief
financial and accounting officer of the Trust, and shall, subject to the
provisions of the Declaration of Trust and to any arrangement made by the
Trustees with a custodian, investment adviser, sub-adviser or manager, or
transfer, shareholder servicing or similar agent, be in charge of the valuable
papers, books of account and accounting records of the Trust, and shall have
such other duties and powers as may be designated from time to time by the
Trustees or by the President. Any Assistant Treasurer shall have such duties and
powers as may be designated from time to time by the Trustees or the President.

     3.7 Secretary; Assistant Secretary. The Secretary shall record all
proceedings of the Shareholders and the Trustees in books to be kept therefor,
which books or a copy thereof shall be kept at the principal office of the
Trust. In the absence of the Secretary from any meeting of the Shareholders or
Trustees, an Assistant Secretary, or if there be none or if he or she is absent,
a temporary secretary chosen at such meeting shall record the proceedings
thereof in the aforesaid books. Any Assistant Secretary shall have such duties
and powers as may be designated from time to time by the Trustees or the
President.

     3.8 Resignations. Any officer may resign at any time by written instrument
signed by him or her and delivered to the Chairman, if any, the President or the
Secretary, or to a meeting of the Trustees. Such resignation shall be effective
upon receipt unless specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust, no officer
resigning and no officer removed shall have any right to any compensation for
any period following his or her resignation or removal, or any right to damages
on account of such removal.

                                    ARTICLE 4
                                   Committees

     4.1 Quorum; Voting. Except as provided below or as otherwise specifically
provided in the resolutions constituting a Committee of the Trustees and
providing for the conduct of its meetings, a majority of the members of any
Committee of the Trustees shall constitute a quorum for the transaction of
business, and any action of such a Committee may be taken at a meeting by a vote
of a majority of the members present (a quorum being present) or evidenced by
one or more writings signed by such a majority. Members of a Committee may
participate in a meeting of such Committee by means of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.

     With respect to a Valuation Committee of the Trustees, one or more of the
Committee members shall constitute a quorum for the transaction of business.

     Except as specifically provided in the resolutions constituting a Committee
of the Trustees and providing for the conduct of its meetings, Article 2,
Section 2.3 of these Bylaws relating to special meetings shall govern the notice
requirements for Committee meetings, except that it shall be sufficient notice
to a Valuation Committee of the Trustees to send notice by

                                       -3-

<PAGE>

telegram, telex or telecopy or other electronic means (including by telephone
voice-message or e-mail) at least fifteen minutes before the meeting.

                                    ARTICLE 5
                                     Reports

     5.1 General. The Trustees and officers shall render reports at the time and
in the manner required by the Declaration of Trust or any applicable law.
Officers and Committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.

                                    ARTICLE 6
                                   Fiscal Year

     6.1 General. Except as from time to time otherwise provided by the
Trustees, the initial fiscal year of the Trust shall end on such date as is
determined in advance or in arrears by the Treasurer, and the subsequent fiscal
years shall end on such date in subsequent years.

                                    ARTICLE 7
                                      Seal

     7.1 General. The seal of the Trust shall, subject to alteration by the
Trustees, consist of a flat-faced die with the word "Massachusetts", together
with the name of the Trust and the year of its organization cut or engraved
thereon; provided, however, that unless otherwise required by the Trustees, the
seal shall not be necessary to be placed on, and its absence shall not impair
the validity of, any document, instrument or other paper executed and delivered
by or on behalf of the Trust.

                                    ARTICLE 8
                               Execution of Papers

     8.1 General. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts and other obligations made,
accepted or endorsed by the Trust shall be executed by the President, any Vice
President, the Treasurer or by whomever else shall be designated for that
purpose by vote of the Trustees, and need not bear the seal of the Trust.

                                    ARTICLE 9
                         Issuance of Share Certificates

     9.1 Share Certificates. Each Shareholder shall be entitled to a certificate
stating the number of Shares owned by him or her, in such form as shall be
prescribed from time to time by the Trustees. Such certificates shall be signed
by the President or any Vice President and by the Treasurer or any Assistant
Treasurer. Such signatures may be by facsimile if the certificate is

                                       -4-

<PAGE>

signed by a transfer agent, or by a registrar, other than a Trustee, officer or
employee of the Trust. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall cease to be such officer
before such certificate is issued, it may be issued by the Trust with the same
effect as if he or she were such officer at the time of its issuance.

     Notwithstanding the foregoing, in lieu of issuing certificates for Shares,
the Trustees or the transfer agent may either issue receipts therefor or may
keep accounts upon the books of the Trust for the record holders of such Shares,
who shall in either case be deemed, for all purposes hereunder, to be the
holders of certificates for such Shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.

     9.2  Loss of Certificates. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.

     9.3  Issuance of New Certificates to Pledgee. A pledgee of Shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it is
held as collateral security, and the name of pledgor shall be stated thereon,
who alone shall be liable as a Shareholder and entitled to vote thereon.

     9.4  Discontinuance of Issuance of Certificates. Notwithstanding anything
to the contrary in this Article 9, the Trustees may at any time discontinue the
issuance of share certificates and may, by written notice to each Shareholder,
require the surrender of share certificates to the Trust for cancellation. Such
surrender and cancellation shall not effect the ownership of Shares in the
Trust.

                                   ARTICLE 10
                    Shareholders' Voting Powers and Meetings

     10.1 Voting Powers. The Shareholders shall have power to vote only (i) for
the election or removal of Trustees as provided in Article IV, Sections 1 and 3
of the Declaration of Trust, (ii) with respect to any Manager or sub-adviser as
provided in Article IV, Section 8 of the Declaration of Trust to the extent
required by the 1940 Act, (iii) with respect to certain transactions and other
matters to the extent and as provided in Article V, Sections 2 and 3 of the
Declaration of Trust, (iv) with respect to any termination of this Trust to the
extent and as provided in Article IX, Section 4 of the Declaration of Trust (for
the avoidance of any doubt, Shareholders shall have no separate right to vote
with respect to the termination of the Trust or a series or class of Shares if
the Trustees (including the Continuing Trustees) exercise their right to
terminate the Trust or such series or class pursuant to clauses (ii) or (y) of
Article IX, Section 4 of the Declaration of Trust), (v) with respect to any
amendment of the Declaration of Trust to the extent and as provided in Article
IX, Section 7 of the Declaration of Trust, (vi) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class

                                      -5-

<PAGE>

action on behalf of the Trust or the Shareholders, and (vii) with respect to
such additional matters relating to the Trust as may be required by law, the
Declaration of Trust, these Bylaws or any registration of the Trust with the
Securities and Exchange Commission (or any successor agency) or any state, or as
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except as
otherwise provided in the Declaration of Trust, these Bylaws, or required by
applicable law. Except as otherwise provided in the Declaration of Trust or in
respect of the terms of a class of preferred shares of beneficial interest of
the Trust as reflected in these Bylaws or required by applicable law, all Shares
of the Trust then entitled to vote shall be voted in the aggregate as a single
class without regard to classes or series of Shares. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. The placing of a Shareholder's name on a proxy pursuant to
telephonic or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such Shareholder shall constitute execution of such proxy by or on
behalf of such Shareholder. A proxy purporting to be executed by or on behalf of
a Shareholder shall be deemed valid unless challenged at or prior to its
exercise and the burden of proving invalidity shall rest on the challenger.
Until Shares of a particular class or series are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law, the
Declaration of Trust or these Bylaws to be taken by Shareholders as to such
class or series.

     10.2 Voting Power and Meetings. Except as provided in the next sentence,
regular meetings of the Shareholders for the election of Trustees and the
transaction of such other business as may properly come before the meeting shall
be held, so long as Shares are listed for trading on the New York Stock
Exchange, on at least an annual basis, on such day and at such place as shall be
designated by the Trustees. In the event that such a meeting is not held in any
annual period if so required, whether the omission be by oversight or otherwise,
a subsequent special meeting may be called by the Trustees and held in lieu of
such meeting with the same effect as if held within such annual period. Special
meetings of the Shareholders or any or all classes or series of Shares may also
be called by the Trustees from time to time for such other purposes as may be
prescribed by law, by the Declaration of Trust or by these Bylaws, or for the
purpose of taking action upon any other matter deemed by a majority of the
Trustees and a majority of the Continuing Trustees to be necessary or desirable.
A special meeting of Shareholders may be held at any such time, day and place as
is designated by the Trustees. Written notice of any meeting of Shareholders,
stating the date, time, place and purpose of the meeting, shall be given or
caused to be given by a majority of the Trustees and a majority of the
Continuing Trustees at least seven days before such meeting to each Shareholder
entitled to vote thereat by leaving such notice with the Shareholder at his or
her residence or usual place of business or by mailing such notice, postage
prepaid, to the Shareholder's address as it appears on the records of the Trust.
Such notice may be given by the Secretary or an Assistant Secretary or by any
other officer or agent designated for such purpose by the Trustees. Whenever
notice of a meeting is required to be given to a Shareholder under the
Declaration of Trust or these Bylaws, a written waiver thereof, executed before
or after the meeting by such Shareholder or his or her

                                       -6-

<PAGE>

attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice. Notice of a meeting need not be given to
any Shareholder who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to such Shareholder. No ballot shall be
required for any election unless required by a Shareholder present or
represented at the meeting and entitled to vote in such election.
Notwithstanding anything to the contrary in this Section 10.2, no matter shall
be properly before any annual or special meeting of Shareholders and no business
shall be transacted thereat unless in accordance with Section 10.6 of these
Bylaws.

     10.3 Quorum and Required Vote. Except when a larger quorum is required by
any provision of law or the Declaration of Trust or these Bylaws, thirty percent
(30%) of the Shares entitled to vote on a particular matter shall constitute a
quorum for the transaction of business at a Shareholders' meeting, except that
where any provision of law or the Declaration of Trust or these Bylaws permits
or requires that holders of any class or series of Shares shall vote as an
individual class or series, then thirty percent (30%) (unless a larger quorum is
required as specified above) of Shares of that class or series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that class or series. Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Except when a different vote is required by any provision of law or the
Declaration of Trust or these Bylaws, a plurality of the quorum of Shares
necessary for the transaction of business at a Shareholders' meeting shall
decide any questions and a plurality of Shares voted shall elect a Trustee,
provided that where any provision of law or of the Declaration of Trust or these
Bylaws permits or requires that the holders of any class or series of Shares
shall vote as an individual class or series, then a plurality of the quorum of
Shares of that class or series necessary for the transaction of business by that
class or series at a Shareholders' meeting shall decide that matter insofar as
that class or series is concerned.

     10.4 Action by Written Consent. Any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof as shall be required by any express
provision of law or the Declaration of Trust or these Bylaws) consent to the
action in writing and such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.

     10.5 Record Dates. For the purpose of determining the Shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a time, which shall be not more than 90 days
before the date of any meeting of Shareholders or the date for the payment of
any dividend or of any other distribution, as the record date for determining
the Shareholders having the right to notice of and to vote at such meeting and
any adjournment thereof or the right to receive such dividend or distribution,
and in such case only Shareholders of record on such record date shall have the
right notwithstanding any transfer of Shares on the books of the Trust after the
record date; or without fixing such record date the Trustees may for any of such
purposes close the register or transfer books for all or any part of such
period.

                                       -7-

<PAGE>

     10.6 Advance Notice of Shareholder Nominees for Trustees and Other
Shareholder Proposals.

          (a) As used in this Section 10.6, the term "annual meeting" refers to
     any annual meeting of Shareholders as well as any special meeting held in
     lieu of an annual meeting as described in the first two sentences of
     Section 10.2 of these Bylaws, and the term "special meeting" refers to all
     meetings of Shareholders other than an annual meeting or a special meeting
     in lieu of an annual meeting.

          (b) The matters to be considered and brought before any annual or
     special meeting of Shareholders shall be limited to only such matters,
     including the nomination and election of Trustees, as shall be brought
     properly before such meeting in compliance with the procedures set forth in
     this Section 10.6. Only persons who are nominated in accordance with the
     procedures set forth in this Section 10.6 shall be eligible for election as
     Trustees, and no proposal to fix the number of Trustees shall be brought
     before an annual or special meeting of Shareholders or otherwise transacted
     unless in accordance with the procedures set forth in this Section 10.6,
     except as may be otherwise provided in these Bylaws with respect to the
     right of holders of preferred shares of beneficial interest, if any, of the
     Trust to nominate and elect a specified number of Trustees in certain
     circumstances.

          (c) For any matter to be properly before any annual meeting, the
     matter must be (i) specified in the notice of meeting given by or at the
     direction of a majority of the Trustees and a majority of the Continuing
     Trustees pursuant to Section 10.2 of these Bylaws, (ii) otherwise brought
     before the meeting by or at the direction of a majority of the Continuing
     Trustees (or any duly authorized committee thereof), or (iii) brought
     before the meeting in the manner specified in this Section 10.6(c) by a
     Shareholder of record entitled to vote at the meeting or by a Shareholder
     (a "Beneficial Owner") that holds Shares entitled to vote at the meeting
     through a nominee or "street name" holder of record and that can
     demonstrate to the Trust such indirect ownership and such Beneficial
     Owner's entitlement to vote such Shares, provided that the Shareholder was
     the Shareholder of record or the Beneficial Owner held such Shares at the
     time the notice provided for in this Section 10.6(c) is delivered to the
     Secretary.

          In addition to any other requirements under applicable law and the
     Declaration of Trust and these Bylaws, persons nominated by Shareholders
     for election as Trustees and any other proposals by Shareholders may be
     properly brought before an annual meeting only pursuant to timely notice
     (the "Shareholder Notice") in writing to the Secretary. To be timely, the
     Shareholder Notice must be delivered to or mailed and received at the
     principal executive offices of the Trust not less than forty-five (45) nor
     more than sixty (60) days prior to the first anniversary date of the date
     on which the Trust first mailed its proxy materials for the prior year's
     annual meeting; provided, however, with respect to the annual meeting to be
     held in the calendar year 2003, the Shareholder Notice must be so delivered
     or mailed and so received on or before May 1, 2003; provided further,

                                       -8-

<PAGE>

     however, if and only if the annual meeting is not scheduled to be held
     within a period that commences thirty (30) days before the first
     anniversary date of the annual meeting for the preceding year and ends
     thirty (30) days after such anniversary date (an annual meeting date
     outside such period being referred to herein as an "Other Annual Meeting
     Date"), such Shareholder Notice must be given in the manner provided herein
     by the later of the close of business on (i) the date forty-five (45) days
     prior to such Other Annual Meeting Date or (ii) the tenth (10/th/) business
     day following the date such Other Annual Meeting Date is first publicly
     announced or disclosed.

          Any Shareholder desiring to nominate any person or persons (as the
     case may be) for election as a Trustee or Trustees of the Trust shall
     deliver, as part of such Shareholder Notice: (i) a statement in writing
     setting forth (A) the name, age, date of birth, business address, residence
     address and nationality of the person or persons to be nominated; (B) the
     class or series and number of all Shares of the Trust owned of record or
     beneficially by each such person or persons, as reported to such
     Shareholder by such nominee(s); (C) any other information regarding each
     such person required by paragraphs (a), (d), (e) and (f) of Item 401 of
     Regulation S-K or paragraph (b) of Item 22 of Rule 14a-101 (Schedule 14A)
     under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
     adopted by the Securities and Exchange Commission (or the corresponding
     provisions of any regulation or rule subsequently adopted by the Securities
     and Exchange Commission or any successor agency applicable to the Trust);
     (D) any other information regarding the person or persons to be nominated
     that would be required to be disclosed in a proxy statement or other
     filings required to be made in connection with solicitation of proxies for
     election of Trustees or directors pursuant to Section 14 of the Exchange
     Act and the rules and regulations promulgated thereunder; and (E) whether
     such Shareholder believes any nominee is or will be an "interested person"
     of the Trust (as defined in the Investment Company Act of 1940, as amended)
     and, if not an "interested person," information regarding each nominee that
     will be sufficient for the Trust to make such determination; and (ii) the
     written and signed consent of the person or persons to be nominated to be
     named as nominees and to serve as Trustees if elected. In addition, the
     Trustees may require any proposed nominee to furnish such other information
     as they may reasonably require or deem necessary to determine the
     eligibility of such proposed nominee to serve as a Trustee. Any Shareholder
     Notice required by this Section 10.6(c) in respect of a proposal to fix the
     number of Trustees shall also set forth a description of and the text of
     the proposal, which description and text shall state a fixed number of
     Trustees that otherwise complies with applicable law, these Bylaws and the
     Declaration of Trust.

          Without limiting the foregoing, any Shareholder who gives a
     Shareholder Notice of any matter proposed to be brought before a
     Shareholder meeting (whether or not involving nominees for Trustees) shall
     deliver, as part of such Shareholder Notice: (i) the description of and
     text of the proposal to be presented; (ii) a brief written statement of the
     reasons why such Shareholder favors the proposal; (iii) such Shareholder's
     name and address as they appear on the Trust's books; (iv) any other
     information relating to the Shareholder that would be required to be
     disclosed in a proxy statement or other filings

                                       -9-

<PAGE>

     required to be made in connection with the solicitation of proxies with
     respect to the matter(s) proposed pursuant to Section 14 of the Exchange
     Act and the rules and regulations promulgated thereunder; (v) the class or
     series and number of all Shares of the Trust owned beneficially and of
     record by such Shareholder; (vi) any material interest of such Shareholder
     in the matter proposed (other than as a Shareholder); (vii) a
     representation that the Shareholder intends to appear in person or by proxy
     at the Shareholder meeting to act on the matter(s) proposed; (viii) if the
     proposal involves nominee(s) for Trustees, a description of all
     arrangements or understandings between the Shareholder and each proposed
     nominee and any other person or persons (including their names) pursuant to
     which the nomination(s) are to be made by the Shareholder; and (ix) in the
     case of a Beneficial Owner, evidence establishing such Beneficial Owner's
     indirect ownership of, and entitlement to vote, Shares at the meeting of
     Shareholders. As used in this Section 10.6, Shares "beneficially owned"
     shall mean all Shares which such person is deemed to beneficially own
     pursuant to Rules 13d-3 and 13d-5 under the Exchange Act.

          (d) For any matter to be properly before any special meeting, the
     matter must be specified in the notice of meeting given by or at the
     direction of a majority of the Trustees and a majority of the Continuing
     Trustees pursuant to Section 10.2 of these Bylaws. In the event the Trust
     calls a special meeting for the purpose of electing one or more Trustees,
     any Shareholder may nominate a person or persons (as the case may be) for
     election to such position(s) as specified in the Trust's notice of meeting
     if and only if the Shareholder provides a notice containing the information
     required in the Shareholder Notice to the Secretary required with respect
     to annual meetings by Section 10.6(c) hereof, and such notice is delivered
     to or mailed and received at the principal executive office of the Trust
     not later than the close of business on the tenth (10/th/) day following
     the day on which the date of the special meeting and of the nominees
     proposed by the Trustees to be elected at such meeting are publicly
     announced or disclosed.

          (e) For purposes of this Section 10.6, a matter shall be deemed to
     have been "publicly announced or disclosed" if such matter is disclosed in
     a press release reported by the Dow Jones News Service, Associated Press or
     comparable national news service, in a document publicly filed by the Trust
     with the Securities and Exchange Commission, or in a Web site accessible to
     the public maintained by the Trust or by its investment adviser or an
     affiliate of such investment adviser with respect to the Trust.

          (f) In no event shall an adjournment or postponement (or a public
     announcement thereof) of a meeting of Shareholders commence a new time
     period (or extend any time period) for the giving of notice as provided in
     this Section 10.6.

          (g) The person presiding at any meeting of Shareholders, in addition
     to making any other determinations that may be appropriate to the conduct
     of the meeting, shall have the power and duty to (i) determine whether a
     nomination or proposal of other matters to be brought before a meeting and
     notice thereof have been duly made and given in the manner provided in this
     Section 10.6 and elsewhere in these Bylaws and the

                                      -10-

<PAGE>

     Declaration of Trust and (ii) if not so made or given, to direct and
     declare at the meeting that such nomination and/or such other matters shall
     be disregarded and shall not be considered. Any determination by the person
     presiding shall be binding on all parties absent manifest error.

          (h) Notwithstanding anything to the contrary in this Section 10.6 or
     otherwise in these Bylaws, unless required by federal law, no matter shall
     be considered at or brought before any annual or special meeting unless
     such matter has been approved for these purposes by a majority of the
     Continuing Trustees and, in particular, no Beneficial Owner shall have any
     rights as a Shareholder except as may be required by federal law.
     Furthermore, nothing in this Section 10.6 shall be construed as creating
     any implication or presumption as to the requirements of federal law.

                                   ARTICLE 11
                             Amendment to the Bylaws

     11.1 General. Except to the extent that the Declaration of Trust or
applicable law requires a vote or consent of Shareholders or a higher vote or
consent by the Trustees and/or the Continuing Trustees, these Bylaws may be
amended, changed, altered or repealed, in whole or part, only by resolution of a
majority of the Trustees and a majority of the Continuing Trustees then in
office at any meeting of the Trustees, or by one or more writings signed by such
Trustees and Continuing Trustees.

                                      -11-

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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