<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>filing.txt
<TEXT>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 2003
                                                         =======

                               SECURITIES ACT FILE NO. 333-104569
                                                           ======
                              INVESTMENT COMPANY ACT FILE NO. 811-21331
                                                                  =====

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

                 U.S. SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C. 20549
                            ----------------
                                FORM N-2

                        REGISTRATION STATEMENT UNDER

                         THE SECURITIES ACT OF 1933            [ ]
                                                                ==
                       PRE-EFFECTIVE AMENDMENT NO. 1           [X]
                                                    =           =
                       POST-EFFECTIVE AMENDMENT NO. __         [ ]

                                   AND/OR
                        REGISTRATION STATEMENT UNDER

                     THE INVESTMENT COMPANY ACT OF 1940        [ ]
                                                               ==
                              AMENDMENT NO. 1                  [X]
                                             =                  =

                      (Check Appropriate Box or Boxes)
                              ----------------



                          EVERGREEN MANAGED INCOME FUND
                                    ========
               (Exact Name of Registrant As Specified in Charter )


                               200 BERKELEY STREET
                              BOSTON, MA 02116-5034
                    (Address of Principal Executive Offices)
       Registrant's Telephone Number, including Area Code: (617) 210-3200
                                ----------------
                          THE CORPORATION TRUST COMPANY
                               1209 ORANGE STREET
                              WILMINGTON, DE 19801
                     (Name and Address of Agent for Service)
                                ----------------
                                 With copies to:


                    DAVID C. MAHAFFEY                LEONARD B. MACKEY, JR.

                SULLIVAN & WORCESTER LLP             CLIFFORD CHANCE US LLP
                                                     ======================
                  1666 K STREET, N.W.                    200 PARK AVENUE
                 WASHINGTON, D.C. 20006             NEW YORK, NEW YORK 10166


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





                  APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
 As soon as practicable after the effective date of this Registration Statement.

     If any  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. [ ]

     This  form is filed  to  register  additional  securities  for an  offering
pursuant  to Rule  462(b)  under  the  Securities  Act and  the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the offering is         [ ]

   CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

=====================================================================
<TABLE>
<S>                                     <C>                     <C>                             <C>                     <C>


     TITLE OF SECURITIES             AMOUNT BEING                 PROPOSED                    PROPOSED                  AMOUNT OF
       BEING REGISTERED               REGISTERED           MAXIMUM OFFERING PRICE              MAXIMUM                REGISTRATION
                                                               PER SHARE (1)                  AGGREGATE                    FEE
                                                                                         OFFERING PRICE (1)

 Common Shares (no par value)

          .............                  2,000,000 shares               $20.00                   $40,000,000               $3,236(2)
                                                                         ======                    ===========                 =====


</TABLE>

=====================================================================
     (1)  Estimated  solely for the purpose of computing  the  registration  fee
pursuant to Rule 457.


     (2)  $2,427 of this  amount  was  previously  paid in  connection  with the
registration of 2,000,000  shares of the total amount of shares to be registered
at a maximum  offering price per share of $15.00 as filed on April 16, 2003. The
remainder,  which  represents the difference in the fee for the  registration of
2,000,000  shares of the total  shares to be  registered  at a proposed  maximum
offering price of $20.00 per share, was transmitted  prior to this filing to the
designated  lockbox of the Securities and Exchange  Commission at Mellon Bank in
Pittsburgh, Pennsylvania.


     THE REGISTRANT  HEREBY AMENDS THIS  REGISTRATION  STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER  AMENDMENT  WHICH  SPECIFICALLY  STATES  THAT  THIS  REGISTRATION
STATEMENT SHALL  THEREAFTER  BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES  ACT OF 1933 OR UNTIL THIS  REGISTRATION  STATEMENT  SHALL BECOME
EFFECTIVE  ON SUCH  DATE  AS THE  SECURITIES  AND  EXCHANGE  COMMISSION,  ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

     Information  to be  included  in  Part B is set  forth  in  Part B to  this
Registration Statement.

     Information  to be included  in Part C is set forth  under the  appropriate
item, so numbered in Part C to this Registration Statement.






<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.


                                 Subject to Completion
                           Preliminary Prospectus dated May 21, 2003

PROSPECTUS                                              [Evergreen Logo]


                                     Shares

                         Evergreen Managed Income Fund

                                  Common Shares

                                $20.00 per share

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


          Investment Objective.  Evergreen Managed Income Fund (the "Fund") is a
     newly organized, diversified, closed-end management investment company. The
     Fund's  investment  objective  is to seek a high  level of  current  income
     consistent  with  limiting its overall  exposure to domestic  interest rate
     risk.

          Portfolio Contents. The Fund allocates its assets among three separate
     investment strategies.  Under normal market conditions,  the Fund allocates
     approximately  50% of its  total  assets  to an  investment  strategy  that
     focuses  primarily  on  below  investment  grade  (high  yield)  U.S.  debt
     securities,  loans and  preferred  stocks;  approximately  25% of its total
     assets to an  investment  strategy  that focuses  primarily on foreign debt
     securities  including  obligations of foreign  governments or  governmental
     entities,  foreign  corporations or supranational  agencies  denominated in
     various  currencies;  and  approximately  25% of  its  total  assets  to an
     investment strategy that focuses primarily on securities that have interest
     rates  that  re-set  at  periodic   intervals   including   mortgage-backed
     securities, asset-backed securities and collateralized mortgage obligations
     ("CMOs")  issued or  guaranteed  by the U.S.  government,  its  agencies or
     instrumentalities.

          The Fund's  investment  adviser  reserves  the  discretion  based upon
     market  conditions to reallocate  these weightings in order for the Fund to
     seek to maintain a yield that  exceeds the  then-current  yield of ten-year
     Treasury  notes  and also for the  Fund as a whole  to seek to  maintain  a
     weighted  average  credit  quality of  investment  grade  (based on current
     market  conditions,  the  anticipated  average credit quality of the Fund's
     portfolio  on the date the Fund first  becomes  fully  invested  will be at
     least  BBB).  The U.S.  high  yield debt  securities  portion of the Fund's
     portfolio is expected to be invested in high yield debt securities that are
     rated Ba or lower by Moody's Investors Service,  Inc.  ("Moody's") or BB or
     lower  by  Standard  &  Poor's  Ratings  Services  ("S&P")  or are  unrated
     securities  of comparable  quality as  determined by the Fund's  investment
     adviser.  Below  investment  grade  securities are commonly  referred to as
     "junk bonds" and are  considered  speculative  with respect to the issuer's
     capacity to pay interest and principal.  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 debt
     securities.  The foreign debt securities portion of the Fund's portfolio is
     expected  to be  invested  in at least  three  countries  or  supranational
     agencies.  The weighted  average credit quality of this portion of the Fund
     will be  investment  grade.  Up to 30% of the  Fund's  total  assets may be
     allocated to the foreign debt securities  portion of the Fund's  portfolio.
     The adjustable rate securities  portion of the Fund's portfolio is expected
     to be typically  invested in  adjustable  rate  mortgage-backed  securities
     issued  or  guaranteed  by the  Government  National  Mortgage  Association
     ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal
     Home Loan Mortgage  Corporation  ("FHLMC").  Securities issued by GNMA, but
     not those issued by FNMA or FHLMC,  are backed by the full faith and credit
     of the U.S. government. The weighted average credit quality of this portion
     of the Fund's portfolio is expected to be AAA/Aaa.


          An  investment  in the Fund  involves a high degree of risk and is not
     appropriate for all investors. There can be no assurance that the Fund will
     achieve its investment objective.






          Investing  in  the  Fund's  common  shares  involves  risks  that  are
     described  in the  "Risk  Factors"  section  beginning  on  page 36 of this
     prospectus.


                                                  --------------
<TABLE>
<CAPTION>
                                                                                 Per Share        Total
                                                                                   -----           ---

     <S>                                                                          <C>             <C>

     Public offering price...................................................     $20.00          $
                                                                                    =====
     Sales load..............................................................       $ .90         $
                                                                                      ===
     Estimated offering expenses(1)..........................................       $ .04         $
                                                                                      ===
     Proceeds to the Fund....................................................     $ 19.06         $
                                                                                    =====

</TABLE>

(1) The  aggregate  expenses of the offering are estimated to be $ . The Advisor
has  agreed  to pay the  amount  by which  the  aggregate  of all of the  Fund's
organizational  expenses and offering  costs (other than the sales load) exceeds
$.04 per common share.


     The underwriters may also purchase up to an additional    common shares
     at the public offering price, less the sales load, within 45 days from the
     date of this prospectus to cover over-allotments.

          Neither the Securities and Exchange  Commission (the "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.

     The common shares will be ready for delivery on or about         , 2003.



                                      ----------


      Merrill Lynch & Co.                               Wachovia Securities
      A.G. Edwards & Sons, Inc.   Prudential Securities    UBS Warburg
                                  ---------------------
      Advest, Inc.        Janney Montgomery Scott LLC  McDonald Investments Inc.
      Quick & Reilly, Inc.                           Stifel, Nicolaus & Company
                                                          Incorporated
                                      ----------


                       The date of this prospectus is    , 2003.








<PAGE>





(continued from previous page)





     No Prior History. Because the Fund is newly organized, its shares have
     no history of public trading.  Shares of closed-end  funds frequently trade
     at prices  lower than their net asset  value.  The risk of loss due to this
     discount  may be greater  for  initial  investors  expecting  to sell their
     shares  in a  relatively  short  period  after  completion  of  the  public
     offering.  The Fund  intends  to apply for  listing on the  American  Stock
     Exchange under the symbol " ERC."
          Investment Adviser.  Evergreen Investment Management Company, LLC (the
     "Advisor") is the Fund's investment adviser. First International  Advisors,
     LLC, d/b/a Evergreen  International  Advisors (the  "Sub-Advisor"),  is the
     investment  sub-adviser  with  respect to the portion of the Fund's  assets
     that are invested in foreign debt securities. See "Management of the Fund."
         Leverage.  The Fund  initially  intends to issue  preferred  shares of
     beneficial  interest  representing  approximately  33  1/3%  of the  Fund's
     capital  immediately  after their issuance.  The Fund may also borrow money
     from banks or other financial  institutions or issue debt securities.  This
     practice is known as leverage.  The Fund will not issue preferred shares or
     borrow  money if,  immediately  after such  issuance  or  borrowing,  total
     leverage for the Fund  exceeds 38% of the Fund's  total assets  immediately
     after such issuance or borrowing.  The Fund may also borrow through reverse
     repurchase agreements (up to 20% of its total assets subject to the overall
     limit on leverage and borrowings). The use of preferred shares or borrowing
     to leverage the common shares creates risks.  Any such preferred  shares or
     borrowings will have seniority over the common shares.
          You should read the prospectus,  which contains important  information
     about the Fund,  before  deciding  whether to invest in the  Fund's  common
     shares,  and retain it for future  reference.  A  Statement  of  Additional
     Information, dated , 2003 containing additional information about the Fund,
     has been filed with the Commission and is  incorporated by reference in its
     entirety into this prospectus. You may request a free copy of the Statement
     of Additional Information,  the table of contents of which is on page 59 of
     this prospectus,  by calling  1-800-730-6001 or by writing to the Fund. You
     can review and copy documents the Fund has filed at the Commission's Public
     Reference Room in Washington, D.C. Call 1-202-942-8090 for information. The
     Commission  charges a fee for copies. You can get the same information free
     from the Commission's EDGAR database on the Internet  (http://www.sec.gov).
     You may also e-mail requests for these documents to  publicinfo@sec.gov  or
     make a request in writing to the  Commission's  Public  Reference  Section,
     Washington, D.C. 20549-0102.

          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.



<PAGE>

<TABLE>
<CAPTION>


                                                 TABLE OF CONTENTS

                                                                                                               Page
                                                                                                               ----

<S>                                                                                                            <C>

Prospectus Summary........................................................................................     5

Summary of Fund Expenses..................................................................................    22

The Fund..................................................................................................    23

Use of Proceeds...........................................................................................    23

Investment Objective and Principal Investment Strategies..................................................    24

Leverage..................................................................................................    33

Risk Factors..............................................................................................    36

Management of the Fund....................................................................................    43

Dividends and Distributions...............................................................................    45

Automatic Dividend Reinvestment Plan......................................................................   46
                                                                                                              =
Closed-End Fund Structure.................................................................................   48
                                                                                                              =
U.S. Federal Income Tax Matters...........................................................................   49
                                                                                                              =
Net Asset Value...........................................................................................   51
                                                                                                              =
Description of Shares.....................................................................................   52
                                                                                                              =
Certain Provisions of the Agreement and Declaration of Trust and By-laws..................................    53
Underwriting..............................................................................................   56
                                                                                                              =
Custodian, Transfer Agent, Dividend Disbursing Agent and Registrar........................................   58
                                                                                                              =
Validity of Common Shares.................................................................................   58
                                                                                                              =
Table of Contents for Statement of Additional Information.................................................   59


</TABLE>

          You should rely only on the  information  contained in or incorporated
     by reference  in this  prospectus.  The Fund has not, and the  underwriters
     have not,  authorized  any other  person to provide you with  different  or
     inconsistent  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 to sell these securities in any
     jurisdiction  where the offer or sale is not  permitted.  You should assume
     that the  information in this prospectus is accurate only as of the date of
     this prospectus, and the Fund's business, financial condition and prospects
     may have changed since that date.


          Until , 2003 (the 25th day  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 dealer's obligation to deliver a prospectus when
     acting as an  underwriter  and with respect to their unsold  allotments  or
     subscriptions.




<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 Fund's common
     shares. You should review the more detailed  information  contained in this
     prospectus and in the statement of additional  information,  especially the
     information set forth under the heading "Risk Factors."
<TABLE>
<CAPTION>



<S>                                      <C>

The Fund..............................   Evergreen Managed Income Fund (the "Fund") is a newly organized,
                                         diversified, closed-end management investment company. The Fund's
                                         principal offices are located at 200 Berkeley Street, Boston,
                                         Massachusetts 02116-5034, and its telephone number is 1-800-343-2898.
The Offering..........................   The Fund is offering                    common shares at an initial
                                         offering price of $20.00 per share. The common shares are being offered
                                         by a group of underwriters (the "underwriters") led by Merrill Lynch,
                                         Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Wachovia
                                         Securities, Inc. ("Wachovia Securities"), A.G. Edwards & Sons, Inc. ("A.G. Edwards"),
                                         Prudential Securities Incorporated ("Prudential Securities") and UBS Warburg LLC
                                         ("UBS Warburg"). You must purchase at least 100 common shares ($2,000.00)
                                         in order to participate in the offering. The
                                         Fund has granted the underwriters the right to purchase up to an
                                         additional               common shares at the public offering price,
                                         less the sales load, within 45 days from the date of this prospectus to
                                         cover over-allotments. Evergreen Investment Management Company, LLC, the
                                         Fund's investment adviser (the "Advisor"), has agreed to pay the amount
                                         by which the aggregate of all of the Fund's organizational expenses and
                                         offering costs (other than sales load) exceeds $.04 per common share.


                                         See "Underwriting."
Investment Objective..................   The Fund's investment objective is to seek a high level of current

                                         income consistent with limiting its overall exposure to domestic
                                         interest rate risk. There can be no assurance that the Fund will achieve
                                         its investment objective.
Investment Policies...................   The Fund allocates its assets among three separate investment
                                         strategies. Under normal market conditions, the Fund allocates
                                         approximately 50% of its total assets to an investment strategy that
                                         focuses primarily on below investment grade (high yield) U.S. debt
                                         securities, loans and preferred stocks; approximately 25% of its total
                                         assets to an investment strategy that focuses primarily on foreign debt
                                         securities including obligations of foreign governments or governmental
                                         entities, foreign corporations or supranational agencies denominated in
                                         various currencies; and approximately 25% of its total assets to an
                                         investment strategy that focuses primarily on securities that have
                                         interest rates that re-set at periodic intervals including
                                         mortgage-backed securities, asset-backed securities and collateralized
                                         mortgage obligations ("CMOs") issued or guaranteed by the U.S.
                                         government, its agencies or instrumentalities.  The Advisor reserves
                                         the discretion based upon market conditions to reallocate these
                                         weightings in order for the Fund to seek to maintain a yield that
                                         exceeds the then-current yield of ten-year Treasury notes and also for
                                         the Fund as a whole to seek to maintain a weighted average credit
                                         quality of investment grade  (based on current market conditions, the anticipated
                                         average credit quality of the Fund's portfolio on the date the Fund first becomes
                                         fully invested will be at least BBB). Based upon current market conditions, the
                                         weighted average duration of the Fund's portfolio as a whole will be 3.5 years to
                                         4.5 years at the commencement of the Fund's operations.  Based upon current market
                                         conditions, it is expected that the Fund's portfolio as a whole will
                                         have an average maturity of 5 to 7 years.

                                         The Fund principally allocates its assets among three separate
                                         investment strategies:

                                         o U.S. High Yield Debt Securities.  Under normal market conditions, the
                                         Fund expects to invest approximately 50% of its total assets in an
                                         investment strategy that focuses on below investment grade (high yield)
                                         U.S. debt securities, loans and preferred stocks. Under normal market
                                         conditions, at least 80% of this portion of the Fund's portfolio will be
                                         invested in high yield U.S. debt securities, loans and preferred stocks.

                                         The high yield securities in which the Fund invests are rated Ba or
                                         lower by Moody's or BB or lower by S&P or are unrated but determined by
                                         the Advisor to be of comparable quality. Debt securities rated below
                                         investment grade are commonly referred to as "junk bonds" and are
                                         considered speculative with respect to the issuer's capacity to pay
                                         interest and repay principal. Below investment grade debt securities
                                         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 debt securities.  For purposes of the
                                         Fund's credit quality policies, if a security receives different ratings
                                         from nationally recognized securities rating organizations, the Fund
                                         will use the rating chosen by the portfolio managers as
                                         most representative of the security's credit quality. This portion of the
                                         Fund's portfolio targets securities with a minimum rating of single B at
                                         the time of purchase and attempts to maintain a weighted average
                                         credit quality with respect to the high yield securities of B to BB. The
                                         Advisor anticipates that no more than 10% of this portion of the Fund's
                                         assets will be comprised of securities that are rated CCC or lower. The
                                         Fund invests in high yield securities with a broad range of maturities.
                                         The Advisor anticipates that, assuming the issuance of preferred shares
                                         representing approximately 33 1/3% of the Fund's capital immediately
                                         after their issuance, the weighted average duration of the Fund's high
                                         yield U.S. debt securities will be 4.50 to 4.70 years, although there is
                                         no guarantee that this range will be obtained.

                                         o Foreign Debt Securities.  Under normal market conditions, the Fund
                                         expects to invest approximately 25% of its total assets in an investment
                                         strategy that focuses on foreign debt securities including obligations
                                         of foreign governments or governmental entities, foreign corporations
                                         or supranational agencies denominated in various currencies.  This
                                         portion of the Fund is expected to invest in at least three countries
                                         or supranational agencies.  This portion of the Fund will not invest in
                                         foreign debt securities issued by governments or governmental agencies
                                         of emerging market countries and will not invest in debt securities issued by
                                         corporations that are domiciled in emerging market countries.  The Advisor considers
                                         emerging market countries to be countries that issue long-term sovereign debt in their
                                         local currency that is rated as below investment grade.  Up to 10% of the debt securities
                                         in which this portion of the Fund invests may be below investment grade (i.e.,
                                         high yield). The weighted average credit quality of this portion of
                                         the Fund is expected to be investment grade.  This portion of the Fund
                                         may also enter into foreign currency exchange contracts to, for example,
                                         gain exposure to foreign markets in which this portion of the Fund's
                                         portfolio is underweighted.  The Fund typically uses currency hedging
                                         for risk control.  The Advisor anticipates that, assuming the issuance
                                         of preferred shares representing approximately 331/3% of the Fund's
                                         capital immediately after their issuance, the weighted average duration
                                         of the Fund's foreign debt securities will be 3.50 to 10 years, although
                                         there is no guarantee that this range will be obtained.  The Fund
                                         currently expects this portion of the Fund's portfolio to maintain a
                                         dollar-weighted average maturity of 5 to 14 years. Up to 30% of the
                                         Fund's total assets may be allocated to the foreign debt securities
                                         portion of the Fund's portfolio.

                                         o Adjustable Rate Securities.  Under normal market conditions, the Fund
                                         expects to invest approximately 25% of its total assets in an
                                         investment strategy that focuses on securities that have interest rates
                                         that re-set at periodic intervals including mortgage-backed securities,
                                         asset-backed securities and CMOs issued or guaranteed by the U.S.
                                         government, its agencies or instrumentalities.  The weighted average
                                         credit quality of this portion of the Fund's assets is expected to be
                                         AAA/Aaa.  This portion of the Fund typically will invest in adjustable
                                         rate mortgage-backed securities issued or guaranteed by the Government
                                         National Mortgage Association ("GNMA"), the Federal National Mortgage
                                         Association ("FNMA") or the Federal Home Loan Mortgage Corporation
                                         ("FHLMC").  Securities issued by GNMA, but not those issued by FNMA or
                                         FHLMC, are backed by the full faith and credit of the U.S. government.
                                         The Fund may also invest up to    20% of this portion of the Fund's
                                         assets in obligations of the U.S. government, its agencies or
                                         instrumentalities, such as the Federal Home Loan Banks, FNMA, GNMA,
                                         FHLMC or the Federal Farm Credit Banks, including obligations that pay
                                         fixed or adjustable interest rates. As part of this investment strategy,
                                         the Fund may engage in dollar roll transactions, which allow the Fund to
                                         sell a mortgage-backed security to a dealer and simultaneously contract
                                         to repurchase a security that is substantially similar in type, coupon
                                         and maturity, on a specified future date. The Fund currently expects
                                         this portion of the Fund's portfolio to maintain a weighted average life
                                         of 1 to 6 years and a weighted average duration of 0.5 to 1.5 years.

                                         Mortgage-Backed Securities.  The adjustable rate securities portion of
                                         the Fund may invest in mortgage pass-through certificates and
                                         multiple-class pass-through securities, and mortgage derivative
                                         securities such as real estate mortgage investment conduits ("REMIC")
                                         pass-through certificates, collateralized mortgage obligations ("CMOs")
                                         and stripped mortgage-backed securities ("SMBS"), interest only
                                         mortgage-backed securities and principal only mortgage-backed securities
                                         and other types of mortgage-backed securities that may be available in
                                         the future. A mortgage-backed security is an obligation of the issuer
                                         backed by a mortgage or pool of mortgages or a direct interest in an
                                         underlying pool of mortgages. Some mortgage-backed securities, such as
                                         CMOs, are adjustable rate and make payments of both principal and
                                         interest at a variety of intervals; others are fixed rate and make
                                         semiannual interest payments at a predetermined rate and repay principal
                                         at maturity (like a typical bond). Mortgage-backed securities are based
                                         on different types of mortgages including those on commercial real
                                         estate or residential properties. Mortgage-backed securities often have
                                         stated maturities of up to thirty years when they are issued, depending
                                         upon the length of the mortgages underlying the securities. In practice,
                                         however, unscheduled or early payments of principal and interest on the
                                         underlying mortgages may make the securities' effective maturity shorter
                                         than this, and the prevailing interest rates may be higher or lower than
                                         the current yield of the Fund's portfolio at the time the Fund receives
                                         the payments for reinvestment. Mortgage-backed securities may have less
                                         potential for capital appreciation than comparable fixed income
                                         securities, due to the likelihood of increased prepayments of mortgages
                                         as interest rates decline. If the Fund buys mortgage-backed securities
                                         at a premium, mortgage foreclosures and prepayments of principal by
                                         mortgagors (which may be made at any time without penalty) may result in
                                         some loss of the Fund's principal investment to the extent of the
                                         premium paid. The value of mortgage-backed securities may also change
                                         due to shifts in the market's perception of issuers. In addition,
                                         regulatory or tax changes may adversely affect the mortgage securities
                                         markets as a whole. Non-governmental mortgage-backed securities may
                                         offer higher yields than those issued by government entities but also
                                         may be subject to greater price changes than governmental issues.


                                         Asset-Backed Securities.  Asset-backed securities are securities that
                                         represent a participation in, or are secured by and payable from, a
                                         stream of payments generated by particular assets, most often a pool or
                                         pools of similar assets (e.g., trade receivables). The credit quality of
                                         these securities depends primarily upon the quality of the underlying
                                         assets and the level of credit support and/or enhancement provided.

                                         The underlying assets (e.g., loans) are subject to prepayments which
                                         shorten the securities' weighted average maturity and may lower their
                                         return. If the credit support or enhancement is exhausted, losses or
                                         delays in payment may result if the required payments of principal and
                                         interest are not made. The value of these securities also may change
                                         because of changes in the market's perception of the creditworthiness of
                                         the servicing agent for the pool, the originator of the pool, or the
                                         financial institution or Fund providing the credit support or
                                         enhancement.

                                         Dollar Roll Transactions.  In dollar roll transactions, the Fund sells a
                                         U.S. agency mortgage-backed security and simultaneously agrees to
                                         purchase at a future date another U.S. agency mortgage-backed security
                                         with the same interest rate and maturity date, but generally backed by a
                                         different pool of mortgages. The Fund loses the right to receive
                                         interest and principal payments on the security it sold. However, the
                                         Fund benefits from the interest earned on investing the proceeds of the
                                         sale and may receive a fee or lower purchase price. The benefits from
                                         these transactions depend upon the Advisor's ability to forecast
                                         mortgage prepayment patterns on different mortgage pools. The Fund may
                                         lose money if, during the period between the time it agrees to the
                                         forward purchase of the mortgage securities and the settlement date,
                                         these securities decline in value due to market conditions or
                                         prepayments on the underlying mortgages.

                                         The Fund's Advisor determines the appropriate weightings of each
                                         investment strategy and adjusts it periodically.  In making adjustments
                                         to the weightings of each strategy, the Advisor uses its analysis of the
                                         expected returns for each investment strategy and factors in the stock,
                                         bond and money markets, interest rate and corporate earnings growth
                                         trends, and economic conditions.

                                         In addition to the principal investment strategies discussed above, the
                                         Fund may, at times, invest a portion of its assets in the investment
                                         strategies and investment techniques as described below (some of which
                                         may be a principal investment strategy for a portion of the Fund as
                                         described above).

                                         Convertible Securities.  The Fund's investments in fixed income
                                         securities may include bonds and preferred stocks that are convertible
                                         into the equity securities of the issuer. The Fund will not invest more
                                         than 10% of its total assets in convertible instruments. Depending upon
                                         the relationship of the conversion price to the market value of the
                                         underlying securities, convertible securities may trade more like equity
                                         securities than debt instruments.

                                         Corporate Loans.  The Fund may invest a portion of its total assets in
                                         loan participations and other claims against a corporate borrower. The
                                         corporate loans in which the Fund invests primarily consist of direct
                                         obligations of a borrower. The Fund may invest in a corporate loan at
                                         origination as a co-lender or by acquiring in the secondary market
                                         participations in, assignments of or novations of a corporate loan. By
                                         purchasing a participation, the Fund acquires some or all of the
                                         interest of a bank or other lending institution in a loan to a corporate
                                         borrower.

                                         Foreign Currency Transactions.  Foreign currency transactions are
                                         entered into for the purpose of hedging against foreign exchange risk
                                         arising from the Fund's investment or anticipated investment in
                                         securities denominated in foreign currencies. The Fund also may enter
                                         into these contracts for purposes of increasing exposure to a foreign
                                         currency or to shift exposure to foreign currency fluctuations from one
                                         country to another.  Foreign currency transactions include the purchase
                                         of foreign currency on a spot (or cash) basis, contracts to purchase or
                                         sell foreign currencies at a future date (forward contracts), the
                                         purchase and sale of foreign currency futures contracts, and the
                                         purchase of exchange traded and over-the-counter call and put options on
                                         foreign currency futures contracts and on foreign currencies.

                                         Real Estate Investment Trusts (REITs).  REITs are companies that invest
                                         primarily in real estate or real estate related loans. Interests in
                                         REITs are significantly affected by the market for real estate and are
                                         dependent upon management's skills and on cash flows.

                                         Derivatives.  The Fund may invest up to 10% of its total assets in
                                         futures and options on securities and indices and in other derivatives.
                                         In addition, the Fund may enter into interest rate swap transactions
                                         with respect to the total amount the Fund is leveraged in order to hedge
                                         against adverse changes in interest rates affecting dividends payable on
                                         any preferred shares or interest payable on borrowings constituting
                                         leverage. In connection with any such swap transaction, the Fund will
                                         segregate liquid securities in the amount of its obligations under the
                                         transaction. A derivative is a security or instrument whose value is
                                         determined by reference to the value or the change in value of one or
                                         more securities, currencies, indices or other financial instruments. The
                                         Fund does not use derivatives as a primary investment technique and
                                         generally does not anticipate using derivatives for non-hedging
                                         purposes. In the event the Advisor uses derivatives for non-hedging
                                         purposes, no more than 3% of the Fund's total assets will be committed
                                         to initial margin for derivatives for such purposes. The Fund may use
                                         derivatives for a variety of purposes, including:

                                         o As a hedge against adverse changes in securities market prices or
                                         interest rates; and
                                         o As a substitute for purchasing or selling securities.
                                         Due to current market conditions, investments that, in the judgment of
                                         the Advisor or the Sub-Advisor, are appropriate investments for the Fund
                                         may not be immediately available. Therefore, the Fund expects that there
                                         will be an initial investment period of up to three months following
                                         the completion of its common shares offering before it is fully invested
                                         in accordance with its investment objective and policies. Pending such
                                         investment, the Fund anticipates that all or a portion of the proceeds
                                         will be invested in typically lower-yielding U.S. government securities
                                         or high grade, short-term money market instruments.

Use of Leverage

By the Fund...........................   The Fund initially intends to issue preferred shares of beneficial
                                         interest representing approximately 33 1/3% of the Fund's capital
                                         immediately after their issuance. The Fund may also borrow money from
                                         banks or other financial institutions or issue debt securities. This
                                         practice is known as leverage. The Fund may not be leveraged at all
                                         times and the amount of borrowing or leverage, if any, may vary
                                         depending upon a variety of factors, including the Advisor's outlook for
                                         the fixed income market and the costs that the Fund would incur as a
                                         result of such leverage. The Fund will not issue preferred shares or
                                         borrow money if, immediately after such issuance or borrowing, total
                                         leverage for the Fund exceeds 38% of the Fund's total assets immediately
                                         after such issuance or borrowing. The Fund may also borrow through
                                         reverse repurchase agreements (up to 20% of its total assets subject to
                                         the overall limitation on leverage and borrowings). The Fund's
                                         leveraging strategy may not be successful. By leveraging its investment
                                         portfolio, the Fund creates an opportunity for increased net income or
                                         capital appreciation. However, the use of leverage also involves risks,
                                         which can be significant. These risks include the possibility that the
                                         value of the assets acquired with such borrowing decreases although the
                                         Fund's liability is fixed, greater volatility in the Fund's net asset
                                         value, fluctuations in the dividend paid by the Fund and the market
                                         price of the Fund's common shares and higher expenses. Because the
                                         Advisor's fee is based upon a percentage of the Fund's Total Assets, the
                                         Advisor's fee will be higher if the Fund is leveraged and the Advisor
                                         will have an incentive to be more aggressive and leverage the Fund. The
                                         Advisor intends only to leverage the Fund when it believes that the
                                         potential return on such additional investments is likely to exceed the
                                         costs incurred in connection with the leverage.

Risks.................................   No Operating History.  The Fund is a newly organized closed-end
                                         management investment company and has no operating history or history of
                                         public trading.

                                         Credit Risk.  Credit risk refers to an issuer's ability to make payments
                                         of principal and interest when they are due. Because the Fund will own
                                         securities with low credit quality, it will be subject to a high level
                                         of credit risk. The credit quality of such securities is considered
                                         speculative by rating agencies with respect to the issuer's ability to
                                         pay interest or principal. The prices of lower grade securities are more
                                         sensitive to negative corporate developments, such as a decline in
                                         profits, or adverse economic conditions, such as a recession, than are
                                         the prices of higher grade securities. Securities that have longer
                                         maturities or that do not make regular interest payments also fluctuate
                                         more in price in response to negative corporate or economic news.
                                         Therefore, lower grade securities may experience high default rates,
                                         which could mean that the Fund may lose some of its investments in such
                                         securities, which would adversely affect the Fund's net asset value and
                                         ability to make distributions. The effects of this default risk are
                                         significantly greater for the holders of lower grade securities because
                                         these securities often are unsecured and subordinated to the payment
                                         rights of other creditors of the issuer.

                                         High Yield Debt Securities.  Investment in high yield securities
                                         involves substantial risk of loss. Below investment grade debt
                                         securities or comparable unrated securities are commonly referred to as
                                         "junk bonds" and are considered predominantly speculative with respect to
                                         the issuer's ability to pay interest and principal and are susceptible
                                         to default or decline in market value due to adverse economic and
                                         business developments. The market values for high yield securities tend
                                         to be very volatile, and these securities are less liquid than
                                         investment grade debt securities. For these reasons, your investment in
                                         the Fund is subject to the following specific risks:

                                         o Increased price sensitivity to changing interest rates and to a
                                         deteriorating economic environment;

                                         o Greater risk of loss due to default or declining credit quality;

                                         o Adverse company specific events are more likely to render the issuer
                                         unable to make interest and/or principal payments;

                                         o If a negative perception of the high yield market develops, the price
                                         and liquidity of high yield securities may be depressed. This negative
                                         perception could last for a significant period of time;

                                         o Adverse changes in economic conditions are more likely to lead to a
                                         weakened capacity of a high yield issuer to make principal payments and
                                         interest payments than an investment grade issuer. The principal amount
                                         of high yield securities outstanding has proliferated in the past decade
                                         as an increasing number of issuers have used high yield securities for
                                         corporate financing. An economic downturn could severely affect the
                                         ability of highly leveraged issuers to service their debt obligations or
                                         to repay their obligations upon maturity; and

                                         o The secondary market for high yield securities may not be as liquid as
                                         the secondary market for more highly rated securities, a factor which
                                         may have an adverse effect on the Fund's ability to dispose of a
                                         particular security. There are fewer dealers in the market for high
                                         yield securities than for investment grade obligations. The prices
                                         quoted by different dealers may vary significantly and the spread
                                         between the bid and asked price is generally much larger than for higher
                                         quality instruments. Under adverse market or economic conditions, the
                                         secondary market for high yield securities could contract further,
                                         independent of any specific adverse changes in the condition of a
                                         particular issuer, and these instruments may become illiquid. As a
                                         result, the Fund could find it more difficult to sell these securities
                                         or may be able to sell the securities only at prices lower than if such
                                         securities were widely traded. Prices realized upon the sale of such
                                         lower rated or unrated securities, under these circumstances, may be
                                         less than the prices used in calculating the Fund's net asset value.
                                         In addition to the risks discussed above, debt securities, including
                                         high yield securities, are subject to certain risks, including:

                                         Issuer Risk.  The value of corporate income-producing securities 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.

                                         Reinvestment risk.  Reinvestment risk is the risk that income from the
                                         Fund's bond portfolio will decline if and when the Fund invests the
                                         proceeds from matured, traded or called bonds 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.

                                         Interest rate risk.  If interest rates go up, the value of debt
                                         securities in the Fund's portfolio generally will decline. 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.  Although the Fund's investment objective includes limiting the
                                         Fund's exposure to interest rate risk, there is no guarantee that the
                                         Fund will meet this investment objective.

                                         Prepayment risk.  During periods of declining interest rates, the issuer
                                         of a security may exercise its option to prepay principal earlier than
                                         scheduled, forcing the Fund to reinvest in lower yielding securities.
                                         This is known as call or prepayment risk. Debt securities frequently
                                         have call features that allow the issuer to repurchase the security
                                         prior to its stated maturity. An issuer may redeem an obligation if the
                                         issuer can refinance the debt at a lower cost due to declining interest
                                         rates or an improvement in the credit standing of the issuer.

                                         Extension risk. During periods of rising interest rates, the average
                                         life of certain types of securities may be extended because of slower
                                         than expected principal payments. This may lock in a below market
                                         interest rate, increase the security's duration (the estimated period
                                         until the security is paid in full) and reduce the value of the security.

                                         Management Risk.  The Fund is subject to management risk because it is
                                         an actively managed investment portfolio. The Advisor's and the
                                         Sub-Advisor's judgment about the attractiveness, relative value or
                                         potential appreciation of a particular sector, security or investment
                                         strategy may prove to be incorrect.

                                         Mortgage- and Asset-Backed Securities and Structured Securities. Like
                                         other debt securities, changes in interest rates generally affect the
                                         value of mortgage-backed securities and other asset-backed securities.
                                         Additionally, some mortgage-backed securities may be structured so that
                                         they may be particularly sensitive to interest rates.  Asset-backed and
                                         mortgage-backed securities are generally subject to higher prepayment
                                         risks than most other types of debt instruments.  Prepayment of
                                         mortgages may expose the Fund to a lower rate of return when it
                                         reinvests the principal.  Prepayment risks in mortgage-backed
                                         securities tend to increase during periods of declining interest rates
                                         because many borrowers refinance their mortgages to take advantage of
                                         the more favorable rates.


                                         The Fund may invest in mortgage derivatives and structured securities.
                                         Because these securities have imbedded leverage features, small changes
                                         in interest or prepayment rates may cause large and sudden price
                                         movements. Mortgage derivatives can also become illiquid and hard to
                                         value in declining markets.


                                         Foreign Securities.  Investments in non-U.S. issuers may involve unique
                                         risks compared to investing in securities of U.S. issuers. These risks
                                         are more pronounced to the extent that the Fund invests a significant
                                         portion of its non-U.S. investments in one region. These risks may
                                         include:

                                         o    Less information about non-U.S. issuers or markets may be
                                         available due to less rigorous disclosure or accounting standards or
                                         regulatory practices;
                                         o    Many non-U.S. markets are smaller, less liquid and more volatile.
                                         In a changing market, the Advisor or Sub-Advisor may not be able to sell
                                         the Fund's portfolio securities at times, in amounts and at prices it
                                         considers reasonable;
                                         o    Adverse effect of currency exchange rates or controls on the value
                                         of the Fund's investments ;
                                         o    The economies of non-U.S. countries may grow at slower rates than
                                         expected or may experience a downturn or recession;
                                         o    Economic, political and social developments may adversely affect
                                         the securities markets; and
                                         o    Withholding and other non-U.S. taxes may decrease the Fund's
                                         return.

                                         There may be less publicly available information about non-U.S. markets
                                         and issuers than is available with respect to U.S. securities and
                                         issuers. Non-U.S. companies generally are not subject to accounting,
                                         auditing and financial reporting standards, practices and requirements
                                         comparable to those applicable to U.S. companies. The trading markets
                                         for most non-U.S. securities are generally less liquid and subject to
                                         greater price volatility than the markets for comparable securities in
                                         the U.S. Even the markets for relatively widely -traded securities in
                                         certain non-U.S. markets may not be able to absorb, without price
                                         disruptions, a significant increase in trading volume or trades of a
                                         size customarily undertaken by institutional investors in the U.S.
                                         Additionally, market making and arbitrage activities are generally less
                                         extensive in such markets, which may contribute to increased volatility
                                         and reduced liquidity.

                                         Economies and social and political climate in individual countries may
                                         differ unfavorably from the U.S. Non-U.S. economies may have less
                                         favorable rates of growth of gross domestic product, rates of inflation,
                                         currency valuation, capital reinvestment, resource self-sufficiency and
                                         balance of payments positions. Many countries have experienced
                                         substantial, and in some cases extremely high, rates of inflation for
                                         many years. Unanticipated political or social developments may also
                                         affect the values of the Fund's investments and the availability to the
                                         Fund of additional investments in such countries.


                                         Foreign Currency Risks.  The value of the securities denominated or
                                         quoted in foreign currencies may be adversely affected by fluctuations
                                         in the relative currency exchange rates and by exchange control
                                         regulations. The Fund's investment performance may be negatively
                                         affected by a devaluation of a currency in which the Fund's investments
                                         are denominated or quoted. Further, the Fund's investment performance
                                         may be significantly affected, either positively or negatively, by
                                         currency exchange rates because the U.S. dollar value of securities
                                         denominated or quoted in another currency will increase or decrease in
                                         response to changes in the value of such currency in relation to the
                                         U.S. dollar.


                                         Sovereign Debt.  An investment in debt obligations of non-U.S.
                                         governments and their political subdivisions (sovereign debt), whether
                                         denominated in U.S. dollars or a foreign currency, involves special
                                         risks that are not present in corporate debt obligations. The non-U.S.
                                         issuer of the sovereign debt or the non-U.S. governmental authorities
                                         that control the repayment of the debt may be unable or unwilling to
                                         repay principal or interest when due, and the Fund may have limited
                                         recourse in the event of a default. During periods of economic
                                         uncertainty, the market prices of sovereign debt may be more volatile
                                         than prices of debt obligations of U.S. issuers. In the past, certain
                                         non-U.S. countries have encountered difficulties in servicing their debt
                                         obligations, withheld payments of principal and interest and declared
                                         moratoria on the payment of principal and interest on their sovereign
                                         debt.


                                         A sovereign debtor's willingness or ability to repay principal and pay
                                         interest in a timely manner may be affected by, among other factors, its
                                         cash flow situation, the extent of its foreign currency reserves, the
                                         availability of sufficient foreign exchange, the relative size of the
                                         debt service burden, the sovereign debtor's policy toward its principal
                                         international lenders and local political constraints. Sovereign debtors
                                         may also be dependent on expected disbursements from non-U.S.
                                         governments, multilateral agencies and other entities to reduce
                                         principal and interest arrearages on their debt. The failure of a
                                         sovereign debtor to implement economic reforms, achieve specified levels
                                         of economic performance or repay principal or interest when due may
                                         result in the cancellation of third-party commitments to lend funds to
                                         the sovereign debtor, which may further impair such debtor's ability or
                                         willingness to service its debts.


                                         Convertible Securities.  Convertible securities generally offer lower
                                         interest or dividend yields than non-convertible securities of similar
                                         quality. As with all fixed income securities, the market values of
                                         convertible securities tend to decline as interest rates increase and,
                                         conversely, to increase as interest rates decline. However, when the
                                         market price of the common stock underlying a convertible security
                                         exceeds the conversion price, the convertible security tends to reflect
                                         the market price of the underlying common stock. As the market price of
                                         the underlying common stock declines, the convertible security tends to
                                         trade increasingly on a yield basis and thus may not decline in price
                                         to the same extent as the underlying common stock. Convertible securities
                                         rank senior to common stocks in an issuer's capital structure and
                                         consequently entail less risk than the issuer's common stock.

                                         Corporate Loans.  The Fund may acquire interests in loans made by banks
                                         or other financial institutions to corporate issuers or participation
                                         interests in such loans. By purchasing a participation interest in a
                                         loan, the Fund acquires some or all of the interest of a bank or other
                                         lending institution in a loan to a corporate or government borrower. The
                                         participations typically will result in the Fund having a contractual
                                         relationship only with the lender, not the borrower. The Fund will have
                                         the right to receive payments of principal, interest and any fees to
                                         which it is entitled only from the lender selling the participation and
                                         only upon receipt by the lender of the payments from the borrower.
                                         If the Fund only acquires a participation in the loan made by a third
                                         party, the Fund may not be able to control the exercise of any remedies
                                         that the lender would have under the corporate loan. Such third party
                                         participation arrangements are designed to give corporate loan investors
                                         preferential treatment over high yield investors in the event of a
                                         deterioration in the credit quality of the issuer. Even when these
                                         arrangements exist, however, there can be no assurance that the
                                         principal and interest owed on the corporate loan will be repaid in
                                         full. The secondary dealer market for certain corporate loans may not
                                         be as well developed as the secondary dealer market for bonds and,
                                         therefore, presents increased market risk relating to liquidity and
                                         pricing concerns.

                                         Dollar Roll Transactions. If the broker-dealer to whom the Fund sells
                                         the security becomes insolvent, the Fund's right to purchase the
                                         security may be restricted; the value of the security may change
                                         adversely over the term of the dollar roll; the security that the Fund
                                         is required to purchase may be worth less than the security that the
                                         Fund originally held; and the return earned by the Fund with the
                                         proceeds of a dollar roll may not exceed transaction costs.

                                         Derivatives.  Even a small investment in derivatives can have
                                         a significant impact on the Fund's exposure to interest rates or currency
                                         exchange rates. If changes in a derivative's value do not correspond to
                                         changes in the value of the Fund's other investments, the Fund may not
                                         fully benefit from or could lose money on the derivative position. In
                                         addition, some derivatives involve risk of loss if the person who issued
                                         the derivative defaults on its obligation. Certain derivatives may be
                                         less liquid and more difficult to value.

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

                                         Leverage.  The Fund initially intends to issue preferred shares
                                         of beneficial interest representing approximately 33 1/3% of the Fund's
                                         capital after their issuance. The Fund may also borrow money from banks
                                         or other financial institutions or issue debt securities. The Fund will
                                         not issue preferred shares or borrow money if, immediately after such
                                         issuance or borrowing, total leverage for the Fund exceeds 38% of the
                                         Fund's total assets immediately after such issuance or borrowing.
                                         Leverage creates risks which may adversely affect the return for the
                                         holders of common shares, including:

                                         o the likelihood of greater volatility of net asset value, market price
                                         and dividend rate of the Fund's common shares;
                                         o fluctuations in the dividend rates on any preferred shares or in
                                         interest rates on borrowings and short-term debt;
                                         o increased operating costs, which may reduce the Fund's total return;
                                         and
                                         o the potential for a decline in the value of an investment acquired
                                         with borrowed funds, while the Fund's obligations under such borrowing
                                         remain fixed.

                                         To the extent the income or capital appreciation derived from securities
                                         purchased with funds received from leverage exceeds the cost of
                                         leverage, the Fund's return will be greater than if leverage had not
                                         been used. Conversely, if the income or capital appreciation from the
                                         securities purchased with such funds is not sufficient to cover the cost
                                         of leverage or if the Fund incurs capital losses, the return of the Fund
                                         will be less than if leverage had not been used, and therefore the
                                         amount available for distribution to shareholders as dividends and other
                                         distributions will be reduced or potentially eliminated.

                                         Certain types of borrowings may result in the Fund being subject to
                                         covenants in credit agreements, including those relating to asset
                                         coverage, borrowing base and portfolio composition requirements and
                                         additional covenants that may affect the Fund's ability to pay dividends
                                         and distributions on common shares in certain instances. The Fund may
                                         also be required to pledge its assets to the lenders in connection with
                                         certain types of borrowing. The Fund may be subject to certain
                                         restrictions on investments imposed by guidelines of one or more
                                         nationally recognized rating organizations which may issue ratings for
                                         the preferred shares or short-term debt instruments issued by the Fund.
                                         These guidelines may impose asset coverage or portfolio composition
                                         requirements that are more stringent than those imposed by the
                                         Investment Company Act of 1940, as amended (the "1940 Act").
                                         Market Price of Shares. Whether investors will realize a gain or loss
                                         upon the sale of the Fund's common shares will depend upon whether the
                                         market value of the shares at the time of sale is above or below the
                                         price the investor paid, taking into account transaction costs, for the
                                         shares and is not directly dependent upon the Fund's net asset value.
                                         Because the market value of the Fund's shares will be determined by
                                         factors such as the relative demand for and supply of the shares in the
                                         market, general market conditions and other factors beyond the control
                                         of the Fund, the Fund cannot predict whether its common shares will
                                         trade at, below or above net asset value, or below or above the initial
                                         offering price for the shares.

                                         Market Disruption Risk.  The terrorist attacks in the U.S. on September
                                         11, 2001 had a disruptive effect on the securities markets. The war in
                                         Iraq also has resulted in recent market volatility and may have
                                         long-term effects on the U.S. and worldwide financial markets and may
                                         cause further economic uncertainties in the U.S. and worldwide.  The
                                         Fund does not know how long the securities markets will continue to be
                                         affected by these events and cannot predict the effects of the war or
                                         similar events in the future on the U.S. economy and securities
                                         markets.

                                         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, or interest payments on Fund borrowings, if
                                         any, may increase.

                                         Tax Risk.  The Bush Administration has announced a proposal to eliminate
                                         the federal income tax on dividends of income previously taxed at the
                                         corporate level. In addition, several alternative proposals regarding
                                         the taxation of dividends and capital gains are being considered by
                                         Congress. The availability of tax-free dividends may reduce the value
                                         of, and thus the return on, certain securities which are part of the
                                         Fund's investment portfolio.  Moreover, these proposals may be given
                                         retroactive effect. This change could reduce the Fund's net asset value
                                         and distributions made by the Fund.

                                         Market Discount Risk.  Shares of closed-end funds frequently trade at
                                         prices lower than their net asset value. This is commonly referred to as
                                         "trading at a discount." This characteristic of shares of closed-end
                                         funds is a risk separate and distinct from the risk that the Fund's net
                                         asset value may decrease. Investors who sell their shares within a
                                         relatively short period after completion of the public offering are
                                         likely to be exposed to this risk. Accordingly, the Fund is designed
                                         primarily for long-term investors and should not be considered a vehicle
                                         for trading purposes. Net asset value will be reduced following the
                                         offering by the underwriting discount and the amount of offering
                                         expenses paid by the Fund.

                                         Liquidity risk.  The Fund does not intend to purchase illiquid
                                         securities, which are 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. However, the Fund is not
                                         required to sell or dispose of any debt security that becomes illiquid
                                         subsequent to its purchase. 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 the Advisor or Sub-Advisor believes that
                                         it is desirable to do so. Illiquid securities also may entail
                                         registration expenses and other transaction costs that are higher than
                                         those for liquid securities.

                                         Anti-takeover Provisions.  The Fund's Declaration of Trust and By-laws
                                         include provisions that could limit the ability of other entities or
                                         persons to acquire control of the Fund or to change the composition of
                                         its Board of Trustees. Such provisions could limit the ability of
                                         shareholders to sell their shares at a premium over prevailing market
                                         prices by discouraging a third party from seeking to obtain control of
                                         the Fund. These provisions include staggered terms of office for the
                                         Trustees, advance notice requirements for shareholder proposals, and
                                         super-majority voting requirements for open-ending the Fund or a merger,
                                         liquidation, asset sale or similar transactions.

Investment Advisor

And Investment Sub-Advisor...........    Evergreen Investment Management Company, LLC (previously defined as the Advisor)
                                         and First International Advisors, LLC, d/b/a Evergreen International Advisors
                                         (the "Sub-Advisor"), subject to the supervision of the Advisor, with respect
                                         to the foreign debt securities portion of the Fund's portfolio, are responsible on a
                                         day-to-day basis for investment of the Fund's portfolio in accordance
                                         with its investment objective and policies. With respect to the U.S.
                                         high yield debt securities and adjustable rate securities portions of
                                         the Fund's portfolio, the Advisor makes all investment decisions for the
                                         Fund and places purchase and sale orders. Day-to-day management of these
                                         portions of the Fund's portfolio is the responsibility of a team of
                                         portfolio management professionals from the Advisor's High Yield Bond
                                         and Customized Fixed Income teams, respectively. The Advisor has
                                         delegated these responsibilities to the Sub-Advisor with respect to the
                                         foreign debt securities portion of the Fund's portfolio.

                                         The Advisor has been managing mutual funds and private accounts since
                                         1932 and, as of March 31, 2003, managed over $229 billion in assets,
                                         including more than $93 billion in fixed income assets.
                                         As of March 31, 2003, the Sub-Advisor, which is the Advisor's
                                         London-based international bond team, managed approximately $8 billion
                                         in assets, which includes one of the Evergreen Funds, and has over 30
                                         years of experience investing in international fixed income
                                         securities.  The Advisor and the Sub-Advisor are wholly-owned
                                         subsidiaries of Wachovia Corporation.

                                         The Fund pays the Advisor an annual fee for its investment advisory
                                         services equal to 0.55% of the Fund's average daily Total Assets. This
                                         fee is payable monthly. "Total Assets" means the net assets of the Fund
                                         (plus borrowings or other leverage for investment purposes to the extent
                                         excluded in calculating net assets).
                                         The Advisor pays an annual fee to the Sub-Advisor for its investment
                                         sub-advisory services equal to 0.05% of the Fund's average daily Total
                                         Assets.



Listing...............................   Currently, there is no public market for the Fund's common shares. The
                                         Fund intends to apply for listing on the American Stock Exchange under
                                         "ticker" symbol       ERC.

Custodian and
Transfer Agent........................   State Street Bank and Trust Company will serve as the Fund's custodian,

                                         and EquiServe Trust Company, N.A. will serve as the Fund's transfer
                                         agent.
Administrator.........................   The Fund has engaged Evergreen Investment Services, Inc. ("EIS") to
                                         provide certain administrative services for the Fund. The Fund will pay
                                         the administrator a monthly fee computed at an annual rate of 0.05% of
                                         the Fund's average daily Total Assets.



Market Price of
Common Shares.........................   Common shares of closed-end investment companies frequently trade at
                                         prices lower than their net asset value. Common shares of closed-end
                                         investment companies have in the past during some periods traded at
                                         prices higher than their net asset value and during other periods traded
                                         at prices lower then their net asset value. The Fund cannot assure you
                                         that its common shares will trade at a price higher than or equal to net
                                         asset value. The Fund's net asset value will be reduced immediately
                                         following this offering by the sales load and the amount of the
                                         organization and offering expenses paid by the Fund. See "Use of
                                         Proceeds." In addition to net asset value, the market price of the
                                         Fund's common shares may be affected by such factors as the Fund's use of
                                         leverage, dividend stability, portfolio credit quality, liquidity,
                                         market supply and demand, the Fund's dividends paid (which are in turn
                                         affected by expenses), call protection for portfolio securities and
                                         interest rate movements. See "Leverage," "Risk Factors" and "Description
                                         of Shares." The Fund's common shares are designed primarily for
                                         long-term investors, and you should not purchase common shares if you
                                         intend to sell them shortly after purchase.

Distributions.........................   The Fund intends to distribute to common shareholders all or a portion
                                         of its net investment income monthly and net realized capital gains, if
                                         any, at least annually. While the Fund will attempt to maintain a stable
                                         level of distributions, the Fund will still comply with Subchapter M of
                                         the Internal Revenue Code of 1986, as amended (the "Code").  The Fund
                                         intends to seek an exemptive order from the Commission that would allow
                                         it to distribute capital gains monthly to further allow it to maintain a
                                         stable level of distributions to shareholders.  The Fund expects that it
                                         will declare initial distributions within approximately 45 days and
                                         commence paying dividends within approximately 60 to 90 days from the
                                         date of this prospectus. However, investments that, in the judgment of
                                         the Advisor, are appropriate investments for the Fund may not be
                                         immediately available. Therefore, the Fund expects that there will be an
                                         initial investment period of up to three months following the completion
                                         of its common shares offering before it is fully invested in accordance
                                         with its investment objective and policies. Pending such investment, the
                                         Fund anticipates that all or a portion of the proceeds will be invested
                                         in U.S. government securities or high grade, short-term money market
                                         instruments.

                                         At times, in order to maintain a stable level of distributions, the Fund
                                         may pay out less than all of its net investment income or pay out
                                         accumulated undistributed income in addition to current net investment
                                         income.

                                         Dividend and capital gains distributions generally are reinvested in
                                         additional common shares of the Fund. However, an investor can choose to
                                         receive distributions in cash. Since not all investors can participate
                                         in the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), you
                                         should contact your broker or nominee to confirm that you are eligible
                                         to participate in the Plan.

</TABLE>

<PAGE>



                                             SUMMARY OF FUND EXPENSES

          The  following  table  shows  the  Fund's  estimated   expenses  as  a
     percentage of net assets  attributable to common shares assuming the use of
     leverage  through the issuance of preferred shares in an amount equal to 33
     1/3% of the  Fund's  capital.  Footnote  2 to the  table  also  shows  Fund
     estimated  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>

Shareholder Transaction Expenses:


     <S>                                                                                <C>

     Sales Load (as a percentage of offering price).................................     4.50%

     Dividend Reinvestment Plan Fees................................................     None(1)

</TABLE>

<TABLE>
<CAPTION>

                                                                            Percentage of net assets
                                                                               attributable to common
                                                                           shares (assuming the issuance
                                                                            of Fund preferred shares)(2)

                                                                             ---------------------------
<S>                                                                                  <C>

Annual Expenses:

     Management Fee.................................................................  0.82%
                                                                                      ====
     Other Expenses.................................................................  0.40%(3)
                                                                                      ====

                                                                                        -----

     Total Annual Expenses..........................................................  1.22%(4)
                                                                                      ====

                                                                                        -----
</TABLE>


     --------------------------------------------------------------------------
     (1) A  shareholder  that  directs  the plan agent to sell  shares held in a
     dividend reinvestment account will pay brokerage charges.

     (2) The table  presented in this footnote  estimates what the Fund's annual
     expenses  would  be  stated  as a  percentage  of  the  Fund's  net  assets
     attributable to common shares but, unlike the table above,  assumes that no
     Fund 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
     as follows:


<TABLE>
<CAPTION>

                                                                              Percentage of net assets
                                                                               attributable to common
                                                                                shares (assuming no
                                                                               Fund preferred shares
                                                                             are issued or outstanding)
                                                                              ------------------------

    <S>                                                                                 <C>

     Annual Expenses:

         Management Fee.............................................................    0.55%
                                                                                        ====
         Other Expenses.............................................................    0.22%
                                                                                        ====

                                                                                        -----

         Total Annual Expenses...................................................... 0.77%(4)
                                                                                        ====

                                                                                        -----
</TABLE>


     (3) If the Fund offers preferred shares,  costs of the offering,  estimated
     to be approximately  1.13% of the total dollar amount of the Fund preferred
     share  offering,  will  effectively be borne by the  shareholders of common
     shares and result in the reduction of the paid-in  capital  attributable to
     the common  shares.  Assuming the issuance of Fund  preferred  shares in an
     amount  equal to 33 1/3% of the  Fund's  capital  (after  issuance),  those
     offering  costs are  estimated to be no more than  approximately  $0.11 per
     common  share  (0.56%  of the  offering  price  or  $1,690,000  based  on a
     $300,000,000  offering).  These  offering  costs are not included among the
     expenses shown in the table.

     (4) The Fund will bear  expenses  in  connection  with the  offering  in an
     amount up to $.04 per share.  The  Advisor  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 $.04 per common share
     (.20% of the offering  price).  These offering costs are not included among
     the  expenses  shown in the table.  If the Fund  completes  an  offering of
     preferred  shares,  the Fund will also pay expenses in connection with such
     offering.

          The  purpose  of the  tables  in  this  section  is to  assist  you in
     understanding  the various costs and expenses that a shareholder  will bear
     directly or indirectly by investing in the Fund's common shares. The amount
     set forth under Other  Expenses in each table is based upon  estimates  for
     the Fund's  first  year of  operations  and  assumes  that the Fund  issues
     approximately  15,000,000  common  shares  and,  with  respect to the first
     table,  issues preferred shares as a means of leverage.  If the Fund issues
     fewer common  shares,  all other things  being equal,  these  expenses as a
     percentage of net assets would increase.  For additional  information  with
     respect to the Fund's expenses, see "Management of the Fund."

          The following example illustrates the expenses that you would pay on a
     $1,000  investment  in common  shares  (including  the  sales  load of $45,
     estimated  offering  expenses of this  offering of $2.00 and the  estimated
     offering  costs of  issuing  preferred  shares,  assuming  the Fund  issues
     preferred  shares  representing  33 1/3% of the Fund's capital (after their
     issuance) of $5.63) in years one through ten, assuming (1) total net annual
     expenses of 1.22% of net assets attributable to common shares (assuming the
     issuance of preferred shares) and (2) a 5% annual return:*



<TABLE>
<CAPTION>



                                                      1 Year        3 Years        5 Years      10 Years
                                                      -------       -------        -------       -------

<S>                                                     <C>            <C>           <C>            <C>

     Total Expenses Incurred.....................       $65            $90           $117           $194
                                                         ==             ==            ===            ===


</TABLE>



     ---------------------------------------------------------------------------
     * The example 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 fee 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% return shown in the example.





                                      THE FUND




          The  Fund is a newly  organized,  diversified,  closed-end  management
     investment  company.  The Fund was organized as a statutory trust under the
     laws of the state of Delaware on April 10, 2003, and has  registered  under
     the 1940 Act. As a recently  organized  entity,  the Fund has no  operating
     history.  The Fund's principal  offices are located at 200 Berkeley Street,
     Boston,   Massachusetts   02116-5034,   and   its   telephone   number   is
     1-800-343-2898.




                                     USE OF PROCEEDS





          The  net  proceeds  of  this  offering  will  be  approximately  $ (or
     approximately  $ assuming  the  underwriters  exercise  the  over-allotment
     option  in  full)  after  payment  of  offering   costs   estimated  to  be
     approximately  $        and the deduction of the sales load. The Advisor
     has  agreed to pay the amount by which the  aggregate  of all of the Fund's
     organizational  expenses  and  offering  costs  (other than the sales load)
     exceeds $.04 per common share.

          The Fund will invest the net  proceeds of the  offering in  accordance
     with its  investment  objective  and  policies  as stated  below.  However,
     investments  that, in the judgment of the Advisor or the  Sub-Advisor,  are
     appropriate  investments  for the  Fund may not be  immediately  available.
     Therefore, the Fund expects that there will be an initial investment period
     of up to  three  months  following  the  completion  of its  common  shares
     offering before it is invested in accordance with its investment  objective
     and policies.  Pending such investment,  the Fund anticipates that all or a
     portion of the proceeds will be invested in U.S.  government  securities or
     high grade, short-term money market instruments.  See "Investment Objective
     and Principal Investment Strategies."





                  INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES




     Investment Objective

          The  Fund's  investment  objective  is to seek a high level of current
     income  consistent with limiting its overall exposure to domestic  interest
     rate risk. The Fund's investment  objective is a fundamental policy and may
     not be changed without the approval of a majority of the outstanding voting
     securities  (as  defined  in the 1940 Act) of the Fund.  The Fund  makes no
     assurance that it will realize its objective.


     Principal Investment Strategies

     Under normal market conditions, the Fund allocates approximately 50% of its
total  assets  to  an  investment  strategy  that  focuses  primarily  on  below
investment grade (high yield) U.S. debt securities,  loans and preferred stocks;
approximately  25% of its total assets to an  investment  strategy  that focuses
primarily  on  foreign  debt   securities   including   obligations  of  foreign
governments or governmental  entities,  foreign  corporations  or  supranational
agencies  denominated in various currencies;  and approximately 25% of its total
assets to an investment  strategy that focuses primarily on securities that have
interest  rates that re-set at  periodic  intervals,  including  mortgage-backed
securities,  asset-backed  securities and  collateralized  mortgage  obligations
("CMOs")  issued  or  guaranteed  by  the  U.S.  government,   its  agencies  or
instrumentalities.  This is a  non-fundamental  policy and may be changed by the
Board of Trustees of the Fund  provided that  shareholders  are provided with at
least 60 days prior written  notice of any change as required by the rules under
the 1940 Act. The Advisor reserves the discretion  based upon market  conditions
to reallocate these weightings in order for the Fund to seek to maintain a yield
that exceeds the then-current  yield of ten-year Treasury notes and also for the
Fund as a whole  to seek to  maintain  a  weighted  average  credit  quality  of
investment grade (based on current market  conditions,  the anticipated  average
credit quality of the Fund's  portfolio on the date the Fund first becomes fully
invested  will be at least  BBB).  Based upon  current  market  conditions,  the
weighted  average  duration of the Fund's portfolio as a whole is expected to be
3.5 years to 4.5 years at the commencement of the Fund's operations.  Based upon
current market  conditions,  it is expected that the Fund's portfolio as a whole
will have an average maturity of 5 to 7 years.

          An  investment  in the Fund may be  speculative  in that it involves a
     high  degree  of risk and  should  not  constitute  a  complete  investment
     program. See "Risk Factors."

     The Fund principally  allocates its assets among three separate  investment
     strategies:


          o U.S. High Yield Debt Securities. Under normal market conditions, the
     Fund  invests  approximately  50%  of its  total  assets  in an  investment
     strategy  that focuses on below  investment  grade (high  yield) U.S.  debt
     securities,  loans and preferred stocks. Under normal market conditions, at
     least 80% of this portion of the Fund's  portfolio will be invested in high
     yield U.S. debt securities, loans and preferred stocks.

          The high yield  securities  in which the Fund  invests are rated Ba or
     lower by Moody's or BB or lower by S&P or are unrated but determined by the
     Advisor to be of comparable quality. Debt securities rated below investment
     grade  are  commonly  referred  to  as  "junk  bonds"  and  are  considered
     speculative with respect to the issuer's capacity to pay interest and repay
     principal.  Below investment grade debt securities  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 debt securities.  For purposes of the Fund's credit quality policies,
     if  a  security  receives  different  ratings  from  nationally  recognized
     securities rating organizations, the Fund will use the rating chosen by the
     portfolio managers as most representative of the security's credit quality.
     The Fund's  high yield  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.  This portion of the
     Fund's  portfolio  targets  securities with a minimum rating of single B at
     the time of purchase  and  attempts to maintain a weighted  average  credit
     quality with respect to the high yield  securities  of B to BB. The Advisor
     anticipates that no more than 10% of this portion of the Fund's assets will
     be comprised of securities that are rated CCC or lower. The Fund invests in
     high  yield  securities  with a broad  range  of  maturities.  The  Advisor
     anticipates  that,  assuming the issuance of preferred shares  representing
     approximately  33  1/3%  of the  Fund's  capital  immediately  after  their
     issuance,  the weighted average duration of the Fund's high yield U.S. debt
     securities will be 4.50 to 4.70 years,  although there is no guarantee that
     this range will be obtained.  Maturity  measures the average  final payable
     dates of debt  instruments.  Duration  measures the average life of a bond,
     defined as the  weighted-average  maturity of the periods  until payment is
     made, with weights proportional to the present value of payment.

          In  other  than  normal  market  conditions,  when  changing  economic
     conditions and other factors cause the yield difference between lower rated
     and higher rated  securities to narrow,  the Fund may purchase higher rated
     U.S.  debt  instruments  if the Advisor  believes  that the risk of loss of
     income and  principal may be reduced  substantially  with only a relatively
     small reduction in yield.

     o Foreign Debt Securities. Under normal market conditions, the Fund invests
     approximately  25% of its  total  assets  in an  investment  strategy  that
     focuses  on  foreign  debt  securities  including  obligations  of  foreign
     governments or governmental entities, foreign corporations or supranational
     agencies  denominated in various currencies.  This portion of the Fund will
     invest in at least three countries or supranational  agencies. This portion
     of  the  Fund  will  not  invest  in  foreign  debt  securities  issued  by
     governments or governmental  agencies of emerging market countries and will
     not invest in debt securities  issued by corporations that are domiciled in
     emerging market countries.  The Advisor considers emerging market countries
     to be countries that issue long-term sovereign debt in their local currency
     that is rated as below  investment  grade. Up to 10% of the debt securities
     in which this  portion of the Fund  invests may be below  investment  grade
     (i.e.,  high  yield).  This portion of the Fund may also enter into foreign
     currency  exchange  contracts  to, for  example,  gain  exposure to foreign
     markets in which this portion of the Fund's portfolio is underweighted. The
     Fund typically uses currency  hedging for risk control.  The Fund makes its
     country  selection  and  currency  decisions  based on its own  fundamental
     research and advanced  analytical  systems.  The Advisor  anticipates that,
     assuming the issuance of preferred  shares  representing  approximately  33
     1/3% of the Fund's capital  immediately after their issuance,  the weighted
     average  duration of the Fund's foreign debt  securities will be 3.50 to 10
     years, although there is no guarantee that this range will be obtained. The
     Fund currently  expects this portion of the Fund's  portfolio to maintain a
     dollar-weighted  average maturity of 5 to 14 years. Up to 30% of the Fund's
     total assets may be allocated to the foreign debt securities portion of the
     Fund's portfolio.

          o Adjustable Rate Securities. Under normal market conditions, the Fund
     invests  approximately  25% of its total assets in an  investment  strategy
     that focuses on securities that have interest rates that re-set at periodic
     intervals,  including mortgage-backed  securities,  asset-backed securities
     and collateralized  mortgage obligations (CMOs) issued or guaranteed by the
     U.S.  government,  its agencies or  instrumentalities.  This portion of the
     Fund typically will invest in adjustable  rate  mortgage-backed  securities
     issued or guaranteed by GNMA, FNMA or FHLMC. Securities issued by GNMA, but
     not those issued by FNMA or FHLMC,  are backed by the full faith and credit
     of the U.S. government.  The Fund may also invest up to 20% of this portion
     of the Fund's assets in obligations of the U.S. government, its agencies or
     instrumentalities,  such as the Federal Home Loan Banks,  FNMA, GNMA, FHLMC
     or the Federal Farm Credit Banks,  including  obligations that pay fixed or
     adjustable  interest  rates.  The weighted  average  credit quality of this
     portion  of the  Fund's  portfolio  is  expected  to be  AAA/Aaa.  The Fund
     currently  expects  this  portion of the  Fund's  portfolio  to  maintain a
     weighted  average life of 1 to 6 years and a weighted  average  duration of
     0.5 to 1.5 years.


          As part of this  investment  strategy,  the Fund may  engage in dollar
     roll transactions,  which allow the Fund to sell a mortgage-backed security
     to a dealer and  simultaneously  contract to  repurchase a security that is
     substantially  similar in type, coupon and maturity,  on a specified future
     date.


          Mortgage-Backed  Securities. The adjustable rate securities portion of
     the  Fund  may   invest   in   mortgage   pass-through   certificates   and
     multiple-class  pass-through securities, and mortgage derivative securities
     such as real estate mortgage  investment  conduits  ("REMIC")  pass-through
     certificates,  collateralized  mortgage  obligations  ("CMOs") and stripped
     mortgage-backed   securities   ("SMBS"),   interest  only   mortgage-backed
     securities and principal only mortgage-backed securities and other types of
     mortgage-backed   securities  that  may  be  available  in  the  future.  A
     mortgage-backed  security  is an  obligation  of  the  issuer  backed  by a
     mortgage or pool of mortgages or a direct interest in an underlying pool of
     mortgages.  Some mortgage-backed  securities,  such as CMOs, are adjustable
     rate and make  payments  of both  principal  and  interest  at a variety of
     intervals; others are fixed rate and make semiannual interest payments at a
     predetermined  rate and repay  principal at maturity (like a typical bond).
     Mortgage-backed  securities  are  based on  different  types of  mortgages,
     including  those on  commercial  real  estate  or  residential  properties.
     Mortgage-backed  securities  often have stated  maturities  of up to thirty
     years when they are  issued,  depending  upon the  length of the  mortgages
     underlying  the  securities.  In practice,  however,  unscheduled  or early
     payments of principal and interest on the underlying mortgages may make the
     securities'  effective  maturity  shorter  than  this,  and the  prevailing
     interest  rates may be higher or lower than the current yield of the Fund's
     portfolio at the time the Fund  receives  the  payments  for  reinvestment.
     Mortgage-backed securities may have less potential for capital appreciation
     than comparable fixed income securities, due to the likelihood of increased
     prepayments  of  mortgages  as  interest  rates  decline.  If the Fund buys
     mortgage-backed   securities  at  a  premium,   mortgage  foreclosures  and
     prepayments  of  principal  by  mortgagors  (which  may be made at any time
     without penalty) may result in some loss of the Fund's principal investment
     to the extent of the premium paid. The value of mortgage-backed  securities
     may also change due to shifts in the  market's  perception  of issuers.  In
     addition,  regulatory  or tax changes  may  adversely  affect the  mortgage
     securities markets as a whole. Non-governmental  mortgage-backed securities
     may offer higher yields than those issued by  government  entities but also
     may be subject to greater price changes than governmental issues.


          Asset-Backed  Securities.  Asset-backed securities are securities that
     represent a participation  in, or are secured by and payable from, a stream
     of payments generated by particular  assets,  most often a pool or pools of
     similar  assets  (e.g.,  trade  receivables).  The credit  quality of these
     securities  depends primarily upon the quality of the underlying assets and
     the level of credit support and/or enhancement provided.

          The underlying  assets (e.g.,  loans) are subject to prepayments which
     shorten  the  securities'  weighted  average  maturity  and may lower their
     return. If the credit support or enhancement is exhausted, losses or delays
     in payment may result if the required  payments of  principal  and interest
     are not made.  The value of these  securities  also may  change  because of
     changes in the market's perception of the creditworthiness of the servicing
     agent  for  the  pool,  the  originator  of  the  pool,  or  the  financial
     institution or Fund providing the credit support or enhancement.


          Dollar Roll Transactions. In dollar roll transactions,  the Fund sells
     a  U.S.  agency  mortgage-backed  security  and  simultaneously  agrees  to
     purchase at a future date another U.S. agency mortgage-backed security with
     the same  interest  rate and  maturity  date,  but  generally  backed  by a
     different pool of mortgages.  The Fund loses the right to receive  interest
     and principal payments on the security it sold. However,  the Fund benefits
     from the  interest  earned on  investing  the  proceeds of the sale and may
     receive  a  fee  or  a  lower  purchase  price.  The  benefits  from  these
     transactions  depend  upon  the  Advisor's  ability  to  forecast  mortgage
     prepayment  patterns on different  mortgage pools.  The Fund may lose money
     if, during the period between the time it agrees to the forward purchase of
     the mortgage  securities and the settlement date, these securities  decline
     in  value  due to  market  conditions  or  prepayments  on  the  underlying
     mortgages.




          The Advisor will monitor the  weighting  of each  investment  strategy
     within the Fund's  portfolio on an ongoing  basis and  rebalance the Fund's
     assets when the Advisor  determines that such a rebalancing is necessary to
     align the portfolio in accordance with the investment  strategies described
     above    in    "Investment     Objective    and    Principal     Investment
     Strategies--Principal Investment Strategies." From time to time, the Fund's
     Advisor may make adjustments to the weighting of each investment  strategy.
     Such adjustments  would be based on the Advisor's review and  consideration
     of the expected  returns for each  investment  strategy and would factor in
     the stock,  bond and money  markets,  interest rate and corporate  earnings
     growth trends,  and economic  conditions which support changing  investment
     opportunities.


     Other Investment Techniques and Strategies


          In addition to the principal  investment  strategies  discussed above,
     the Fund may at times  invest a portion  of its  assets  in the  investment
     strategies and may use certain  investment  techniques as described  below.
     The Statement of Additional Information provides a more detailed discussion
     of certain of these and other  securities  and  techniques and indicates if
     the  Fund is  subject  to any  limitations  with  respect  to a  particular
     investment  strategy.  (Please note that some of these  strategies may be a
     principal  investment  strategy for a portion of the Fund and  consequently
     are also described above under Principal Investment Strategies.)

          Convertible  and Other  Securities.  The  Fund's  investment  in fixed
     income   securities  may  include  bonds  and  preferred  stocks  that  are
     convertible into the equity  securities of the issuer or a related company.
     The Fund will not invest more than 10% of its total  assets in  convertible
     securities.  Depending upon the relationship of the conversion price to the
     market value of the underlying securities, convertible securities may trade
     more like equity  securities  than debt  instruments.  Consistent  with its
     objective and other investment policies, the Fund may also invest a portion
     of its assets in equity  securities,  including  common stocks,  depositary
     receipts, warrants, rights and other equity interests.

          Corporate  Loans.  The Fund may invest a portion of its assets in loan
     participations  and other  claims  against a corporate  borrower.  The Fund
     considers  corporate loans to be high yield debt  instruments if the issuer
     has outstanding  debt  securities  rated below  investment  grade or has no
     rated  securities,   and  includes   corporate  loans  in  determining  the
     percentage  of its  total  assets  that are  invested  in high  yield  debt
     instruments.  The  corporate  loans in which  the  Fund  invests  primarily
     consist  of direct  obligations  of a  borrower.  The Fund may  invest in a
     corporate  loan  at  origination  as a  co-lender  or by  acquiring  in the
     secondary  market  participations  in,  assignments  of or  novations  of a
     corporate  loan. By purchasing a  participation,  the Fund acquires some or
     all of the interest of a bank or other lending  institution  in a loan to a
     corporate  borrower.  The participations  typically will result in the Fund
     having a contractual  relationship only with the lender,  not the borrower.
     The Fund will have the right to receive payments of principal, interest and
     any  fees to  which  it is  entitled  only  from  the  lender  selling  the
     participation  and only upon receipt by the lender of the payments from the
     borrower.  Many such loans are  secured,  although  some may be  unsecured.
     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.   Direct  debt
     instruments  may involve a risk of loss in case of default or insolvency of
     the borrower and may offer less legal  protection  to the Fund in the event
     of fraud or misrepresentation.  In addition,  loan participations involve a
     risk of insolvency of the lending bank or other financial intermediary. The
     markets  in loans  are not  regulated  by  federal  securities  laws or the
     Commission.


          As in the case of other high yield  investments,  such corporate loans
     may be rated in the  lower  rating  categories  of the  established  rating
     services (Ba or lower by Moody's or BB or lower by S&P),  or may be unrated
     investments  considered by the Advisor to be of comparable  quality.  As in
     the case of other  high  yield  investments,  such  corporate  loans can be
     expected to provide higher yields than lower  yielding,  higher rated fixed
     income securities,  but may be subject to greater risk of loss of principal
     and  income.  There are,  however,  some  significant  differences  between
     corporate  loans and high  yield  bonds.  Corporate  loan  obligations  are
     frequently secured by pledges of liens and security interests in the assets
     of the  borrower,  and the holders of corporate  loans are  frequently  the
     beneficiaries  of debt  service  subordination  provisions  imposed  on the
     borrower's  bondholders.  These arrangements are designed to give corporate
     loan  investors  preferential  treatment  over high yield  investors in the
     event of a  deterioration  in the credit  quality of the issuer.  Even when
     these  arrangements  exist,  however,  there can be no  assurance  that the
     borrowers of the corporate loans will repay  principal  and/or pay interest
     in full.  Corporate  loans generally bear interest at rates set at a margin
     above a generally  recognized  base  lending  rate that may  fluctuate on a
     day-to-day  basis,  in  the  case  of  the  prime  rate  of  a  U.S.  bank.
     Consequently, the value of corporate loans held by the Fund may be expected
     to  fluctuate  significantly  less than the value of other  fixed rate high
     yield  instruments as a result of changes in the interest rate environment.
     On the other hand, the secondary dealer market for certain  corporate loans
     may not be as well developed as the secondary  dealer market for high yield
     bonds and, therefore,  presents increased market risk relating to liquidity
     and pricing concerns.

          Preferred Shares.  The Fund may invest in preferred shares.  Preferred
     shares are equity securities,  but they have many  characteristics of fixed
     income securities, such as a fixed dividend payment rate and/or a liquidity
     preference  over the issuer's  common shares.  However,  because  preferred
     shares  are  equity  securities,  they  may be more  susceptible  to  risks
     traditionally  associated  with equity  investments  than the Fund's  fixed
     income securities.

          Foreign  Currency  Transactions.  Foreign  currency  transactions  are
     entered  into for the  purpose of hedging  against  foreign  exchange  risk
     arising from the Fund's investment or anticipated  investment in securities
     denominated  in  foreign  currencies.  The Fund also may enter  into  these
     contracts for purposes of increasing  exposure to a foreign  currency or to
     shift  exposure  to  foreign  currency  fluctuations  from one  country  to
     another.  Foreign  currency  transactions  include the  purchase of foreign
     currency on a spot (or cash)  basis,  contracts to purchase or sell foreign
     currencies at a future date (forward  contracts),  the purchase and sale of
     foreign currency futures contracts, and the purchase of exchange traded and
     over-the-counter call and put options on foreign currency futures contracts
     and on foreign currencies.

          These  hedging  transactions  do  not  eliminate  fluctuations  in the
     underlying  prices of the  securities  which the Fund  owns or  intends  to
     purchase  or sell.  They simply  establish a rate of exchange  which can be
     achieved at some future point in time.

          Structured  Securities.  The Fund may invest in structured securities.
     The value of the principal and/or interest on such securities is determined
     by  reference  to changes  in the value of  specific  currencies,  interest
     rates, commodities,  indices or other financial indicators ("Reference") or
     the relative  change in two or more  References.  The interest  rate or the
     principal  amount  payable upon maturity or redemption  may be increased or
     decreased  depending  upon  changes  in the  Reference.  The  terms  of the
     structured   securities  may  provide  in  certain  circumstances  that  no
     principal is due at maturity  and,  therefore,  may result in a loss of the
     Fund's  investment.  Changes in the interest  rate or principal  payable at
     maturity  may be a multiple of the  changes in the value of the  Reference.
     Consequently,  structured  securities may entail a greater degree of market
     risk than other types of fixed income securities.

          Asset-Backed  Securities.  Asset-backed securities are securities that
     represent a participation  in, or are secured by and payable from, a stream
     of payments generated by particular  assets,  most often a pool or pools of
     similar  assets  (e.g.,  trade  receivables).  The credit  quality of these
     securities  depends primarily upon the quality of the underlying assets and
     the level of credit support and/or enhancement provided.

          The underlying  assets (e.g.,  loans) are subject to prepayments which
     shorten  the  securities'  weighted  average  maturity  and may lower their
     return. If the credit support or enhancement is exhausted, losses or delays
     in payment may result if the required  payments of  principal  and interest
     are not made.  The value of these  securities  also may  change  because of
     changes in the market's perception of the creditworthiness of the servicing
     agent  for  the  pool,  the  originator  of  the  pool,  or  the  financial
     institution or Fund providing the credit support or enhancement.

          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 Code. The Fund will in some cases 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.  U.S. government  securities in which the
     Fund invests include debt obligations of varying  maturities  issued by the
     U.S.  Treasury or issued or guaranteed by an agency or  instrumentality  of
     the U.S. government, including the Federal Housing Administration,  Federal
     Financing  Bank,  Farmers Home  Administration,  Export-Import  Bank of the
     United  States,  Small  Business  Administration,  GNMA,  General  Services
     Administration,  Central Bank for Cooperatives,  Federal Farm Credit Banks,
     Federal  Home Loan Banks,  FHLMC,  Federal  National  Mortgage  Association
     (FNMA), Maritime  Administration,  Tennessee Valley Authority,  District of
     Columbia Armory Board, Student Loan Marketing Association, Resolution Trust
     Corporation and various  institutions that previously were or currently are
     part of the Farm Credit  System (which has been  undergoing  reorganization
     since 1987). Some U.S. government securities,  such as U.S. Treasury bills,
     Treasury  notes and Treasury  bonds,  which  differ only in their  interest
     rates,  maturities  and times of issuance,  are supported by the full faith
     and credit of the United States.  Others are supported by: (1) the right of
     the issuer to borrow  from the U.S.  Treasury,  such as  securities  of the
     Federal  Home  Loan  Banks;  (2) the  discretionary  authority  of the U.S.
     government to purchase the agency's obligations,  such as securities of the
     FNMA; or (3) only the credit of the issuer.  No assurance can be given that
     the U.S.  government will provide  financial  support in the future to U.S.
     government  agencies,   authorities  or  instrumentalities   that  are  not
     supported  by the full faith and credit of the  United  States.  Securities
     guaranteed  as to  principal  and  interest  by the  U.S.  government,  its
     agencies,  authorities  or  instrumentalities  include:  (i) securities for
     which the payment of  principal  and  interest is backed by an  irrevocable
     letter of  credit  issued by the U.S.  government  or any of its  agencies,
     authorities or instrumentalities;  and (ii) participations in loans made to
     non-U.S.  governments  or  other  entities  that  are  so  guaranteed.  The
     secondary  market for  certain  of these  participations  is  limited  and,
     therefore,  they may be regarded as illiquid (i.e.,  the Fund cannot easily
     resell them within seven days at current value).

          Zero Coupon  Securities.  The securities in which the Fund invests may
     include zero coupon securities,  which are debt obligations that are issued
     or  purchased  at a  significant  discount  from face value.  The  discount
     approximates  the total  amount of interest  the  security  will accrue and
     compound over the period until maturity or the particular  interest payment
     date at a rate of interest  reflecting  the market rate of the  security at
     the time of issuance.  Zero coupon  securities  do not require the periodic
     payment of interest. These investments benefit the issuer by mitigating its
     need for cash to meet debt service,  but generally require a higher rate of
     return to attract investors who are willing to defer receipt of cash. These
     investments  may  experience   greater  volatility  in  market  value  than
     securities that make regular payments of interest.  The Fund accrues income
     on  these   investments   for  tax  and  accounting   purposes,   which  is
     distributable to shareholders and which, because no cash is received at the
     time of accrual,  may require the liquidation of other portfolio securities
     to satisfy the Fund's distribution obligations, in which case the Fund will
     forgo the purchase of additional  income producing assets with these funds.
     Zero coupon U.S. government  securities include STRIPS and CUBES, which are
     issued by the U.S.  Treasury as component parts of U.S.  Treasury bonds and
     represent scheduled interest and principal payments on the bonds.

          Investments  in  Equity  Securities.  The Fund may  invest  in  equity
     securities. Equity securities, such as common stock, generally represent an
     ownership interest in a company.  While equity securities have historically
     generated  higher  average  returns  than fixed income  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.

          Other Investment  Companies.  The Fund may invest in the securities of
     other  investment  companies  to  the  extent  that  such  investments  are
     consistent   with  the  Fund's   investment   objective  and  policies  and
     permissible  under  the 1940  Act.  Under  the 1940  Act,  the Fund may not
     acquire the securities of other domestic or non-U.S.  investment  companies
     if, as a result,  (i) more than 10% of the  Fund's  total  assets  would be
     invested in securities of other  investment  companies,  (ii) such purchase
     would result in more than 3% of the total outstanding  voting securities of
     any one investment company being held by the Fund, or (iii) more than 5% of
     the Fund's total assets  would be invested in any one  investment  company.
     These  limitations do not apply to the purchase of shares of any investment
     company  in  connection  with a merger,  consolidation,  reorganization  or
     acquisition of substantially all the assets of another investment  company.
     Notwithstanding  the foregoing,  as a result of an exemptive order received
     from the  Commission,  the Fund may invest cash balances in shares of other
     money  market  funds  advised by the Fund's  Advisor or its  affiliates  in
     amounts up to 25% of the Fund's total assets.

          The Fund, as a holder of the securities of other investment companies,
     will bear its pro rata portion of the other investment companies' expenses,
     including  advisory  fees.  These  expenses  are in  addition to the direct
     expenses of the Fund's own operations.

          Defensive and Temporary Investments.  Under unusual market or economic
     conditions or for temporary defensive  purposes,  the Fund may invest up to
     100% of its total assets in  securities  issued or  guaranteed  by the U.S.
     government or its  instrumentalities or agencies,  certificates of deposit,
     bankers' acceptances and other bank obligations,  commercial paper rated in
     the  highest  category  by  a  nationally  recognized   statistical  rating
     organization or other fixed income  securities  deemed by the Advisor to be
     consistent with a defensive posture, or may hold cash.

          Derivatives.  The  Fund  may,  but is not  required  to,  use  various
     derivatives described below to earn income, facilitate portfolio management
     and mitigate risks.  Such  derivatives are generally  accepted under modern
     portfolio  management and are regularly used by many mutual funds and other
     institutional investors. Although the Advisor seeks to use the practices to
     further the Fund's  investment  objective,  no assurance  can be given that
     these practices will achieve this result.


          The  Fund  may  purchase  and  sell  derivative  instruments  such  as
     exchange-listed  and  over-the-counter  put and call options on securities,
     financial  futures,  equity,  fixed-income  and interest rate indices,  and
     other financial instruments,  purchase and sell financial futures contracts
     and options thereon, and enter into various interest rate transactions such
     as swaps,  caps, floors or collars.  The Fund also may purchase  derivative
     instruments that combine features of these instruments.  Collectively,  all
     of the above are referred to as "derivatives."  The Fund generally seeks to
     use derivatives as a portfolio  management or hedging  technique to seek to
     protect against  possible adverse changes in the market value of securities
     held in or to be purchased for the Fund's  portfolio,  protect the value of
     the  Fund's  portfolio,  facilitate  the  sale of  certain  securities  for
     investment  purposes,  manage the  effective  interest rate exposure of the
     Fund, manage the effective maturity or duration of the Fund's portfolio, or
     establish  positions in the derivatives  markets as a temporary  substitute
     for purchasing or selling particular securities.  The Fund may invest up to
     10% of its total  assets in futures and options on  securities  and indices
     and in other  derivatives.  In addition,  the Fund may enter into  interest
     rate  swap  transactions  with  respect  to the  total  amount  the Fund is
     leveraged  in order to hedge  against  adverse  changes in  interest  rates
     affecting  dividends payable on any preferred shares or interest payable on
     borrowings   constituting  leverage.  In  connection  with  any  such  swap
     transaction, the Fund will segregate liquid securities in the amount of its
     obligations  under the transaction.  The Fund generally does not anticipate
     using  derivatives for non-hedging  purposes,  but in the event the Advisor
     uses  derivatives for non-hedging  purposes,  no more than 3% of the Fund's
     total assets will be committed to initial margin for  derivatives  for such
     purposes.


          Derivatives have risks,  including the imperfect  correlation  between
     the value of such  instruments  and the  underlying  assets,  the  possible
     default  of the  other  party  to the  transaction  or  illiquidity  of the
     derivative  instruments.  Furthermore,  the  ability  to  successfully  use
     derivatives  depends on the Advisor's  ability to predict  pertinent market
     movements, which cannot be assured. Thus, the use of derivatives may result
     in losses  greater than if they had not been used,  may require the Fund to
     sell or purchase  portfolio  securities at inopportune  times or for prices
     other than current market values,  may limit the amount of appreciation the
     Fund can realize on an investment, or may cause the Fund to hold a security
     that it might  otherwise  sell.  Additionally,  amounts paid by the Fund as
     premiums and cash or other assets held in margin  accounts  with respect to
     derivatives  are  not  otherwise  available  to  the  Fund  for  investment
     purposes.

          A more complete discussion of derivatives and their risks is contained
     in the Statement of Additional Information.

          Repurchase  Agreements.  The Fund may enter into repurchase agreements
     with  broker-dealers,  member banks of the Federal Reserve System and other
     financial institutions.  Repurchase agreements are arrangements under which
     the Fund  purchases  securities  and the seller  agrees to  repurchase  the
     securities  within a specific time and at a specific price.  The repurchase
     price  is  generally  higher  than  the  Fund's  purchase  price,  with the
     difference  being income to the Fund.  Under the  direction of the Board of
     Trustees,  the Advisor  reviews and  monitors the  creditworthiness  of any
     institution  which enters into a repurchase  agreement  with the Fund.  The
     counterparty's    obligations   under   the   repurchase    agreement   are
     collateralized  with U.S. Treasury and/or agency  obligations with a market
     value of not less than 100% of the obligations, valued daily. Collateral is
     held by the Fund's custodian in a segregated,  safekeeping  account for the
     benefit of the Fund.  Repurchase  agreements afford the Fund an opportunity
     to earn income on  temporarily  available cash at low risk. In the event of
     commencement  of bankruptcy or insolvency  proceedings  with respect to the
     seller of the security before repurchase of the security under a repurchase
     agreement,  the Fund may encounter  delay and incur costs before being able
     to sell the  security.  Such a delay  may  involve  loss of  interest  or a
     decline in price of the security.  If a court characterizes the transaction
     as a loan  and the  Fund  has not  perfected  a  security  interest  in the
     security,  the Fund may be required to return the  security to the seller's
     estate  and be  treated  as an  unsecured  creditor  of the  seller.  As an
     unsecured creditor,  the Fund would be at risk of losing some or all of the
     principal and interest involved in the transaction.


          Lending  of  Portfolio   Securities.   The  Fund  may  lend  portfolio
     securities to registered broker-dealers,  or other institutional investors,
     deemed by the  Advisor to be  creditworthy  (and  approved  by the Board of
     Trustees  of the Fund) under  agreements  which  require  that the loans be
     secured  continuously  by  collateral  in cash,  cash  equivalents  or U.S.
     Treasury bills maintained on a current basis at an amount at least equal to
     the market value of the  securities  loaned.  The Fund continues to receive
     the  equivalent  of the  interest  or  dividends  paid by the issuer on the
     securities  loaned as well as the benefit of any increase and the detriment
     of any decrease in the market value of the securities loaned and would also
     receive compensation based on investment of the collateral.  The Fund would
     not have the right to vote any  securities  having voting rights during the
     existence  of the  loan,  but  would  call the loan in  anticipation  of an
     important vote to be taken among holders of the securities or of the giving
     or withholding of consent on a material matter affecting the investment.


          As with  other  extensions  of  credit,  there  are  risks of delay in
     recovery or even loss of rights in the  collateral  should the  borrower of
     the securities fail  financially.  The Fund will lend portfolio  securities
     only to firms that have been  approved in advance by the Board of Trustees,
     which will monitor the creditworthiness of any such firms. At no time would
     the  value of the  securities  loaned  exceed  33 1/3% of the  value of the
     Fund's total assets.

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


          Due to current market conditions, investments that, in the judgment of
     the  Advisor,  are  appropriate   investments  for  the  Fund  may  not  be
     immediately  available.  Therefore,  the Fund expects that there will be an
     initial investment period of up to three months following the completion of
     its common shares  offering  before it is fully invested in accordance with
     its investment  objective and policies.  Pending such investment,  the Fund
     anticipates  that all or a portion of the proceeds will be invested in U.S.
     government securities or high grade, short-term money market instruments.


     Benefits of Investing in the Fund

          Investment  in  the  Fund  offers  the  individual   investor  several
     potential  benefits.  In  managing a  portfolio  of debt  instruments,  the
     Advisor  provides  professional  management  which  includes the  extensive
     credit  analysis  needed  to  invest  in high  yield  bonds,  foreign  debt
     securities,   adjustable  rate  securities,  corporate  loans,  convertible
     securities and preferred shares. The Fund also relieves the investor of the
     burdensome  administrative details involved in managing a portfolio of such
     investments.  Additionally,  the  Advisor  may seek to enhance the yield or
     capital  appreciation  of the Fund's common shares by leveraging the Fund's
     capital  structure  through the issuance of preferred  shares or short-term
     debt  securities  or the  borrowing of money.  These  benefits are at least
     partially offset by the expenses involved in running an investment company.
     Such expenses primarily consist of advisory fees and operational costs. The
     use of leverage also involves certain expenses and risk considerations. See
     "Risk Factors--Leverage" and "Leverage."

     The Advisor's Investment Approach

          The Fund is managed  following  a  rigorous  investment  process  that
     emphasizes both quality and value. The  research-driven  approach  includes
     both a top-down review of  macroeconomic  factors and intensive,  bottom-up
     scrutiny of individual  securities.  The Advisor and the Sub-Adviser  (with
     respect to the foreign  debt  securities  portion of the Fund's  portfolio)
     consider  both broad  economic and issuer  specific  factors in selecting a
     portfolio designed to achieve the Fund's investment objective. In assessing
     the  appropriate  maturity and duration  for the Fund's  portfolio  and the
     credit quality parameters and weighting  objectives for sector and industry
     of each portion of the Fund's portfolio, the Advisor considers a variety of
     factors  that are expected to influence  the economic  environment  and the
     dynamics of the debt securities market.  These factors include  fundamental
     economic  indicators,  such as interest rate trends,  the rates of economic
     growth  and  inflation,  the  performance  of equity  markets,  commodities
     prices,  monetary  policies in the U.S. and overseas and the relative value
     of  the  U.S.  dollar  compared  to  other  currencies.  Once  the  Advisor
     determines the preferable portfolio  characteristics,  the Advisor conducts
     further  evaluation  to  determine  capacity and  inventory  levels in each
     targeted  industry.  The Advisor also identifies any circumstances that may
     lead to improved business conditions, thus increasing the attractiveness of
     a particular industry or country. The Advisor selects individual securities
     based upon the terms of the  securities  (such as yields  compared  to U.S.
     Treasuries or comparable issues),  liquidity and rating,  sector and issuer
     diversification.  The Advisor also employs due  diligence  and  fundamental
     research  to  assess  an  issuer's  credit  quality,  taking  into  account
     financial condition and profitability,  future capital needs, potential for
     change  in  rating,  industry  outlook,  the  competitive  environment  and
     management ability.


          The  Advisor's  analysis of issuers may include,  among other  things,
     historic and current  financial  conditions,  current and anticipated  cash
     flow and borrowing requirements,  value of assets in relation to historical
     costs,  strength of  management,  responsiveness  to  business  conditions,
     credit standing,  the company's  leverage versus industry norms and current
     and anticipated  results of operations.  While the Advisor considers as one
     factor in its credit analysis the ratings  assigned by the rating services,
     the Advisor  performs its own  independent  credit analysis of issuers and,
     consequently, the Fund may invest, without limit, in unrated securities. As
     a result, the Fund's ability to achieve its investment objective may depend
     to a greater  extent on the Advisor's own credit  analysis than  investment
     companies which invest in higher rated securities.


          Additionally, the portion of the Fund allocated to the adjustable rate
     securities  strategy employs a proprietary  investment process  emphasizing
     both macro (top-down) and micro (security specific)  analysis.  In addition
     to  determining  the  strategy's   appropriate  duration,   macro  analysis
     determines  index and reset mix,  fixed/float  mix and cap/floor  structure
     within the strategy's  investment  guidelines.  The Advisor's  selection of
     individual  mortgage  backed  securities  is  determined  by the  Advisor's
     assessment of the issuer and servicer, underwriting criteria, product type,
     geographical   diversification,   current  and  historical  spread  levels,
     prepayment analysis,  projected return on assets, margins, reset mechanisms
     and other criteria specific to agency pass-throughs. The Advisor's analysis
     also includes  quantitative and qualitative  research and modeling designed
     to evaluate the effects of changing interest rate and prepayment  scenarios
     and their effect on the performance of the security and portfolio.

          To  uncover  opportunities  in  international  debt  securities,   the
     Sub-Advisor conducts extensive research of economic and business conditions
     across a wide array of sectors and regions.  In addition,  the  Sub-Advisor
     seeks to  reduce  risk  through  careful  management  of  foreign  currency
     exposure.

          In making portfolio decisions, the Advisor and the Sub-Advisor rely on
     the knowledge,  experience and judgment of their staff who have access to a
     wide variety of research.  Each portfolio  management team applies a strict
     sell  discipline  to its  portion  of the  Fund's  portfolio,  which  is as
     important  as  purchase  criteria  in  determining  a  portfolio  holding's
     performance.  The Fund may continue to hold  securities that are downgraded
     after the Fund purchases them and will sell such securities only if, in the
     Advisor's or the Sub-Advisor's (with respect to the foreign debt securities
     portion of the Fund) judgment, it is advantageous to sell such securities.





                                    LEVERAGE

          To increase its assets  available for  investment,  the Fund initially
     intends  to issue  preferred  shares of  beneficial  interest  representing
     approximately  33  1/3%  of the  Fund's  capital  immediately  after  their
     issuance.   The  Fund  may  also  borrow  money  from  banks  or  financial
     institutions  or issue debt  securities.  The Fund generally will not issue
     preferred  shares or borrow  unless the Advisor  expects that the Fund will
     achieve a greater return on such borrowed  funds than the additional  costs
     the Fund  incurs as a result  of such  leverage.  The Fund also may  borrow
     money as a  temporary  measure for  extraordinary  or  emergency  purposes,
     including  the  payment  of  dividends  and the  settlement  of  securities
     transactions  which  otherwise might require  untimely  dispositions of the
     Fund's  holdings.  The Fund will not issue preferred shares or borrow money
     if,  immediately  after such issuance or borrowing,  total leverage for the
     Fund  exceeds  38% of the Fund's  total  assets.  The Fund may also  borrow
     through reverse repurchase agreements (up to 20% of its total assets). When
     the Fund leverages its assets,  the fees paid to the Advisor for investment
     advisory and  management  services  will be higher than if the Fund did not
     leverage  because the  Advisor's  fees are  calculated  based on the Fund's
     total assets  including the proceeds of the issuance of preferred shares or
     any other amounts  representing  leverage.  Consequently,  the Fund and the
     Advisor may have differing interests in determining whether to leverage the
     Fund's assets. The Board of Trustees will monitor this potential conflict.

          The Fund's use of leverage is premised upon the  expectation  that the
     Fund's  preferred  share dividends or borrowing cost will be lower than the
     return  the Fund  achieves  on its  investments  with the  proceeds  of the
     issuance of preferred  shares or borrowing.  Such  difference in return may
     result from the Fund's higher credit rating or the short-term nature of its
     borrowing compared to the long-term nature of its investments.  Because the
     assets of the Fund  (including  the assets  obtained from  leverage) may be
     invested in higher yielding portfolio  investments or portfolio investments
     with the potential for capital  appreciation,  the holders of common shares
     will  be  the   beneficiaries  of  the  incremental   return.   Should  the
     differential between the underlying assets and cost of leverage narrow, the
     incremental  return  "pick up" will be reduced.  Furthermore,  if long-term
     rates rise or the Fund  otherwise  incurs  losses on its  investments,  the
     Fund's net asset value  attributable  to its common shares will reflect the
     decline in the value of portfolio holdings resulting therefrom.

     Leverage  creates  risks  which may  adversely  affect  the  return for the
     holders of common shares, including:

          o the  likelihood of greater  volatility of net asset value and market
     price of common shares or fluctuations in dividends paid on common shares;

          o  fluctuations  in the dividend  rates on any preferred  shares or in
     interest rates on borrowings and short-term debt;

          o increased operating costs, which may reduce the Fund's total return;
     and

          o the potential  for a decline in the value of an investment  acquired
     with borrowed  funds,  while the Fund's  obligations  under such  borrowing
     remains fixed.


          To  the  extent  the  income  or  capital  appreciation  derived  from
     securities  purchased with funds received from leverage exceeds the cost of
     leverage,  the Fund's  return will be greater than if leverage had not been
     used. Conversely, if the income or capital appreciation from the securities
     purchased  with such funds is not  sufficient to cover the cost of leverage
     or if the Fund incurs capital  losses,  the return of the Fund will be less
     than if leverage had not been used, and therefore the amount  available for
     distribution to shareholders as dividends and other  distributions  will be
     reduced or  potentially  eliminated.  The Advisor may determine to maintain
     the Fund's leveraged  position if it expects that the long-term benefits to
     the Fund's shareholders of maintaining the leveraged position will outweigh
     the  current  reduced  return.  Capital  raised  through  the  issuance  of
     preferred  shares or  borrowing  will be subject to  dividend  payments  or
     interest  costs that may or may not exceed the income and  appreciation  on
     the assets purchased.  The issuance of classes of preferred shares involves
     offering  expenses and other costs and may limit the Fund's  freedom to pay
     dividends on common shares or to engage in other activities.  The Fund also
     may be required to maintain  minimum  average  balances in connection  with
     borrowings  or to pay a  commitment  or  other  fee to  maintain  a line of
     credit;  either of these  requirements  will increase the cost of borrowing
     over the stated interest rate.


          The Fund may be subject to certain restrictions on investments imposed
     by guidelines of one or more  nationally  recognized  rating  organizations
     which  may issue  ratings  for the  preferred  shares  or  short-term  debt
     instruments  issued by the Fund. These guidelines may impose asset coverage
     or portfolio  composition  requirements  that are more stringent than those
     imposed by the 1940 Act. Certain types of borrowings may result in the Fund
     being subject to covenants in credit  agreements,  including those relating
     to asset coverage,  borrowing base and portfolio  composition  requirements
     and  additional  covenants  that  may  affect  the  Fund's  ability  to pay
     dividends and distributions on common shares in certain instances. The Fund
     may also be  required  to pledge its assets to lenders in  connection  with
     certain  types of  borrowing.  The Advisor does not  anticipate  that these
     covenants or restrictions  will adversely  affect its ability to manage the
     Fund's  portfolio in accordance  with the Fund's  investment  objective and
     policies. Due to these covenants or restrictions, the Fund may be forced to
     liquidate  investments at times and at prices that are not favorable to the
     Fund,  or the Fund may be  forced  to forgo  investments  that the  Advisor
     otherwise views as favorable.

          Under  the 1940  Act,  the Fund is not  permitted  to issue  preferred
     shares  unless  immediately  after such issuance the net asset value of the
     Fund's  portfolio  is at  least  200%  of  the  liquidation  value  of  the
     outstanding  preferred shares (i.e.,  such liquidation value may not exceed
     50% of the value of the Fund's total 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 net asset value of the
     Fund's portfolio (determined after deducting the amount of such dividend or
     distribution)  is at least  200% of such  liquidation  value.  In the event
     preferred shares are issued, the Fund intends,  to the extent possible,  to
     purchase or redeem preferred shares from time to time to maintain  coverage
     of any preferred  shares of at least 200%.  Under the 1940 Act, the Fund is
     not permitted to incur indebtedness unless immediately after such borrowing
     the  Fund  has  an  asset  coverage  of at  least  300%  of  the  aggregate
     outstanding  principal balance of indebtedness (i.e., such indebtedness may
     not exceed 33 1/3% of the value of the Fund's total assets).  Additionally,
     under  the 1940  Act,  the  Fund  may not  declare  any  dividend  or other
     distribution  upon any class of its shares,  or purchase  any such  shares,
     unless  the  aggregate  indebtedness  of the Fund  has,  at the time of the
     declaration of any such dividend or distribution or at the time of any such
     purchase,  an asset coverage of at least 300% after deducting the amount of
     such dividend, distribution, or purchase price, as the case may be.


          If and to the extent  that the Fund  employs  leverage  will depend on
     many factors,  the most important of which are investment  outlook,  market
     conditions  and interest  rates.  Successful  use of a leveraging  strategy
     depends on the Advisor's  ability to predict  correctly  interest rates and
     market movements.  There is no assurance that a leveraging strategy will be
     successful during any period in which it is employed.

          Assuming  the  Fund  issues   preferred   shares  with  a  liquidation
     preference equal to approximately 33 1/3% of the Fund's total assets and an
     annual dividend rate of 3.33% of such liquidation preference (which rate is
     approximately  the rate  which the  Advisor  expects  the Fund to pay after
     hedging, based on market rates as of the date of this prospectus), the Fund
     would  need to  achieve  an  annual  return  on its  total  assets  (net of
     expenses)  of  1.10%  in  order to  cover  such  dividend  payments  on the
     preferred shares. 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 illustrates the hypothetical  effect on the return
     to a holder of the Fund's common shares of the leverage obtained by issuing
     preferred  shares with a  liquidation  value equal to 33 1/3% of the Fund's
     total assets,  assuming hypothetical annual returns of the Fund's portfolio
     of minus 10% to plus 10%. As the table shows,  leverage generally increases
     the return to  shareholders  when portfolio  return is positive and greater
     than the cost of  leverage  and  decreases  the return  when the  portfolio
     return is negative or less than the cost of leverage. The figures appearing
     in the table are  hypothetical  and actual  returns  may be greater or less
     than those appearing in the table.


<TABLE>
<CAPTION>

    <S>                                                     <C>          <C>        <C>      <C>     <C>

     Assumed portfolio return (net of expenses)..........      (10.00)%  (5.00)%    0.00%    5.00%   10.00%
     Corresponding common share return.........             (   16.34)%  ( 9.22)% ( 2.10)%   5.03%   12.15%
                                                                =====     ====      ====     ======  =====

</TABLE>

          Until the Fund issues preferred  shares or borrows,  the Fund's common
     shares  will not be  leveraged,  and the risks and  special  considerations
     related to  leverage  described  in this  prospectus  will not apply.  Such
     leveraging of the common shares cannot be fully achieved until the proceeds
     resulting  from the use of  leverage  have been  invested  in  longer  term
     securities in accordance with the Fund's investment objective and policies.




                                     RISK FACTORS




          The Fund is a diversified,  closed-end  management  investment company
     designed  primarily as a long-term  investment  and not as a trading  tool.
     Because the Fund's investments include high yield securities, an investment
     in the Fund's common shares may be  speculative  in that it involves a high
     degree of risk.  The Fund  should  not  constitute  a  complete  investment
     program.  Due  to  the  uncertainty  in all  investments,  there  can be no
     assurance that the Fund will achieve its investment objective.

          No  Operating  History.  The  Fund  is a  newly  organized  closed-end
     management  investment  company and has no operating  history or history of
     public trading.

          Credit  Risk.  Credit  risk  refers  to an  issuer's  ability  to make
     payments of principal and interest when they are due. Because the Fund will
     own securities with low credit quality,  it will be subject to a high level
     of credit  risk.  The  credit  quality  of such  securities  is  considered
     speculative by rating agencies with respect to the issuer's  ability to pay
     interest  or  principal.  The  prices of lower  grade  securities  are more
     sensitive to negative corporate developments, such as a decline in profits,
     or adverse economic conditions, such as a recession, than are the prices of
     higher grade securities.  Securities that have longer maturities or that do
     not make regular interest payments also fluctuate more in price in response
     to negative corporate or economic news.  Therefore,  lower grade securities
     may experience high default rates,  which could mean that the Fund may lose
     some of its investments in such  securities,  which would adversely  affect
     the Fund's net asset value and ability to make  distributions.  The effects
     of this  default  risk are  significantly  greater for the holders of lower
     grade   securities   because  these  securities  often  are  unsecured  and
     subordinated to the payment rights of other creditors of the issuer.

          High  Yield  Debt  Securities.  Investment  in high  yield  securities
     involves  substantial  risk of loss. Below investment grade debt securities
     or comparable  unrated  securities are commonly referred to as "junk bonds"
     and are considered  predominantly  speculative with respect to the issuer's
     ability to pay interest and  principal  and are  susceptible  to default or
     decline in market value due to adverse economic and business  developments.
     The market values for high yield  securities tend to be very volatile,  and
     these securities are less liquid than investment grade debt securities. For
     these  reasons,  your  investment  in the Fund is subject to the  following
     specific risks:

     o  Increased  price  sensitivity  to  changing  interest  rates  and  to  a
     deteriorating economic environment;

     o Greater risk of loss due to default or declining credit quality;

     o Adverse  company  specific  events  are more  likely to render the issuer
     unable to make interest and/or principal payments; and

     o If a negative perception of the high yield market develops, the price and
     liquidity  of  high  yield  securities  may  be  depressed.  This  negative
     perception could last for a significant period of time.

          Debt securities  rated below  investment  grade are  speculative  with
     respect to the capacity to pay interest and repay  principal in  accordance
     with  the  terms  of such  securities.  See  the  Statement  of  Additional
     Information for a description of Moody's and S&P's ratings.

          Adverse  changes in economic  conditions  are more likely to lead to a
     weakened  capacity of a high yield  issuer to make  principal  payments and
     interest payments than an investment grade issuer.  The principal amount of
     high yield securities outstanding has proliferated in the past decade as an
     increasing  number of issuers have used high yield securities for corporate
     financing. An economic downturn could severely affect the ability of highly
     leveraged  issuers to  service  their debt  obligations  or to repay  their
     obligations  upon  maturity.  If the national  economy enters into a deeper
     recessionary  phase during 2003 or interest rates rise sharply,  the number
     of  defaults  by high  yield  issuers  is  likely to  increase.  Similarly,
     down-turns in profitability  in specific  industries could adversely affect
     the  ability  of high  yield  issuers  in those  industries  to meet  their
     obligations.  The market  values of lower quality debt  securities  tend to
     reflect  individual  developments of the issuer to a greater extent than do
     higher quality  securities,  which react  primarily to  fluctuations in the
     general level of interest  rates.  Factors  having an adverse impact on the
     market value of lower quality  securities may have an adverse effect on the
     Fund's  net asset  value and the  market  value of its  common  shares.  In
     addition,  the Fund may  incur  additional  expenses  to the  extent  it is
     required  to seek  recovery  upon a default  in  payment  of  principal  or
     interest on its portfolio holdings. In certain circumstances,  the Fund may
     be required to foreclose on an issuer's  assets and take  possession of its
     property  or  operations.  In such  circumstances,  the  Fund  would  incur
     additional costs in disposing of such assets and potential liabilities from
     operating any business acquired.

          The secondary market for high yield securities may not be as liquid as
     the secondary market for more highly rated  securities,  a factor which may
     have an  adverse  effect on the Fund's  ability to dispose of a  particular
     security  when  necessary  to meet its  liquidity  needs.  There  are fewer
     dealers in the market for high yield  securities than for investment  grade
     obligations.  The prices quoted by different dealers may vary significantly
     and the spread  between  the bid and asked price is  generally  much larger
     than for higher  quality  instruments.  Under  adverse  market or  economic
     conditions,  the secondary  market for high yield securities could contract
     further,  independent of any specific adverse changes in the condition of a
     particular issuer, and these instruments may become illiquid.

          As a result,  the Fund  could  find it more  difficult  to sell  these
     securities or may be able to sell the securities  only at prices lower than
     if such  securities  were widely traded.  Prices  realized upon the sale of
     such lower rated or unrated securities,  under these circumstances,  may be
     less than the prices used in calculating the Fund's net asset value.

          Since  investors  generally  perceive  that  there are  greater  risks
     associated with lower quality debt securities of the type in which the Fund
     may  invest  a  portion  of its  assets,  the  yields  and  prices  of such
     securities  may  tend  to  fluctuate  more  than  those  for  higher  rated
     securities.  In the lower quality  segments of the debt securities  market,
     changes in  perceptions  of  issuers'  creditworthiness  tend to occur more
     frequently  and in a more  pronounced  manner  than do  changes  in  higher
     quality segments of the debt securities market,  resulting in greater yield
     and price volatility.

          If the Fund  invests  in high  yield  securities  that are  rated C or
     below,  the Fund  will  incur  significant  risk in  addition  to the risks
     associated with  investments in high yield  securities and corporate loans.
     Distressed  securities  frequently  do not  produce  income  while they are
     outstanding.  The  Fund  may  purchase  distressed  securities  that are in
     default or the issuers of which are in bankruptcy. The Fund may be required
     to bear certain extraordinary  expenses in order to protect and recover its
     investment in these securities.


          Issuer Risk.  The value of corporate  income-producing  securities 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.


          Reinvestment risk.  Reinvestment risk is the risk that income from the
     Fund's  bond  portfolio  will  decline  if and when the  Fund  invests  the
     proceeds from matured, traded or called bonds 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.

          Leverage.  The  Fund  initially  intends  to  issue  preferred  shares
     representing  approximately 33 1/3% of the Fund's capital immediately after
     their  issuance.  The  Fund  may  also  borrow  money  from  banks or other
     financial   institutions  or  issue  debt  securities  with  a  liquidation
     preference or principal  amount up to the maximum  extent  permitted by the
     1940  Act.  The Fund will not issue  preferred  shares or borrow  money if,
     immediately  after such issuance or borrowing,  total leverage for the Fund
     exceeds 38% of the Fund's total assets  immediately  after such issuance or
     borrowing. Leverage creates risks which may adversely affect the return for
     the holders of common shares, including:


     o the  likelihood  of greater  volatility  of net asset  value,  the market
     price,  or the  dividend  rate of  common  shares  or  fluctuations  in the
     dividend paid to the Fund;


     o fluctuations in the dividend rates on any preferred shares or in interest
     rates on borrowings and short-term debt;

     o increased operating costs, which may reduce the Fund's total return; and

     o the potential  for a decline in the value of an investment  acquired with
     borrowed funds,  while the Fund's  obligations  under such borrowing remain
     fixed.

          To  the  extent  the  income  or  capital  appreciation  derived  from
     securities  purchased with funds received from leverage exceeds the cost of
     leverage,  the Fund's  return will be greater than if leverage had not been
     used. Conversely, if the income or capital appreciation from the securities
     purchased  with such funds is not  sufficient to cover the cost of leverage
     or if the Fund incurs capital  losses,  the return of the Fund will be less
     than if leverage had not been used, and therefore the amount  available for
     distribution to shareholders as dividends and other  distributions  will be
     reduced or potentially eliminated.

          Certain  types of  borrowings  may result in the Fund being subject to
     covenants in credit agreements, including those relating to asset coverage,
     borrowing  base  and  portfolio  composition  requirements  and  additional
     covenants  that  may  affect  the  Fund's  ability  to  pay  dividends  and
     distributions on common shares in certain  instances.  The Fund may also be
     required to pledge its assets to the  lenders in  connection  with  certain
     types of  borrowing.  The Fund may be subject to  certain  restrictions  on
     investments  imposed by  guidelines  of one or more  nationally  recognized
     rating  organizations  which may issue ratings for the preferred  shares or
     short-term debt instruments issued by the Fund. These guidelines may impose
     asset  coverage  or  portfolio  composition   requirements  that  are  more
     stringent than those imposed by the 1940 Act.

          Because the  Advisor's fee is a percentage of the Fund's Total Assets,
     the  Advisor's  fee will be higher if the Fund is leveraged and the Advisor
     will have an incentive to be more aggressive and leverage the Fund.

          Interest Rate and Other Risks. Fixed income securities, including high
     yield securities, are subject to certain common risks, including:


     o If  interest  rates go up,  the value of debt  securities  in the  Fund's
     portfolio  generally  will  decline.  This is known as interest  rate risk.
     Although  the Fund's  investment  objective  includes  limiting  the Fund's
     exposure to interest  rate risk,  there is no guarantee  that the Fund will
     meet its investment objective;


     o During periods of declining  interest rates, the issuer of a security may
     exercise its option to prepay principal earlier than scheduled, forcing the
     Fund to reinvest  in lower  yielding  securities.  This is known as call or
     prepayment  risk. Debt securities  frequently have call features that allow
     the issuer to  repurchase  the security  prior to its stated  maturity.  An
     issuer may redeem an  obligation  if the issuer can refinance the debt at a
     lower cost due to declining  interest rates or an improvement in the credit
     standing of the issuer;

     o During  periods of rising  interest  rates,  the average  life of certain
     types of  securities  may be  extended  because  of  slower  than  expected
     principal payments. This may lock in a below market interest rate, increase
     the security's duration (the estimated period until the security is paid in
     full) and  reduce  the value of the  security.  This is known as  extension
     risk;


     o The Advisor's or the  Sub-Advisor's  judgment  about the  attractiveness,
     relative value or potential  appreciation of a particular sector,  security
     or  investment  strategy  may  prove  to be  incorrect.  This is  known  as
     management risk; and


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


          Mortgage- and Asset-Backed Securities and Structured Securities.  Like
     other debt securities, changes in interest rates generally affect the value
     of   mortgage-backed   securities   and  other   asset-backed   securities.
     Additionally,  some  mortgage-backed  securities  may be structured so that
     they may be  particularly  sensitive to interest  rates.  Asset-backed  and
     mortgage-backed securities are generally subject to higher prepayment risks
     than most other types of debt  instruments.  Prepayment  of  mortgages  may
     expose the Fund to a lower rate of return when it reinvests the  principal.
     Prepayment  risks in  mortgage-backed  securities  tend to increase  during
     periods of declining interest rates because many borrowers  refinance their
     mortgages to take advantage of the more favorable rates.


          The Fund may invest in mortgage derivatives and structured securities.
     Because these securities have imbedded leverage features,  small changes in
     interest or  prepayment  rates may cause large and sudden price  movements.
     Mortgage  derivatives  can  also  become  illiquid  and  hard to  value  in
     declining markets.


          Foreign Securities. Investments in non-U.S. issuers may involve unique
     risks compared to investing in securities of U.S. issuers.  These risks are
     more  pronounced to the extent that the Fund invests a significant  portion
     of its non-U.S. investments in one region. These risks may include:

     o Less information  about non-U.S.  issuers or markets may be available due
     to less  rigorous  disclosure  or  accounting  standards  or  regulatory
     practices;

     o Many non-U.S.  markets are smaller,  less liquid and more volatile.  In a
     changing  market,  the Advisor or  Sub-Advisor  may not be able to sell the
     Trust's  portfolio  securities  at  times,  in  amounts  and at  prices  it
     considers reasonable;

     o Adverse effect of currency exchange rates or controls on the value of the
     Fund's investments

     o The  economies  of  non-U.S.  countries  may grow at  slower  rates  than
     expected or may experience a downturn = or recession;

     o Economic,  political and social  developments  may  adversely  affect the
     securities markets; and

    o  Withholding and other non-U.S. taxes may decrease the Fund's return.


          There  may be  less  publicly  available  information  about  non-U.S.
     markets and issuers than is available  with respect to U.S.  securities and
     issuers.  Non-U.S.  companies  generally  are not  subject  to  accounting,
     auditing and financial  reporting  standards,  practices  and  requirements
     comparable to those applicable to U.S.  companies.  The trading markets for
     most non-U.S.  securities  are generally less liquid and subject to greater
     price  volatility  than the markets for  comparable  securities in the U.S.
     Even the  markets  for  relatively  widely  traded  securities  in  certain
     non-U.S.  markets may not be able to absorb,  without price disruptions,  a
     significant  increase  in  trading  volume or trades of a size  customarily
     undertaken  by  institutional  investors in the U.S.  Additionally,  market
     making and  arbitrage  activities  are  generally  less  extensive  in such
     markets,   which  may  contribute  to  increased   volatility  and  reduced
     liquidity.

          Economies and social and political climate in individual countries may
     differ unfavorably from the U.S. Non-U.S. economies may have less favorable
     rates of growth of gross  domestic  product,  rates of inflation,  currency
     valuation,  capital reinvestment,  resource self-sufficiency and balance of
     payments  positions.  Many countries have experienced  substantial,  and in
     some cases extremely high, rates of inflation for many years. Unanticipated
     political or social  developments  may also affect the values of the Fund's
     investments and the  availability to the Fund of additional  investments in
     such countries.


          Foreign  Currency  Risks.  The value of the securities  denominated or
     quoted in foreign  currencies may be adversely  affected by fluctuations in
     the relative currency  exchange rates and by exchange control  regulations.
     The  Fund's  investment   performance  may  be  negatively  affected  by  a
     devaluation of a currency in which the Fund's  investments  are denominated
     or quoted.  Further, the Fund's investment performance may be significantly
     affected,  either  positively or  negatively,  by currency  exchange  rates
     because  the U.S.  dollar  value of  securities  denominated  or  quoted in
     another  currency  will  increase or decrease in response to changes in the
     value of such currency in relation to the U.S. dollar.

          Foreign currency exchange rates may fluctuate significantly over short
     periods of time. A forward foreign currency  exchange  contract reduces the
     Fund's exposure to changes in the value of the currency it will deliver and
     increases  its  exposure  to changes in the value of the  currency  it will
     exchange into.  Contracts to sell foreign currency will limit any potential
     gain  which  might  be  realized  by the Fund if the  value  of the  hedged
     currency  increases.  In the case of forward contracts entered into for the
     purpose of increasing return, the Fund may sustain losses which will reduce
     its gross income.  Forward foreign currency exchange contracts also involve
     the risk that the party with which the Fund enters the contract may fail to
     perform  its  obligations  to the Fund.  The  purchase  and sale of foreign
     currency  futures  contracts  and the  purchase  of call and put options on
     foreign  currency  futures  contracts  and on  foreign  currencies  involve
     certain risks associated with derivatives.

          Sovereign  Debt.  An  investment  in  debt   obligations  of  non-U.S.
     governments  and their political  subdivisions  (sovereign  debt),  whether
     denominated in U.S. dollars for a foreign currency,  involves special risks
     that are not present in corporate debt obligations.  The non-U.S. issuer of
     the sovereign debt or the non-U.S.  governmental  authorities  that control
     the repayment of the debt may be unable or unwilling to repay  principal or
     interest when due, and the Fund may have limited recourse in the event of a
     default.  During  periods of  economic  uncertainty,  the market  prices of
     sovereign debt may be more volatile than prices of debt obligations of U.S.
     issuers.   In  the  past,  certain  non-U.S.   countries  have  encountered
     difficulties  in servicing  their debt  obligations,  withheld  payments of
     principal  and interest and declared  moratoria on the payment of principal
     and interest on their sovereign debt.

          A sovereign debtor's willingness or ability to repay principal and pay
     interest in a timely  manner may be affected by, among other  factors,  its
     cash flow  situation,  the extent of its  foreign  currency  reserves,  the
     availability of sufficient foreign exchange,  the relative size of the debt
     service  burden,   the  sovereign  debtor's  policy  toward  its  principal
     international  lenders and local political  constraints.  Sovereign debtors
     may also be dependent on expected disbursements from non-U.S.  governments,
     multilateral  agencies and other entities to reduce  principal and interest
     arrearages  on their debt.  The failure of a sovereign  debtor to implement
     economic reforms, achieve specified levels of economic performance or repay
     principal  or  interest  when  due  may  result  in  the   cancellation  of
     third-party  commitments to lend funds to the sovereign  debtor,  which may
     further impair such debtor's ability or willingness to service its debts.


          Convertible  Securities.  The Fund may  invest  up to 10% of its total
     assets in  convertible  securities.  Convertible  fixed  income  securities
     generally  offer lower  interest or  dividend  yields than  non-convertible
     securities of similar  quality.  As with all fixed income  securities,  the
     market values of convertible  securities  tend to decline as interest rates
     increase and, conversely,  to increase as interest rates decline.  However,
     when the market price of the common stock underlying a convertible security
     exceeds the conversion price, the convertible security tends to reflect the
     market price of the  underlying  common  stock.  As the market price of the
     underlying common stock declines,  the convertible  security tends to trade
     increasingly on a yield basis and thus may not decline in price to the same
     extent as the underlying common stock.


          Corporate Loans. The Fund may acquire interests in loans made by banks
     or other  financial  institutions  to  corporate  issuers or  participation
     interests in such loans. By purchasing a participation  interest in a loan,
     the Fund  acquires  some or all of the interest of a bank or other  lending
     institution  in  a  loan  to  a  corporate  or  government  borrower.   The
     participations  typically  will  result  in the Fund  having a  contractual
     relationship only with the lender, not the borrower. The Fund will have the
     right to receive  payments of principal,  interest and any fees to which it
     is entitled only from the lender  selling the  participation  and only upon
     receipt by the lender of the payments from the borrower.


          Corporate  loan   obligations  are  frequently   secured  by  security
     interests in the assets of the borrower and the holders of corporate  loans
     are frequently the beneficiaries of debt service  subordination  provisions
     imposed  on  the  borrower's  bondholders.  If the  Fund  only  acquires  a
     participation  in the loan made by a third party,  the Fund may not be able
     to control the  exercise of any  remedies  that the lender would have under
     the corporate  loan. Such third party  participations  are designed to give
     corporate loan investors  preferential  treatment over high yield investors
     in the event of a deterioration  in the credit quality of the issuer.  Even
     when these arrangements exist, however,  there can be no assurance that the
     principal and interest  owed on the corporate  loan will be repaid in full.
     The secondary dealer market for certain  corporate loans may not be as well
     developed as the secondary dealer market for bonds and, therefore, presents
     increased market risk relating to liquidity and pricing concerns.

          Dollar Roll Transactions.  If the broker-dealer to whom the Fund sells
     the security becomes  insolvent,  the Fund's right to purchase the security
     may be restricted;  the value of the security may change adversely over the
     term of the dollar roll; the security that the Fund is required to purchase
     may be worth less than the security that the Fund originally  held; and the
     return earned by the Fund with the proceeds of a dollar roll may not exceed
     transaction costs.


          REITs. 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 with underlying assets that 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 and their  securities may
     trade less  frequently  and in a more  limited  volume than  securities  of
     larger companies.


          Market Price of Shares.  Whether investors will realize a gain or loss
     upon the sale of the Fund's  common  shares will  depend  upon  whether the
     market  value of the shares at the time of sale is above or below the price
     the investor paid,  taking into account  transaction  costs, for the shares
     and is not directly dependent upon the Fund's net asset value.  Because the
     market value of the Fund's shares will be determined by factors such as the
     relative demand for and supply of the shares in the market,  general market
     conditions  and other  factors  beyond the  control  of the Fund,  the Fund
     cannot predict  whether its common shares will trade at, below or above net
     asset value, or below or above the initial offering price for the shares.


          Derivatives.  Even  a  small  investment  in  derivatives  can  have a
     significant  impact on the Fund's exposure to interest rates. If changes in
     a  derivative's  value do not  correspond  to  changes  in the value of the
     Fund's other investments, the Fund may not fully benefit from or could lose
     money on the derivative  position.  In addition,  some derivatives  involve
     risk of loss if the  person  who  issued  the  derivative  defaults  on its
     obligation.  Certain  derivatives  may be less liquid and more difficult to
     value.


          Market Disruption Risk. The terrorist attacks in the U.S. on September
     11, 2001 had a disruptive effect on the securities markets. The war in Iraq
     also has  resulted  in  recent  market  volatility  and may have  long-term
     effects on the U.S. and worldwide  financial  markets and may cause further
     economic  uncertainties  in the U.S. and worldwide.  The Fund does not know
     how long the  securities  markets  will  continue  to be  affected by these
     events and cannot  predict the effects of the war or similar  events in the
     future on the U.S. economy and securities markets.


          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,
     or interest payments on Fund borrowings, if any, may increase.


          Tax  Risk.  The  Bush  Administration  has  announced  a  proposal  to
     eliminate the federal income tax on dividends of income previously taxed at
     the corporate level. In addition,  several alternative  proposals regarding
     the  taxation  of  dividends  and  capital  gains are being  considered  by
     Congress.  The availability of tax-free  dividends may reduce the value of,
     and thus the return on,  securities which are part of the Fund's investment
     portfolio.  Moreover, these proposals may be given retroactive effect. This
     change  could reduce the Fund's net asset value and  distributions  made by
     the Fund.


          Market Discount Risk.  Shares of closed-end  funds frequently trade at
     prices  lower than their net asset value.  This is commonly  referred to as
     "trading at a discount." This  characteristic of shares of closed-end funds
     is a risk  separate  and  distinct  from the risk that the Fund's net asset
     value may  decrease.  Investors  who sell their shares  within a relatively
     short  period  after  completion  of the public  offering  are likely to be
     exposed to this  risk.  Accordingly,  the Fund is  designed  primarily  for
     long-term  investors  and should not be  considered  a vehicle  for trading
     purposes.  Net asset value will be reduced  following  the  offering by the
     underwriting discount and the amount of offering expenses paid by the Fund.


          Liquidity  risk.  The  Fund  does  not  intend  to  purchase  illiquid
     securities,  which are  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.  However,  the Fund is not required to
     sell or dispose of any debt  security that becomes  illiquid  subsequent to
     its purchase.  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 the Advisor or the Sub-Advisor believes that it is desirable to do so.
     Illiquid  securities  also  may  entail  registration  expenses  and  other
     transaction costs that are higher than those for liquid securities.

          Anti-takeover  Provisions.  The Fund's  Agreement and  Declaration  of
     Trust and By-laws include  provisions that could limit the ability of other
     entities  or  persons  to  acquire  control  of the Fund or to  change  the
     composition  of its Board of  Trustees.  Such  provisions  could  limit the
     ability of  shareholders  to sell their shares at a premium over prevailing
     market prices by  discouraging a third party from seeking to obtain control
     of the Fund.  These  provisions  include  staggered terms of office for the
     Trustees,  advance  notice  requirements  for  shareholder  proposals,  and
     super-majority   voting   requirements   for  certain   transactions   with
     affiliates,  open-ending the Fund or a merger, liquidation, asset sales and
     similar  transactions.   See  "Certain  Provisions  of  the  Agreement  and
     Declaration of Trust."





                               MANAGEMENT OF THE FUND




Trustees and Officers

          The Fund's  Board of  Trustees  provides  broad  supervision  over the
     affairs  of the Fund.  The  officers  of the Fund are  responsible  for the
     Fund's  operations.  The Trustees and officers of the Fund,  together  with
     their principal  occupations  during the past five years, are listed in the
     Statement  of  Additional  Information.  Each of the  Trustees  serves as a
     Trustee of each of the 107 U.S. registered  investment portfolios for which
     the Advisor serves as investment adviser.


Investment Advisor

     Evergreen  Investment  Management  Company,  LLC (previously defined as the
"Advisor"),  will act as the Fund's  investment  adviser.  The  Advisor has been
managing  mutual  funds and private  accounts  since 1932 and managed  over $229
billion in assets as of March 31,  2003.  The Advisor is located at 200 Berkeley
Street,  Boston,  Massachusetts  02116-5034.  The  Advisor  is  a  wholly  owned
subsidiary of Wachovia  Bank,  N.A.  Wachovia Bank,  N.A.,  located at 201 South
College  Street,  Charlotte,  North  Carolina  28288-0630,  is a  subsidiary  of
Wachovia Corporation, formerly First Union Corporation.


          As the Fund's investment  adviser,  the Advisor provides the Fund with
     investment research,  advice and supervision and furnishes the Fund with an
     investment  program  consistent  with the Fund's  investment  objective and
     policies,  subject to the supervision of the Fund's  Trustees.  The Advisor
     determines what portfolio  securities  will be purchased or sold,  arranges
     for the placing of orders for the purchase or sale of portfolio securities,
     selects  brokers or  dealers to place  those  orders,  maintains  books and
     records with respect to the Fund's securities transactions,  and reports to
     the Trustees on the Fund's investments and performance.



Investment Sub-Advisor


          The Advisor has delegated  management  of the foreign debt  securities
     portion of the Fund's portfolio to First International Advisors, LLC, d/b/a
     Evergreen International Advisors (previously defined as the "Sub-Advisor"),
     subject to supervision by the Advisor.

          The  Sub-Advisor,  which is the Advisor's  London-based  international
     bond team, has over 30 years of experience investing in international fixed
     income  securities.  The  Sub-Advisor  is located at  Centurion  House,  24
     Monument  Street,  London,  England,  U.K.  EC3R 8AQ. The  Sub-Advisor,  an
     affiliate  of  the  Advisor,  is  a  wholly-owned  subsidiary  of  Wachovia
     Corporation.



Compensation and Expenses

          Under  the  management  contract,  the Fund  will  pay to the  Advisor
     monthly, as compensation for the services rendered and expenses paid by it,
     an annual fee equal to 0.55% of the Fund's  Total  Assets.  Because the fee
     paid to the Advisor is  determined on the basis of the Fund's Total Assets,
     the  Advisor's  interest in  determining  whether to leverage  the Fund may
     differ from the interests of the Fund.


          The Fund's Total Assets are  determined for the purpose of calculating
     the management fee by taking the average of all the daily determinations of
     Total Assets during a given calendar  month.  The fees are payable for each
     calendar month as soon as practicable after the end of that month.


          Under the terms of its management  contract with the Fund, the Advisor
     pays all the  operating  expenses,  including  executive  salaries  and the
     rental of office  space,  relating to its services  for the Fund,  with the
     exception of the  following,  which are to be paid by the Fund: (a) charges
     and expenses for bookkeeping; (b) the charges and expenses of auditors; (c)
     the charges and expenses of any custodian,  transfer  agent,  and registrar
     appointed by the Fund; (d) issue and transfer taxes  chargeable to the Fund
     in connection  with  securities  transactions to which the Fund is a party;
     (e) trust fees payable by the Fund to federal,  state or other governmental
     agencies;  (f) fees and expenses  involved in registering  and  maintaining
     registrations  of the  Fund  and/or  its  shares  with  federal  regulatory
     agencies,  state or blue sky securities agencies and foreign jurisdictions,
     including the  preparation  of  prospectuses  and  statements of additional
     information for filing with such regulatory  authorities;  (g) all expenses
     of  shareholders'  and Trustees'  meetings and of  preparing,  printing and
     distributing  prospectuses,  notices,  proxy  statements and all reports to
     shareholders  and to  governmental  agencies;  (h) charges and  expenses of
     legal  counsel  to the Fund and the  Trustees;  (i)  compensation  of those
     Trustees  of the  Fund  who  are  not  affiliated  with  the  Advisor,  the
     Sub-Advisor  or the Fund (as  defined  under  the 1940 Act)  other  than as
     Trustees;  (j) the cost of preparing and printing share  certificates;  and
     (k) the fees and  other  expenses  of  listing  the  Fund's  shares  on any
     national stock  exchange.  In addition,  the Fund will pay all brokers' and
     underwriting   commissions  chargeable  to  the  Fund  in  connection  with
     securities transactions to which the Fund is a party.

          The Advisor pays an annual fee to the  Sub-Advisor  for its investment
     sub-advisory  services  equal to 0.05% of the Fund's  average  daily  Total
     Assets.

          The Fund has also entered into an  administration  agreement with EIS,
     pursuant  to which  EIS  provides  certain  administrative  and  accounting
     services. The Fund will pay EIS a monthly fee computed at an annual rate of
     0.05% of the Fund's average daily Total Assets.


Portfolio Manager

          Day-to-day  management of the portion of the Fund's  portfolio that is
     described as the U.S. high yield debt securities  portion under "Investment
     Objective  and  Principal  Investment  Strategies  -  Principal  Investment
     Strategies- U.S. High Yield Debt Securities" above is the responsibility of
     a team of portfolio management  professionals from the Advisor's High Yield
     Bond team, which includes  specialized  industry  analysts  responsible for
     various  sectors.  The team is led by Prescott  Crocker,  CFA, who has more
     than 25 years of fixed income investment experience. Mr. Crocker has been a
     managing director and senior portfolio manager with the Advisor since 1997.
     Among the portfolios the team manages is the open-end  Evergreen High Yield
     Bond Fund and the closed-end  Evergreen Income Advantage Fund. Together the
     team  managed  almost $4 billion in high yield  securities  as of March 31,
     2003.

          Day-to-day  management of the portion of the Fund's  portfolio that is
     described as the adjustable rate portion under  "Investment  Objectives and
     Principal  Investment   Strategies  -  Principal  Investment  Strategies  -
     Adjustable  Rate  Securities"  above  is the  responsibility  of a team  of
     portfolio  management  professionals  from the Advisor's  Customized  Fixed
     Income  team.  Together  the team  managed  more than $15 billion in assets
     under management as of March 31, 2003. The team is led by Lisa Brown Premo,
     who has more than 19 years of investment  experience.  Ms.  Brown Premo has
     been  with the  Advisor  since  1986 and  currently  serves  as a  managing
     director  and senior  portfolio  manager.  She serves as Group  Manager for
     mortgage-backed securities and structured products.

          Day-to-day  management of the portion of the Fund's  portfolio that is
     described  as  the  foreign  debt  securities   portion  under  "Investment
     Objectives  and  Principal  Investment  Strategies  - Principal  Investment
     Strategies - Foreign Debt Securities" above is the responsibility of a team
     of portfolio management  professionals of the Sub-Advisor.  As of March 31,
     2003, the Sub-Advisor  managed  approximately  $8 billion in assets,  which
     includes one of the Evergreen Funds. The team is led by George McNeill, who
     has more than 40 years of investment  experience,  working  exclusively  in
     fixed income markets since 1977. Mr. McNeill joined the Sub-Advisor in 1990
     and currently serves as a managing director.





                                DIVIDENDS AND DISTRIBUTIONS





          The Fund  intends to  distribute  dividends of all or a portion of its
     net investment  income monthly to holders of common shares.  It is expected
     that initial  distributions to common  shareholders will be declared within
     approximately  45 days and that the Fund will commence paying  dividends to
     holders of common shares within  approximately  60 to 90 days from the date
     of this  prospectus.  However,  investments  that,  in the  judgment of the
     Advisor,  are  appropriate  investments for the Fund may not be immediately
     available.  Therefore,  the Fund  expects  that  there  will be an  initial
     investment  period of up to three months  following  the  completion of its
     common shares  offering  before it is fully invested in accordance with its
     investment  objective  and  policies.  Pending  such  investment,  the Fund
     anticipates  that all or a portion  of the  proceeds  will be  invested  in
     typically   lower-yielding  U.S.  government   securities  or  high  grade,
     short-term money market instruments.

          Dividends and  distributions  may be payable in cash or common shares,
     with the  option to  receive  cash in lieu of the  shares.  The Fund may at
     times  in its  discretion  pay out  less  than  the  entire  amount  of net
     investment  income earned in any particular period and may at times pay out
     such accumulated  undistributed income in addition to net investment income
     earned in other  periods  in order to permit  the Fund to  maintain  a more
     stable level of distributions.  As a result,  the dividend paid by the Fund
     to holders of common shares for any  particular  period may be more or less
     than the amount of net  investment  income  earned by the Fund  during such
     period.   The  Fund  is  not   required  to  maintain  a  stable  level  of
     distributions  to  shareholders.  For  federal  tax  purposes,  the Fund is
     required to distribute  substantially  all of its net investment income for
     each year. All net realized  capital gains,  if any, will be distributed to
     the Fund's  shareholders at least annually.  While the Fund will attempt to
     maintain a stable level of  distributions,  the Fund will still comply with
     Subchapter M of the Code. The Fund intends to seek an exemptive  order from
     the Commission  that would allow it to distribute  capital gains monthly to
     further  allow  it  to  maintain  a  stable  level  of   distributions   to
     shareholders.


          Under the 1940 Act, the Fund is not  permitted  to incur  indebtedness
     unless  immediately after such incurrence the Fund has an asset coverage of
     at  least  300%  of  the  aggregate   outstanding   principal   balance  of
     indebtedness.  Additionally,  under the 1940 Act,  the Fund may not declare
     any dividend or other distribution upon any class of its capital shares, or
     purchase any such capital shares, unless the aggregate  indebtedness of the
     Fund  has,  at  the  time  of  the  declaration  of any  such  dividend  or
     distribution  or at the time of any such purchase,  an asset coverage of at
     least 300% after  deducting the amount of such dividend,  distribution,  or
     purchase price, as the case may be.

          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 preferred dividends 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 the outstanding preferred shares (expected
     to be equal to the original  purchase price per share plus any  accumulated
     and unpaid dividends thereon).

          In  addition  to the  limitations  imposed  by the 1940 Act  described
     above, certain lenders may impose additional restrictions on the payment of
     dividends or  distributions  on the common shares in the event of a default
     on the Fund's  borrowings.  If the Fund's ability to make  distributions on
     its  common  shares  is  limited,   such  limitation  could  under  certain
     circumstances  impair the ability of the Fund to maintain its qualification
     for taxation as a regulated  investment  company,  which would have adverse
     tax consequences for shareholders.  See "Leverage" and "U.S. Federal Income
     Tax Matters."

          See "Automatic Dividend Reinvestment Plan" for information  concerning
     the manner in which dividends and distributions to common  shareholders may
     be automatically  reinvested in common shares.  Dividends and distributions
     may be taxable to shareholders whether they are reinvested in shares of the
     Fund or received in cash.

          The yield on the Fund's  common shares will vary from period to period
     depending on factors including, but not limited to, market conditions,  the
     timing of the Fund's  investment in portfolio  securities,  the  securities
     comprising  the Fund's  portfolio,  changes  in  interest  rates  including
     changes in the relationship  between  short-term rates and long-term rates,
     the amount and timing of the use of  borrowings  and other  leverage by the
     Fund,  the effects of leverage on the common shares  discussed  above under
     "Leverage," the timing of the investment of leverage  proceeds in portfolio
     securities, the Fund's net assets and its operating expenses. Consequently,
     the Fund cannot  guarantee any particular yield on its shares and the yield
     for any  given  period is not an  indication  or  representation  of future
     yields on the Fund's shares.




                         AUTOMATIC DIVIDEND REINVESTMENT PLAN





          Pursuant to the Fund's Plan,  unless a  shareholder  is  ineligible or
     elects  otherwise,  all cash dividends and capital gains  distributions are
     automatically  reinvested  EquiServe  Trust  Company,  N.A.,  as agent  for
     shareholders in administering the Plan ("Plan Agent"), in additional common
     shares of the Fund. In the event a dividend or capital  gains  distribution
     is  declared  in shares  with the  option to take cash and the  shares  are
     trading at a "market  discount," as described below, the Plan provides that
     its  distribution  will be taken in cash and reinvested in accordance  with
     the Plan.  Shareholders  who are ineligible or who elect not to participate
     in the Plan will receive all  dividends and  distributions  payable in cash
     paid by check  mailed  directly  to the  shareholder  of record (or, if the
     shares are held in street or other nominee  name,  then to such nominee) by
     EquiServe Trust Company,  N.A., as dividend paying agent. Such shareholders
     may elect not to participate  in the Plan and to receive all  distributions
     of dividends and capital gains in cash by sending  written  instructions to
     EquiServe Trust Company, N.A., as dividend paying agent, at the address set
     forth below.  Participation in the Plan is completely  voluntary and may be
     terminated  or resumed  at any time  without  penalty by written  notice if
     received  by the Plan  Agent not less than ten days  prior to any  dividend
     record date; otherwise,  such termination will be effective with respect to
     any subsequently declared dividend or capital gains distribution.


          Whenever the Fund  declares an ordinary  income  dividend or a capital
     gain dividend  (collectively  referred to as "dividends") payable either in
     shares or in cash,  non-participants  in the Plan will  receive  cash,  and
     participants  in the Plan will receive the  equivalent  in shares of common
     shares.  The shares are  acquired  by the Plan Agent for the  participant's
     account,  depending  upon the  circumstances  described  below,  either (i)
     through  receipt of additional  unissued but authorized  common shares from
     the Fund ("newly issued shares") or (ii) by purchase of outstanding  common
     shares on the open market  (open-market  purchases)  on the American  Stock
     Exchange  or  elsewhere.  If,  on the  payment  date  for any  dividend  or
     distribution,  the net asset value per share of the common  shares is equal
     to or less than the market price per common share plus estimated  brokerage
     commissions (such condition being referred to herein as "market  premium"),
     the Plan Agent will invest the amount of such dividend or  distribution  in
     newly  issued  shares  on behalf of the  participant.  The  number of newly
     issued  common shares to be credited to the  participant's  account will be
     determined  by dividing the dollar  amount of the dividend by the net asset
     value  per  share on the date the  shares  are  issued,  provided  that the
     maximum  discount from the then current  market price per share on the date
     of  issuance  may not exceed 5%. If on the  dividend  payment  date the net
     asset value per share is greater  than the market  value or market  premium
     (such  condition being referred to herein as "market  discount"),  the Plan
     Agent will invest the dividend  amount in shares  acquired on behalf of the
     participant  in  open-market  purchases.  Prior to the time  common  shares
     commence  trading on the American Stock Exchange,  participants in the Plan
     will receive any dividends in newly issued shares.

          In the event of a market discount on the payment date for any dividend
     or distribution,  the Plan Agent has until the last business day before the
     next  date on which the  shares  trade on an  "ex-dividend"  basis or in no
     event  more than 30 days after the  dividend  payment  date (last  purchase
     date) to invest  the  dividend  amount in shares  acquired  in  open-market
     purchases.  It is  contemplated  that the  Fund  will  pay  monthly  income
     dividends.  Therefore, the period during which open-market purchases can be
     made will exist only from the record date of the dividend  through the date
     before the next ex-dividend date, which typically will be approximately ten
     days.  If, before the Plan Agent has completed its  open-market  purchases,
     the market price of a common  share  exceeds the net asset value per share,
     the average per share  purchase price paid by the Plan Agent may exceed the
     net asset value of the Fund's shares, resulting in the acquisition of fewer
     shares than if the  dividend  had been paid in newly  issued  shares on the
     dividend record date.  Because of the foregoing  difficulty with respect to
     open-market  purchases,  the Plan provides that if the Plan Agent is unable
     to invest the full  dividend  amount in  open-market  purchases  during the
     purchase period or if the market discount shifts to a market premium during
     the purchase period, the Plan Agent may cease making open-market  purchases
     and may  invest the  uninvested  portion  of the  dividend  amount in newly
     issued shares at the close of business on the last  purchase  date. In that
     case,  the  number of newly  issued  common  shares to be  credited  to the
     participant's  account will be  determined by dividing the dollar amount of
     the  dividend  by the net asset  value per share on the date the shares are
     issued,  provided that the maximum  discount  from the then current  market
     price per share on the date of issuance may not exceed 5%.

          The Plan Agent  maintains all  shareholders'  accounts in the Plan and
     furnishes  written   confirmation  of  all  transactions  in  the  account,
     including  information  needed by  shareholders  for tax records.  Dividend
     reinvestment  is  confirmed  quarterly.  Shares in the account of each Plan
     participant will be held by the Plan Agent in non-certificated  form in the
     name of the participant,  and each  shareholder's  proxy will include those
     shares  purchased  or received  pursuant  to the Plan.  The Plan Agent will
     forward all proxy  solicitation  materials to participants and vote proxies
     for shares held pursuant to the Plan in accordance with the instructions of
     the participants.

          In the case of shareholders  such as banks,  brokers or nominees which
     hold shares for others who are the beneficial  owners,  the Plan Agent will
     administer  the Plan on the basis of the  number of shares  certified  from
     time to time by the record  shareholders as  representing  the total amount
     registered  in the record  shareholder's  name and held for the  account of
     beneficial owners who are to participate in the Plan.

          There will be no  brokerage  charges  with  respect  to shares  issued
     directly  by  the  Fund  as  a  result  of  dividends   or  capital   gains
     distributions   payable  either  in  shares  or  in  cash.  However,   each
     participant  will pay a pro rata share of  brokerage  commissions  incurred
     with respect to the Plan Agent's  open-market  purchases in connection with
     the reinvestment of dividends.

          The automatic  reinvestment  of dividends and  distributions  will not
     relieve participants of any federal,  state or local income tax that may be
     payable (or required to be withheld) on such dividends.  See "U.S.  Federal
     Income Tax Matters."

          Shareholders  participating  in the  Plan  may  receive  benefits  not
     available to  shareholders  not  participating  in the Plan.  If the market
     price plus  commissions  of the Fund's  shares is higher than the net asset
     value,  participants  in the Plan will  receive  shares of the Fund at less
     than they could  otherwise  purchase  them and will have shares with a cash
     value  greater  than the value of any cash  distribution  they  would  have
     received on their shares. If the market price plus commissions is below the
     net asset value,  participants  receive  distributions of shares with a net
     asset value greater than the value of any cash distribution they would have
     received  on  their  shares.  However,  there  may be  insufficient  shares
     available in the market to make distributions in shares at prices below the
     net asset value. Also, since the Fund does not redeem its shares, the price
     on resale may be more or less than the net asset value.

          Experience  under the Plan may indicate  that  changes are  desirable.
     Accordingly,  the Fund  reserves the right to amend or terminate  the Plan.
     There is no direct service charge to participants in the Plan; however, the
     Fund  reserves  the  right to amend the Plan to  include  a service  charge
     payable by the participants.


          All correspondence  concerning the Plan should be directed to the Plan
     Agent at P.O. Box 43010, Providence, Rhode Island 02940-3010.





                             CLOSED-END FUND STRUCTURE




          The  Fund is a newly  organized,  diversified,  closed-end  management
     investment company (commonly referred to as a closed-end fund).  Closed-end
     funds differ from open-end funds (which are generally referred to as mutual
     funds) in that closed-end  funds generally list their shares for trading on
     a stock  exchange  and do not  redeem  their  shares at the  request of the
     shareholder.  This  means  that  if you  wish  to  sell  your  shares  of a
     closed-end  fund you must trade them on the market  like any other stock at
     the  prevailing  market  price  at that  time.  In a  mutual  fund,  if the
     shareholder  wishes to sell shares of the fund, the mutual fund will redeem
     or buy back the shares at "net asset value." Also,  mutual funds  generally
     offer new shares on a continuous  basis to new  investors,  and  closed-end
     funds generally do not. The continuous  inflows and outflows of assets in a
     mutual  fund can make it  difficult  to manage the fund's  investments.  By
     comparison, closed-end funds are generally able to stay more fully invested
     in securities that are consistent with their investment objectives and also
     have greater  flexibility to make certain types of  investments  and to use
     certain investment  strategies,  such as financial leverage and investments
     in illiquid  securities  (although the Advisor does not currently intend to
     invest in illiquid securities).

          Shares of closed-end funds frequently trade at a discount to their net
     asset value. Common shares of closed-end  investment  companies have in the
     past during some periods traded at prices higher than their net asset value
     (at a "premium") and during other periods traded at prices lower than their
     net asset value (at a "discount"). This is in part because the market price
     reflects the dividend yield on the common shares. When the yield on the net
     asset  value per share is higher  than yields  generally  available  in the
     market for  comparable  securities,  the market  price will tend to reflect
     this by  trading  higher  than the net asset  value per share to adjust the
     yield to a comparable market rate. To the extent the common shares do trade
     at a discount,  the Fund's Board of Trustees  may, but is not obligated to,
     from time to time cause the Fund to engage in  open-market  repurchases  or
     tender offers for shares after balancing the benefit to shareholders of the
     increase in the net asset  value per share  resulting  from such  purchases
     against the  decrease in the assets of the Fund and  potential  increase in
     the  expense  ratio of  expenses  to  assets  of the  Fund  and  consequent
     reduction in yield. The Board of Trustees  believes that in addition to the
     potential  beneficial effects described above, any such purchases or tender
     offers may result in the  temporary  narrowing of any discount but will not
     have any long-term effect on the level of any discount.




                                 U.S. FEDERAL INCOME TAX MATTERS




          The following is a summary  discussion of certain U.S.  federal income
     tax  consequences  that may be  relevant  to a  shareholder  of  acquiring,
     holding and disposing of common shares of the Fund.  This  discussion  only
     addresses U.S.  federal income tax  consequences to U.S.  shareholders  who
     hold their  shares as capital  assets and does not  address all of the U.S.
     federal  income  tax  consequences  that  may  be  relevant  to  particular
     shareholders in light of their  individual  circumstances.  This discussion
     also does not address the tax  consequences to shareholders who are subject
     to special rules,  including,  without limitation,  financial institutions,
     insurance companies,  dealers in securities or foreign currencies,  foreign
     holders,  persons who hold their shares as or in a hedge  against  currency
     risk, a  constructive  sale,  or  conversion  transaction,  holders who are
     subject to the  alternative  minimum  tax, or  tax-exempt  or  tax-deferred
     plans,  accounts, or entities. In addition, the discussion does not address
     any state, local, or foreign tax consequences,  and it does not address any
     federal tax consequences  other than U.S. federal income tax  consequences.
     The discussion  reflects applicable tax laws of the United States as of the
     date of this  prospectus,  which tax laws may be  changed or subject to new
     interpretations  by the  courts or the  Internal  Revenue  Service  ("IRS")
     retroactively  or  prospectively.  No attempt is made to present a detailed
     explanation of all U.S. federal income tax concerns  affecting the Fund and
     its  shareholders,  and the discussion set forth herein does not constitute
     tax  advice.  Investors  are urged to  consult  their own tax  advisers  to
     determine the specific tax  consequences  to them of investing in the Fund,
     including the applicable federal, state, local and foreign tax consequences
     to them and the effect of possible changes in tax laws.

          The Fund  intends to elect to be treated and to qualify each year as a
     "regulated investment company" under Subchapter M of the Code and to comply
     with applicable distribution requirements so that it generally will not pay
     U.S.  federal  income  tax on  income  and  capital  gains  distributed  to
     shareholders.  In order to qualify as a regulated investment company, which
     the  following  discussion  assumes,  the Fund must satisfy  certain  tests
     regarding the nature of its income and the  diversification  of its assets.
     If the Fund  qualifies  as a regulated  investment  company  and,  for each
     taxable  year, it  distributes  to its  shareholders  an amount equal to or
     exceeding the sum of (i) 90% of its "investment  company taxable income" as
     that term is defined  in the Code  (which  includes,  among  other  things,
     dividends,  taxable interest,  and the excess of any net short-term capital
     gains over net long-term capital losses,  as reduced by certain  deductible
     expenses)  without  regard to the deduction for dividends paid and (ii) 90%
     of the  excess of its  gross  tax-exempt  interest,  if any,  over  certain
     disallowed deductions,  the Fund generally will be relieved of U.S. federal
     income tax on any income of the Fund,  including  long-term  capital gains,
     distributed to  shareholders.  However,  if the Fund retains any investment
     company  taxable  income or "net capital gain" (the excess of net long-term
     capital  gain over net  short-term  capital  loss),  it  generally  will be
     subject to U.S. federal income tax at regular corporate rates on the amount
     retained.  The  Fund  intends  to  distribute  at  least  annually  all  or
     substantially all of its investment  company taxable income, net tax-exempt
     interest,  and net capital  gain.  If for any taxable year the Fund did not
     qualify  as a  regulated  investment  company,  it  would be  treated  as a
     corporation subject to U.S. federal income tax.

          Unless a shareholder is ineligible to participate or elects otherwise,
     cash  distributions  will be automatically  reinvested in additional common
     shares  of the Fund  pursuant  to the Plan.  For U.S.  federal  income  tax
     purposes,  assuming the Fund has sufficient current or accumulated earnings
     and profits, such distributions generally are taxable whether a shareholder
     takes them in cash or shares or they are reinvested pursuant to the Plan in
     additional  shares of the  Fund.  In  general,  dividends  from  investment
     company  taxable  income are taxable as  ordinary  income,  and  designated
     dividends  from net capital gain, if any, are taxable as long-term  capital
     gains for U.S.  federal income tax purposes without regard to the length of
     time the shareholder  has held shares of the Fund. The U.S.  federal income
     tax status of all distributions will be reported to shareholders annually.

          If the Fund retains any net capital  gain,  the Fund may designate the
     retained amount as undistributed  capital gains in a notice to shareholders
     who, if subject to U.S. federal income tax on long-term  capital gains, (i)
     will be required to include in income for U.S. federal income tax purposes,
     as long-term capital gain, their proportionate shares of such undistributed
     amount, (ii) will be entitled to credit their  proportionate  shares of the
     tax paid by the Fund on the undistributed amount against their U.S. federal
     income  tax  liabilities,  if any,  and to claim  refunds to the extent the
     credit exceeds such liabilities, and (iii) will be entitled to increase the
     tax basis of their shares by the  difference  between  their  proportionate
     shares of such includible gains and their  proportionate  shares of the tax
     deemed paid.

          Sales  and other  dispositions  of the  Fund's  shares  generally  are
     taxable  events for  shareholders  that are  subject  to tax.  Shareholders
     should  consult their own tax advisers with  reference to their  individual
     circumstances to determine whether any particular transaction in the Fund's
     shares is properly  treated as a sale for tax  purposes,  as the  following
     discussion assumes, and the tax treatment of any gains or losses recognized
     in such  transactions.  In  general,  if shares  of the Fund are sold,  the
     shareholder will recognize gain or loss equal to the difference between the
     amount  realized on the sale and the  shareholder's  adjusted  basis in the
     shares.  Such gain or loss  generally  will be treated as long-term gain or
     loss if the shares were held for more than one year and otherwise generally
     will be  treated  as  short-term  gain or loss.  Any loss  recognized  by a
     shareholder upon the sale or other disposition of shares with a tax holding
     period of six  months or less  generally  will be  treated  as a  long-term
     capital  loss to the  extent of any  amounts  treated as  distributions  of
     long-term  capital  gain with  respect to such  shares.  Losses on sales or
     other  dispositions of shares may be disallowed  under "wash sale" rules in
     the event of other  investments in the Fund (including  those made pursuant
     to reinvestment of dividends and/or capital gains  distributions)  within a
     period of 61 days  beginning 30 days before and ending 30 days after a sale
     or other disposition of shares.

          Federal law requires that the Fund withhold (as "backup  withholding")
     at a rate of 30% for 2003 on reportable  payments,  including dividends and
     capital  gain  distributions  paid to  certain  shareholders  who  have not
     complied  with  IRS  regulations.   In  order  to  avoid  this  withholding
     requirement, shareholders must certify on their Account Applications, or on
     separate IRS Form W-9, that the Social  Security  Number or other  Taxpayer
     Identification  Number they provide is their  correct  number and that they
     are not currently  subject to backup  withholding,  or that they are exempt
     from backup withholding.  The Fund may nevertheless be required to withhold
     if it receives notice from the IRS that the number provided is incorrect or
     backup withholding is applicable as a result of previous  underreporting of
     income.  Similar  backup  withholding  rules may  apply to a  shareholder's
     broker with respect to the proceeds of sales or other  dispositions  of the
     Fund's shares by such shareholder.  Backup withholding is not an additional
     tax.  Any amounts  withheld  from  payments  made to a  shareholder  may be
     refunded or credited  against such  shareholder's  U.S.  federal income tax
     liability,  if any,  provided that the required  information is provided to
     the IRS.


          The Bush  Administration has announced a proposal to eliminate the tax
     on the  receipt of certain  dividends.  In  addition,  several  alternative
     proposals  regarding  the taxation of dividends and capital gains are being
     considered by Congress.  However, these proposals may be changed or may not
     be adopted by  Congress.  Accordingly,  it is not  possible to evaluate how
     this proposal might affect the tax discussion above.


          The foregoing is a general and  abbreviated  summary of the provisions
     of the Code and the Treasury regulations in effect as they generally affect
     the  taxation  of the Fund and its  shareholders.  As  noted  above,  these
     provisions are subject to change by legislative, judicial or administrative
     action, and any such change may be retroactive. A further discussion of the
     U.S.  federal  income tax rules  applicable to the Fund can be found in the
     Statement of Additional Information which is incorporated by reference into
     this  prospectus.  Shareholders  are urged to  consult  their tax  advisers
     regarding specific questions as to U.S. federal,  foreign, state, and local
     income or other taxes.


                                  NET ASSET VALUE




          The Fund  calculates a net asset value for its common shares every day
     the New York Stock Exchange is open when regular  trading closes  (normally
     4:00 p.m. Eastern time). For purposes of determining the net asset value of
     a common share,  the value of the securities held by the Fund plus any cash
     or other assets (including interest accrued but not yet received) minus all
     liabilities (including accrued expenses and indebtedness) and the aggregate
     liquidation  value of any  outstanding  preferred  shares is divided by the
     total number of common shares outstanding at such time. Expenses, including
     the fees  payable to the Advisor,  are accrued  daily.  Currently,  the net
     asset values of shares of publicly traded closed-end  investment  companies
     investing in debt securities are published in Barron's,  the Monday edition
     of The Wall Street Journal and the Monday and Saturday  editions of The New
     York Times.

          The Fund  generally  values its  portfolio  securities  using  closing
     market prices or readily  available market  quotations.  The Fund may use a
     pricing  service  or a pricing  matrix to value  some of its  assets.  When
     closing  market  prices  or  market  quotations  are not  available  or are
     considered by the Advisor to be  unreliable,  the Fund may use a security's
     fair value.  Fair value is the  valuation of a security  determined  on the
     basis of factors  other than market  value in  accordance  with  procedures
     approved by the Fund's Trustees.  The Fund also may use the fair value of a
     security,  including a non-U.S.  security, when the Advisor determines that
     the closing  market  price on the primary  exchange  where the  security is
     traded no longer  accurately  reflects  the  value of the  security  due to
     factors affecting one or more relevant  securities  markets or the specific
     issuer.  The use of fair value  pricing by the Fund may cause the net asset
     value of its  shares  to  differ  from the net asset  value  that  would be
     calculated using closing market prices.  International  securities  markets
     may be open on days when the U.S. markets are closed.  For this reason, the
     value of any  international  securities owned by the Fund could change on a
     day you cannot buy or sell shares of the Fund.

          Debt  securities  with  remaining  maturities  of 60 days or less  are
     valued at amortized cost, which is a method of estimating market value. The
     value of interest  rate swaps,  caps and floors is determined in accordance
     with  a  formula  and  then  confirmed  periodically  by  obtaining  a bank
     quotation.  Positions  in options  are valued at the last sale price on the
     market where any such option is  principally  traded.  Positions in futures
     contracts are valued at closing  prices for such  contracts  established by
     the exchange on which they are traded.  Repurchase agreements are valued at
     cost plus accrued interest.





                                DESCRIPTION OF SHARES


          The Fund is authorized to issue an unlimited  number of common shares,
     without par value.  The Fund is also authorized to issue preferred  shares.
     After the  completion  of this  offering,  the Fund  will only have  common
     shares  outstanding.  The Board of Trustees is  authorized  to classify and
     reclassify any issued shares into one or more additional  classes or series
     of shares.  The Board of Trustees may establish,  designate and change such
     series or class,  including  preferred shares, from time to time by setting
     or changing in any one or more  respects the  preferences,  voting  powers,
     rights, duties and business purpose of such shares and to divide or combine
     the  shares of any series or class  into a greater  or lesser  number.  See
     "Leverage." The Fund may issue preferred shares.

Common Shares

          Common  shares,  when issued and  outstanding,  will be fully paid and
     non-assessable.  Shareholders  are  entitled  to share  pro rata in the net
     assets of the Fund available for distribution to common  shareholders  upon
     liquidation of the Fund.  Common  shareholders are entitled to one vote for
     each share held.

          In the event that the Fund issues  preferred shares and so long as any
     shares of the Fund's preferred  shares are  outstanding,  holders of common
     shares  will  not be  entitled  to  receive  any  net  income  of or  other
     distributions  from the Fund unless all accumulated  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 "Leverage."

          The Fund will send unaudited reports at least semiannually and audited
     annual financial statements to all of its shareholders.


          As of May 16, 2003, Evergreen Financing Company,  LLC, an affiliate of
     the Advisor,  provided the initial capital for the Fund by purchasing 5,000
     shares of common  shares of the Fund for  $100,000.  As of the date of this
     prospectus,  Evergreen Financing Company, LLC owned 100% of the outstanding
     common shares.  Evergreen  Financing Company,  LLC may be deemed to control
     the Fund until such time as it owns less than 25% of the outstanding shares
     of the Fund, that is, until the public offering of the shares is completed.


Preferred Shares

          The Fund in the future may elect to issue preferred  shares as part of
     its leverage  strategy.  The Board of Trustees  reserves the right to issue
     preferred  shares to the extent  permitted by the 1940 Act, which currently
     limits the aggregate  liquidation  preference of all outstanding  preferred
     shares to 50% of the  value of the  Fund's  total  assets  less the  Fund's
     liabilities and  indebtedness.  Although the terms of any preferred shares,
     including dividend rate,  liquidation preference and redemption provisions,
     will be determined by the Board of Trustees,  subject to applicable law and
     the Agreement  and  Declaration  of Trust,  it is likely that the preferred
     shares will be  structured to carry a relatively  short-term  dividend rate
     reflecting interest rates on short-term bonds by providing for the periodic
     redetermination  of the dividend rate at relatively short intervals through
     an auction,  remarketing or other procedure. The Fund also believes that it
     is likely that the  liquidation  preference,  voting rights and  redemption
     provisions of the preferred shares will be similar to those stated below.

          In the event of any voluntary or involuntary liquidation,  dissolution
     or winding up of the Fund, the holders of preferred shares will be entitled
     to receive a preferential  liquidating  distribution,  which is expected to
     equal the  original  purchase  price per  preferred  share plus accrued and
     unpaid  dividends,  whether or not  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,  the
     holders  of   preferred   shares  will  not  be  entitled  to  any  further
     participation in any distribution of assets by the Fund.

          The 1940 Act requires that the holders of any preferred shares, voting
     separately as a single class, have the right to elect at least two Trustees
     at all times.  The remaining  Trustees will be elected by holders of common
     shares  and  preferred  shares,  voting  together  as a  single  class.  In
     addition,  subject to the prior rights, if any, of the holders of any other
     class of senior securities outstanding, the holders of any preferred shares
     have the right to elect a majority  of the  Trustees at any time two years'
     dividends on any  preferred  shares are unpaid.  The 1940 Act also requires
     that, in addition to any approval by  shareholders  that might otherwise be
     required,  the  approval of the  holders of a majority  of any  outstanding
     preferred shares,  voting  separately as a class,  would be required to (1)
     adopt any plan of reorganization  that would adversely affect the preferred
     shares,  and (2) take 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  subclassification as a closed-end investment company or changes
     in its fundamental investment restrictions.  See "Certain Provisions in the
     Agreement  and  Declaration  of Trust  and  By-Laws."  As a result of these
     voting  rights,  the Fund's ability to take any such actions may be impeded
     to the extent that there are any preferred shares outstanding. The Board of
     Trustees  presently  intends  that,  except as otherwise  indicated in this
     prospectus and except as otherwise  required by applicable law,  holders of
     preferred  shares  will have equal  voting  rights  with  holders of common
     shares (one vote per share,  unless otherwise required by the 1940 Act) and
     will vote together with holders of common shares as a single class.

          The  affirmative  vote of the holders of a majority of the outstanding
     preferred  shares,  voting as a separate class,  will be required to amend,
     alter or repeal  any of the  preferences,  rights or powers of  holders  of
     preferred shares so as to affect materially and adversely such preferences,
     rights or powers,  or to  increase  or decrease  the  authorized  number of
     preferred  shares.  The class vote of holders of preferred shares described
     above  will in each case be in  addition  to any  other  vote  required  to
     authorize the action in question.

          The terms of the  preferred  shares are  expected to provide  that (i)
     they  are  redeemable  by the  Fund in  whole  or in  part at the  original
     purchase  price per share plus accrued  dividends per share,  (ii) the Fund
     may  tender  for or  purchase  preferred  shares,  and  (iii)  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 the  common  shares,  while any resale of shares by the Fund
     will increase that leverage.

          The  discussion  above  describes  the possible  offering of preferred
     shares by the Fund.  If the Board of Trustees  determines  to proceed  with
     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 Agreement and Declaration of Trust. The Board of Trustees,  without the
     approval  of the holders of common  shares,  may  authorize  an offering of
     preferred  shares or may determine not to authorize  such an offering,  and
     may fix the terms of the preferred shares to be offered.




       CERTAIN PROVISIONS OF THE AGREEMENT AND DECLARATION OF TRUST AND BY-LAWS




          The Fund's Agreement and Declaration of Trust 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 an
     opportunity to sell their shares at a premium over prevailing market prices
     by discouraging a third party from seeking to obtain control of the Fund.

          The Board of Trustees is divided into three  classes of  approximately
     equal  size.  The  terms  of the  Trustees  of the  different  classes  are
     staggered  so that  approximately  one-third  of the Board of  Trustees  is
     elected by shareholders each year.

          A Trustee  may be  removed  from  office  with or  without  cause by a
     majority of  Trustees if such  removal is approved by a vote of the holders
     of at least 75% of the shares entitled to be voted on the matter.

          In addition,  the  Agreement  and  Declaration  of Trust  requires the
     favorable  vote of the  holders  of at least  75% of the  Fund's  shares to
     approve, adopt or authorize the following:

     o a merger or  consolidation  or statutory  share exchange of the Fund with
     any other corporations;

     o a sale of all or  substantially  all of the Fund's  assets (other than in
     the regular course of the Fund's investment activities); or

     o a liquidation or dissolution of the Fund

     unless  such  action  has  been  approved,  adopted  or  authorized  by the
     affirmative  vote of at least 75% of the total number of Trustees  fixed in
     accordance  with the  by-laws,  in which  case  the  affirmative  vote of a
     majority  of the Fund's  shares is  required.  Following  any  issuance  of
     preferred shares by the Fund, it is anticipated that the approval, adoption
     or  authorization of the foregoing also would require the favorable vote of
     a majority of the Fund's  shares of  preferred  shares then  entitled to be
     voted, voting as a separate class.

          In addition,  conversion of the Fund to an open-end investment company
     would  require an  amendment to the Fund's  Agreement  and  Declaration  of
     Trust.  The amendment  would have to be declared  advisable by the Board of
     Trustees prior to its submission to  shareholders.  Such an amendment would
     require  the  favorable  vote of the  holders of at least 75% of the Fund's
     outstanding shares (including any preferred shares) entitled to be voted on
     the matter,  voting as a single  class (or a majority of such shares if the
     amendment  was  previously  approved,  adopted or  authorized by 75% of the
     total number of Trustees fixed in accordance with the by-laws). Such a vote
     also would satisfy a separate  requirement  in the 1940 Act that the change
     be approved by the  shareholders.  Shareholders  of an open-end  investment
     company may require the company to redeem  their  shares of common stock at
     any time (except in certain  circumstances  as  authorized  by or under the
     1940 Act) at their net asset value, less such redemption charge, if any, as
     might be in effect at the time of a  redemption.  All  redemptions  will be
     made in cash. If the Fund is converted to an open-end  investment  company,
     it could be required to liquidate portfolio securities to meet requests for
     redemption, and the common shares would no longer be listed on the American
     Stock Exchange.

          Conversion  to an  open-end  investment  company  would  also  require
     changes in certain of the Fund's investment policies and restrictions, such
     as those relating to the borrowing of money.

          In addition,  the  Agreement  and  Declaration  of Trust  requires the
     favorable vote of a majority of the Trustees followed by the favorable vote
     of the holders of at least 75% of the  outstanding  shares of each affected
     class or series of the Fund,  voting  separately  as a class or series,  to
     approve, adopt or authorize certain transactions with 5% or greater holders
     of a class or series of shares and their associates, unless the transaction
     has  been  approved  by at least  75% of the  Trustees,  in  which  case "a
     majority of the outstanding voting securities" (as defined in the 1940 Act)
     of the Fund shall be required.  For purposes of these  provisions,  a 5% or
     greater  holder of a class or series of shares (a "Principal  Shareholder")
     refers to any person who,  whether directly or indirectly and whether alone
     or together with its affiliates  and  associates,  beneficially  owns 5% or
     more of the  outstanding  shares  of any  class  or  series  of  shares  of
     beneficial  interest  of the Fund.  The 5% holder  transactions  subject to
     these special approval requirements are:

     o the merger or  consolidation  of the Fund or any  subsidiary  of the Fund
     with or into any Principal Shareholder;

     o the issuance of any  securities of the Fund to any Principal  Shareholder
     for cash;

     o the sale,  lease or exchange of all or any substantial part of the assets
     of the Fund to any Principal Shareholder, except assets having an aggregate
     fair market value of less than  $1,000,000,  aggregating for the purpose of
     such  computation  all assets  sold,  leased or  exchanged in any series of
     similar transactions within a 12-month period; or

     o the sale, lease or exchange to the Fund or any subsidiary of the Fund, in
     exchange  for  securities  of the  Fund,  of any  assets  of any  Principal
     Shareholder,  except assets  having an aggregate  fair market value of less
     than  $1,000,000,  aggregating for purposes of such  computation all assets
     sold,  leased or exchanged in any series of similar  transactions  within a
     12-month period.

          The Agreement and  Declaration  of Trust and By-laws  provide that the
     Board of Trustees  has the power,  to the extent the By-Laws do not reserve
     the right to the shareholders, to make, alter or repeal any of the By-laws,
     subject to the  requirements of applicable  law.  Neither this provision of
     the Agreement and Declaration of Trust, nor any of the foregoing provisions
     thereof requiring the affirmative vote of 75% of outstanding  shares of the
     Fund, can be amended or repealed except by the vote of such required number
     of shares.

          The Fund's By-laws  generally  require that advance notice be given to
     the Fund in the  event a  shareholder  desires  to  nominate  a person  for
     election to the Board of Trustees or to transact  any other  business at an
     annual meeting of shareholders. With respect to an annual meeting following
     the first annual meeting of shareholders,  notice of any such nomination or
     business  must be  delivered  to or  received  at the  principal  executive
     offices  of the Fund  not  less  than 90  calendar  days nor more  than 120
     calendar  days prior to the  anniversary  date of the prior  year's  annual
     meeting  (subject to certain  exceptions).  In the case of the first annual
     meeting of  shareholders,  the notice must be given no later than the tenth
     calendar day following public disclosure as specified in the by-laws of the
     date of the meeting.  Any notice by a shareholder  must be  accompanied  by
     certain information as provided in the By-laws.



<PAGE>






                                UNDERWRITING




          Subject to the terms and  conditions of a purchase  agreement  dated ,
     2003, each underwriter  named below has severally  agreed to purchase,  and
     the Fund has  agreed  to sell to such  underwriters,  the  number of common
     shares set forth opposite the name of such underwriter.

<TABLE>
<CAPTION>


<S>              <C>                                                          <C>
                                                                                Number
                 Underwriter                                                   of Shares

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


                 Merrill Lynch, Pierce, Fenner & Smith
======================================================
                 Incorporated........................................
=====================================================================

                 Wachovia Securities, Inc............................
=====================================================================

                 A.G. Edwards & Sons, Inc............................
====================================================================

                 Prudential Securities Incorporated..................
=====================================================================

                 UBS Warburg LLC.....................................
====================================================================

                 Advest, Inc.........................................
=====================================================================

                 Janney Montgomery Scott LLC.........................
=====================================================================

                 McDonald Investments Inc., a KeyCorp Company........

                 Quick & Reilly, Inc. ...............................
=====================================================================

                 Stifel, Nicolaus & Company,
                      Incorporated...................................
=====================================================================


                                                                        -       ----------
                        Total........................................   _
                                                                        =       ==========
</TABLE>

          The  purchase   agreement   provides  that  the   obligations  of  the
     underwriters  to purchase the shares  included in this offering are subject
     to the approval of certain  legal  matters by counsel and to certain  other
     conditions.  The  underwriters  are  obligated  to purchase  all the common
     shares sold under the purchase  agreement  if any of the common  shares are
     purchased. In the purchase agreement,  the Fund and the Advisor have agreed
     to  indemnify  the  underwriters  against  certain  liabilities,  including
     certain  liabilities  arising  under  the  Securities  Act of  1933,  or to
     contribute  payments  the  underwriters  may be required to make for any of
     those liabilities.


     Commissions and Discounts

          The underwriters  propose to initially offer some of the common shares
     directly to the public at the public  offering price set forth on the cover
     page of this prospectus and some of the common shares to certain dealers at
     the public  offering  price less a concession not in excess of $ per share.
     The sales  load the Fund will pay of $.90 per share is equal to 4.5% of the
     initial  offering price.  The  underwriters  may allow, and the dealers may
     reallow, a discount not in excess of $ per share on sales to other dealers.
     After the initial public  offering,  the public offering price,  concession
     and discount may be changed.

          The following table shows the public  offering  price,  sales load and
     proceeds  before  expenses to the Fund. The  information  assumes either no
     exercise  or full  exercise  by the  underwriters  of their over  allotment
     option.



<TABLE>
<CAPTION>

<S>                                                       <C>           <C>                 <C>


                                                          Per Share     Without Option       With Option
                                                           --------       ------------        ----------


     Public offering price...........................      $20.00             $                 $
                                                             =====
     Sales load......................................        $.90             $                 $
                                                               ===
     Estimated offering expenses.....................        $.04             $                 $
                                                               ===
     Proceeds to the Fund............................      $19.06             $                 $
                                                             =====

</TABLE>

          The expenses of the offering are estimated at $ and are payable by the
     Fund. The Fund has agreed to pay the underwriters  $0.0067 per common share
     as a partial  reimbursement  of expenses  incurred in  connection  with the
     offering.  The Advisor has agreed to pay the amount by which the  aggregate
     of all of the Fund's organizational expenses and offering costs (other than
     the sales load) exceeds $.04 per common share.



     Overallotment Option

          The Fund has  granted  the  underwriters  an option to  purchase up to
     additional common shares at the public offering price, less the sales load,
     within  45 days  from  the date of this  prospectus  solely  to  cover  any
     over-allotments.  If the  underwriters  exercise this option,  each will be
     obligated,  subject to conditions  contained in the purchase agreement,  to
     purchase a number of additional shares  proportionate to that underwriter's
     initial amount reflected in the table above.

     Price Stabilization and Short Positions


          Until the  distribution  of the common shares is complete,  Commission
     rules may limit underwriters and selling group members from bidding for and
     purchasing  the Fund's common  shares.  However,  the  representatives  may
     engage in transactions that stabilize the price of the common shares,  such
     as bids or purchases to peg, fix or maintain that price.

          If the  underwriters  create a short  position in the common shares in
     connection  with the  offering,  i.e., if they sell more common shares than
     are listed on the cover of this prospectus,  the representatives may reduce
     that short  position by purchasing  common  shares in the open market.  The
     representatives  may also elect to reduce any short  position by exercising
     all or part of the over-allotment  option described above. The underwriters
     may also  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 shares are  repurchased by the syndicate in stabilizing or covering
     transactions.  Purchases of the common  shares to stabilize the price or to
     reduce a short  position  may cause the  price of the  common  shares to be
     higher than it might be in the absence of such purchases.

          Neither the Fund nor any of the underwriters  makes any representation
     or  prediction  as to the  direction  or  magnitude  of any effect that the
     transactions  described  above may have on the price of common  shares.  In
     addition,   neither  the  Fund  nor  any  of  the  underwriters  makes  any
     representation that the  representatives  will engage in these transactions
     or that  these  transactions,  once  commenced,  will  not be  discontinued
     without notice.


     No Sales of Similar Securities


          The Fund has agreed not to offer or sell any additional  common shares
     for a period of 180 days after the date of the purchase  agreement  without
     the prior written consent of the  underwriters,  except for the sale of the
     common shares to the  underwriters  pursuant to the purchase  agreement and
     certain transactions relating to the Fund's dividend reinvestment plan.

          The Fund  anticipates  that the underwriters may from time to time act
     as brokers or dealers in executing the Fund's portfolio  transactions after
     they  have  ceased  to  be   underwriters.   The  underwriters  are  active
     underwriters  of, and dealers in,  securities and act as market makers in a
     number of such  securities  and,  therefore,  can be  expected to engage in
     portfolio transactions with the Fund.


     Other Relationships

          The  Advisor  has also  agreed to pay a fee to Merrill  Lynch  payable
     quarterly at the annual rate of .15% of the Fund's Total Assets  during the
     continuance  of the management  contract  between the Advisor and the Fund.
     The sum of this fee plus the amount of each fee  payable by the  Advisor to
     certain select underwriters (other than Merrill Lynch), as described in the
     following paragraph,  will not exceed 4.5% of the total price to the public
     of the common shares offered hereby; provided, that in determining when the
     maximum amount has been paid,  the value of each of the quarterly  payments
     shall be  discounted  at the annual rate of 10% to the closing date of this
     offering. Merrill Lynch has agreed to provide certain after-market services
     to the  Advisor  designed  to  maintain  the  visibility  of the Fund on an
     ongoing basis to provide relevant information, studies or reports regarding
     the Fund and the closed-end investment company industry.

          The  Advisor  has  also  agreed  to  pay  a  fee  to  certain   select
     underwriters  (other than  Merrill  Lynch)  that sell common  shares in the
     initial public offering payable quarterly at the annual rate of up to .15%
     of the Fund's Total Assets  corresponding to the common shares sold by such
     underwriter. The Advisor has also agreed, in certain circumstances,  to pay
     a fee to certain select underwriters  (other than Merrill Lynch) that sell
     common  shares in the initial  public  offering  payable  quarterly at the
     annual rate of the greater of .15% of the Fund's Total Assets corresponding
     to the common shares sold by such  underwriter or .05% of the Fund's Total
     Assets. The sum of the amounts of each of these fees plus the amount of the
     fee payable to Merrill Lynch, as described in the preceding paragraph, will
     not  exceed  4.5% of the  aggregate  initial  offering  price of the common
     shares  offered  hereby;  provided,  that in  determining  when the maximum
     amount has been paid the value of each of the quarterly  payments  shall be
     discounted at the annual rate of 10% to the closing date of this  offering.
     Such underwriters have agreed to provide certain  after-market  services to
     the Advisor  designed to maintain the  visibility of the Fund on an ongoing
     basis and to provide relevant information, studies or reports regarding the
     Fund and the closed-end investment company industry.

          The address of Merrill Lynch is 4 World  Financial  Center,  New York,
     New York  10080.  The  address of  Wachovia  Securities  is 401 South Tryon
     Street, Charlotte, North Carolina 28202. The address of A.G. Edwards is One
     North  Jefferson,  St. Louis,  Missouri 63103. The address of Prudential is
     New York Plaza,  15th Floor, New York, New York 10292-2015.  The address of
     UBS Warburg is 299 Park Avenue, 34th Floor, New York, New York 10171.





          CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR





          The Fund's  securities  and cash are held under a custodian  agreement
     with State Street Bank and Trust  Company,  2 Avenue de Lafayette,  Boston,
     Massachusetts 02111.  EquiServe Trust Company,  N.A. is the Fund's transfer
     agent, registrar, shareholder servicing agent and dividend disbursing agent
     for the Fund's shares.  EquiServe Trust Company, N.A.'s address is P.O. Box
     43010, Providence, Rhode Island 02940-3010.





                               VALIDITY OF COMMON SHARES




          Certain legal matters in connection with the shares offered hereby are
     passed  on for the Fund by  Sullivan  &  Worcester  LLP,  Washington,  D.C.
     Certain  matters  have been  passed upon for the  underwriters  by Clifford
     Chance US LLP, New York,  New York.  Sullivan & Worcester  LLP and Clifford
     Chance US LLP may rely as to certain matters of Delaware law on the opinion
     of Richards, Layton & Finger, P.A., Wilmington, Delaware.





<PAGE>

<TABLE>
<CAPTION>



                             TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION

                                                                                                               Page
                                                                                                               ----

<S>                                                                                                            <C>

Fund History..............................................................................................     3
                                                                                                               =
Use of Proceeds...........................................................................................     3
                                                                                                               =
Investment Objective and Policies.........................................................................     3
                                                                                                               =
Investment Restrictions...................................................................................    23
                                                                                                              ==
Management of the Fund....................................................................................    26
                                                                                                              ==
The Advisor, Sub-Advisor, Administrator and Transfer Agent................................................    35
                                                                                                              ==
Portfolio Transactions....................................................................................    40
                                                                                                              ==
Repurchase of Common Shares...............................................................................    41
                                                                                                              ==
U.S. Federal Income Tax Matters...........................................................................    43
                                                                                                              ==
Performance-Related, Comparative and Other Information Experts............................................    50
                                                                                                              ==
Experts...................................................................................................    65
                                                                                                              ==
Additional Information....................................................................................    65
                                                                                                              ==
Financial Statements and Independent Auditors' Report.....................................................    66
                                                                                                              ==
Appendix A--Description of Ratings........................................................................   A-1
                                                                                                             ===


</TABLE>




<PAGE>





                                        Shares


                             Evergreen Managed Income Fund


                                     Common Shares


                                   $20.00 per share

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

                                      PROSPECTUS




                                  Merrill Lynch & Co.
                                 Wachovia Securities
                               A.G. Edwards & Sons, Inc.
                                 Prudential Securities
                                      UBS Warburg
                                     Advest, Inc.
                              Janney Montgomery Scott LLC
                                McDonald Investments Inc.
                                 Quick & Reilly, Inc.
                              Stifel, Nicolaus & Company


                                        , 2003
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
<PAGE>




                             EVERGREEN MANAGED INCOME FUND


                       STATEMENT OF ADDITIONAL INFORMATION



     THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE
AND MAY BE CHANGED. THIS STATEMENT OF ADDITIONAL  INFORMATION IS NOT AN OFFER TO
SELL THESE  SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.


     Evergreen   Managed  Income  Fund  (the  "Fund")  is  a  newly   organized,
diversified,   closed-end  management  investment  company.  This  Statement  of
Additional   Information  relating  to  common  shares  does  not  constitute  a
prospectus,  but  should be read in  conjunction  with the  prospectus  relating
thereto dated , 2003. 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 1-800-730-6001.


     The prospectus and this Statement of Additional Information are part of the
registration  statement  filed with the Securities and Exchange  Commission (the
"Commission"), Washington, D.C., which includes additional information regarding
the Fund. The  registration  statement may be obtained from the Commission  upon
payment of the fee prescribed, inspected at the Commission's office at no charge
or inspected on the Commission's website at http://www.sec.gov.




                                       TABLE OF CONTENTS

<TABLE>
<CAPTION>

<S>     <C>                                                                             <C>


         Fund History...................................................................3

         Use of Proceeds................................................................3

         Investment Objective and Policies..............................................3

         Investment Restrictions................................................ ......23

         Management of the Fund..................................................    ..26

         The Advisor, Administrator and Transfer Agent.................... ............35

         Portfolio Transactions     ..................................... .............40

         Repurchase of Common Shares...................................................41

         U.S. Federal Income Tax Matters................................... ...........43

         Performance-Related, Comparative and Other Information........................50
                                                                                        ==

         Experts.......................................................................65

         Additional Information........................................................65

         Financial Statements and Independent Auditors' Report........................66
                                                                                      ==


         Appendix A--Description of Ratings...........................................A-1

</TABLE>


         This Statement of Additional Information is dated              , 2003.



<PAGE>



                                         FUND HISTORY

     The  Fund  is  a  diversified,  closed-end  management  investment  company
organized as a statutory  trust under the laws of Delaware on April 10, 2003 and
registered  under the  Investment  Company  Act of 1940,  as amended  (the "1940
Act").  Much of the  information  contained  in  this  statement  of  additional
information  expands on subjects  discussed in the prospectus.  Unless otherwise
defined herein,  capitalized  terms used in this document have the same meanings
given them in the prospectus.



                                       USE OF PROCEEDS


     The Fund will invest the net  proceeds of the offering in  accordance  with
the Fund's  investment  objective and policies as soon as practicable  after the
closing of this  offering.  However,  investments  that,  in the judgment of the
Advisor,  are  appropriate  investments  for the  Fund  may  not be  immediately
available.  Therefore, the Fund expects that there will be an initial investment
period of up to three  months  following  the  completion  of its common  shares
offering before it is invested in accordance  with its investment  objective and
policies. Pending such investment, the Fund anticipates that all or a portion of
the  proceeds  will be  invested in  typically  lower-yielding  U.S.  government
securities or high grade, short-term money market instruments.




                        INVESTMENT OBJECTIVE AND POLICIES

     The  prospectus  presents  the  investment   objective  and  the  principal
investment  strategies  and  risks of the Fund.  This  section  supplements  the
disclosure in the Fund's prospectus and provides  additional  information on the
Fund's investment  policies or restrictions.  Capitalized terms have the meaning
defined in the prospectus unless otherwise defined herein.

     Restrictions  or  policies  stated as a maximum  percentage  of the  Fund's
assets are only applied  immediately  after a portfolio  investment to which the
policy or restriction is applicable  (other than the  limitations on borrowing).
Accordingly,  any later increase or decrease  resulting from a change in values,
net assets or other  circumstances will not be considered in determining whether
the investment complies with the Fund's restrictions and policies.

         Primary Investments


     The Fund allocates its assets among three separate  investment  strategies.
Under normal market  conditions,  the Fund  allocates  approximately  50% of its
total  assets  to  an  investment  strategy  that  focuses  primarily  on  below
investment grade (high yield) U.S. debt securities,  loans and preferred stocks;
approximately  25% of its total assets to an  investment  strategy  that focuses
primarily  on  foreign  debt   securities   including   obligations  of  foreign
governments or governmental  entities,  foreign  corporations  or  supranational
agencies  denominated in various currencies;  and approximately 25% of its total
assets to an investment  strategy that focuses primarily on securities that have
interest  rates that  re-set at  periodic  intervals  including  mortgage-backed
securities,  asset-backed  securities and  collateralized  mortgage  obligations
("CMOs")  issued  or  guaranteed  by  the  U.S.  government,   its  agencies  or
instrumentalities.  The Fund's investment  adviser reserves the discretion based
upon market  conditions to reallocate  these weightings in order for the Fund to
seek to  maintain  a yield  that  exceeds  the  then-current  yield of  ten-year
Treasury  notes and also for the Fund as a whole to seek to  maintain a weighted
average credit quality of investment grade.


     EURODOLLAR  INSTRUMENTS AND YANKEE BONDS. The Fund may invest in Eurodollar
instruments and Yankee bonds.  Eurodollar instruments are bonds of corporate and
government  issuers  that pay interest  and  principal  in U.S.  dollars but are
issued in markets outside the United States,  primarily in Europe.  Yankee bonds
are U.S.  dollar-denominated  bonds  typically  issued in the U.S.  by  non-U.S.
governments and their agencies and non-U.S. banks and corporations. The Fund may
also invest in Eurodollar  Certificates  of Deposit  ("ECDs"),  Eurodollar  Time
Deposits  ("ETDs") and Yankee  Certificates of Deposit ("Yankee CDs").  ECDs are
U.S.  dollar-denominated  certificates of deposit issued by non-U.S. branches of
domestic banks; ETDs are U.S.  dollar-denominated  deposits in a non-U.S. branch
of a U.S. bank or in a non-U.S. bank; and Yankee CDs are U.S. dollar-denominated
certificates of deposit issued by a U.S.  branch of a non-U.S.  bank and held in
the U.S. These investments  involve risks that are different from investments in
securities issued by U.S. issuers, including potential unfavorable political and
economic developments,  non-U.S. withholding or other taxes, seizure of non-U.S.
deposits,   currency  controls,   interest  limitations  or  other  governmental
restrictions which might affect payment of principal or interest.

     INVESTMENTS  IN  DEPOSITARY  RECEIPTS.  The  Fund may  hold  securities  of
non-U.S. issuers in the form of American Depositary Receipts ("ADRs"),  European
Depositary  Receipts  ("EDRs"),  Global  Depositary  Receipts ("GDRs") and other
similar instruments.  Generally, ADRs in registered form are designed for use in
U.S. securities markets,  and EDRs and GDRs and other similar global instruments
in bearer form are designed for use in non-U.S. securities markets.

     ADRs are denominated in U.S. dollars and represent an interest in the right
to  receive  securities  of  non-U.S.  issuers  deposited  in  a  U.S.  bank  or
correspondent  bank. ADRs do not eliminate all the risk inherent in investing in
the securities of non-U.S.  issuers.  However,  by investing in ADRs rather than
directly in equity securities of non-U.S.  issuers, the Fund will avoid currency
risks during the settlement  period for either purchases or sales. EDRs and GDRs
are  not  necessarily  denominated  in  the  same  currency  as  the  underlying
securities which they represent.

     For purposes of the Fund's investment  policies,  investments in ADRs, GDRs
and  similar  instruments  will be deemed to be  investments  in the  underlying
equity securities of non-U.S.  issuers. The Fund may acquire depositary receipts
from banks that do not have a  contractual  relationship  with the issuer of the
security  underlying the depositary  receipt to issue and secure such depositary
receipt. To the extent the Fund invests in such unsponsored  depositary receipts
there may be an  increased  possibility  that the Fund may not  become  aware of
events  affecting  the  underlying  security  and thus the value of the  related
depositary receipt. In addition, certain benefits (i.e., rights offerings) which
may be associated  with the security  underlying the depositary  receipt may not
inure to the benefit of the holder of such depositary receipt.

     CORPORATE LOANS AND PARTICIPATIONS. The Fund may invest directly or through
a private  investment  fund in corporate  loans or  participations  in corporate
loans (collectively,  "corporate loans").  Corporate loans are generally subject
to liquidity risks because they are traded in an over-the-counter market.

     Corporate loans, like most other debt obligations,  are subject to the risk
of default.  While all investments involve some amount of risk,  corporate loans
generally  involve less risk than equity  instruments of the same issuer because
the payment of principal of and interest on debt  instruments  is a  contractual
obligation  of the issuer that, in most  instances,  takes  precedence  over the
payment of dividends, or the return of capital, to the issuer's shareholders.

     Although  the  Fund  may  invest  in  corporate  loans  that  will be fully
collateralized with assets with a market value that, at the time of acquisition,
equals or exceeds the principal  amount of the corporate  loan, the value of the
collateral  may  decline  below  the  principal  amount  of the  corporate  loan
subsequent  to the Fund's  investment  in such bank loan.  In  addition,  to the
extent that collateral  consists of stock of the borrower or its subsidiaries or
affiliates,  the Fund will be subject to the risk that this stock may decline in
value,  be  relatively  illiquid,  or may lose all or  substantially  all of its
value,  causing the bank loan to be  undercollateralized.  There is no assurance
that the sale of  collateral  would raise enough cash to satisfy the  borrower's
payment obligation or that the collateral can or will be liquidated. Some or all
of the bank loans held by the Fund may not be  secured  by any  collateral,  and
such bank loans entail greater risk than secured bank loans.

     Corporate  loans  are also  subject  to the risk of  default  of  scheduled
interest  or  principal  payments.  In the event of a failure  to pay  scheduled
interest or  principal  payments on corporate  loans held by the Fund,  the Fund
could  experience a reduction in its income,  would  experience a decline in the
market value of the particular corporate loan so affected,  and may experience a
decline in the net asset value of its shares or the amount of its dividends. The
risk of  default  will  increase  in the  event  of an  economic  downturn  or a
substantial increase in interest rates. To the extent that the Fund's investment
is in a corporate loan acquired from another lender,  the Fund may be subject to
certain credit risks with respect to that lender.

     The Fund may acquire corporate loans of borrowers that are experiencing, or
are more likely to experience,  financial difficulty,  including corporate loans
issued in highly leveraged transactions. The Fund may even acquire and retain in
its  portfolio  corporate  loans of  borrowers  that have  filed for  bankruptcy
protection or that have had involuntary  bankruptcy petitions filed against them
by creditors.

     In  the  event  of  the  bankruptcy,   receivership,  or  other  insolvency
proceeding of a borrower,  the Fund could experience  delays or limitations with
respect to its ability to collect the principal of and interest on the corporate
loan and with respect to its ability to realize the  benefits of the  collateral
securing the corporate  loan, if any.  Among the credit risks involved in such a
proceeding are the avoidance of the corporate  loan as a fraudulent  conveyance,
the   restructuring  of  the  payment   obligations  under  the  corporate  loan
(including,  without  limitation,  the  reduction of the principal  amount,  the
extension of the maturity,  and the reduction of the interest rate thereof), the
avoidance  of  the  pledge  of  collateral  securing  the  corporate  loan  as a
fraudulent conveyance or preferential  transfer, the discharge of the obligation
to repay  that  portion  of the  corporate  loan that  exceeds  the value of the
collateral,  and the  subordination  of the Fund's rights to the rights of other
creditors of the borrower under applicable law. Similar delays or limitations of
the Fund's  ability to collect the  principal of and  interest on the  corporate
loan and with respect to its ability to realize the  benefits of the  collateral
securing  the  corporate  loan  may  arise  in  the  event  of  the  bankruptcy,
receivership, or other insolvency proceeding of an original lender or an agent.

     The Advisor  anticipates that investment  decisions on corporate loans will
be based largely on the credit  analysis  performed by the Advisor's  investment
personnel and not on analysis  prepared by rating agencies or other  independent
parties,  and such  analysis may be difficult to perform for many  borrowers and
issuers.  The Advisor may also utilize information  prepared and supplied by the
agent or other lenders. Information about interests in corporate loans generally
will not be in the public domain, and interests are often not currently rated by
any  nationally  recognized  rating  service.  Many  borrowers  have not  issued
securities  to the public and are not subject to  reporting  requirements  under
federal securities laws. Generally,  borrowers are required to provide financial
information  to lenders,  including the Fund, and  information  may be available
from other  corporate loan  participants  or agents that originate or administer
corporate  loans.  There can be no assurance  that the  Advisor's  analysis will
disclose  factors  that may  impair  the value of a  corporate  loan.  A serious
deterioration  in the  credit  quality  of a borrower  could  cause a  permanent
decrease in the Fund's net asset value.

     There is no minimum rating or other independent evaluation of a borrower or
its securities limiting the Fund's investments.  Although a corporate loan often
is not rated by any rating  agency at the time the Fund  purchases the corporate
loan,  rating agencies have become more active in rating an increasing number of
corporate  loans and at any given time a  substantial  portion of the  corporate
loans in the Fund's  portfolio  may be rated.  Although the Advisor may consider
such ratings when  evaluating a corporate loan, it does not view such ratings as
a determinative factor in its investment decisions. The lack of a rating may not
necessarily  imply that a corporate loan is of lesser  investment  quality.  The
Fund may invest its assets in corporate  loans rated below  investment  grade or
that are unrated but of comparable quality.

     While  debt  instruments  generally  are  subject to the risk of changes in
interest  rates,  the interest  rates of  corporate  loans in which the Fund may
invest would adjust with a specified  interest rate.  Thus the risk that changes
in  interest  rates would  affect the market  value of such  corporate  loans is
significantly decreased, but is not eliminated.


     MORTGAGE-BACKED  SECURITIES.  The Fund may invest in mortgage  pass-through
certificates and multiple-class pass-through securities, and mortgage derivative
securities  such  as  real  estate  mortgage   investment   conduits  ("REMIC"),
pass-through  certificates,  collateralized  mortgage  obligations  ("CMOs") and
stripped  mortgage-backed  securities  ("SMBS"),  interest only  mortgage-backed
securities  and principal  only  mortgage-backed  securities  and other types of
mortgage-backed   securities   that  may  be   available   in  the   future.   A
mortgage-backed  security is an obligation of the issuer backed by a mortgage or
pool of mortgages or a direct interest in an underlying pool of mortgages.  Some
mortgage-backed  securities, such as CMOs, are adjustable rate and make payments
of both  principal and interest at a variety of intervals;  others are fixed and
make semiannual interest payments at a predetermined rate and repay principal at
maturity  (like a typical  bond).  The Fund  primarily will invest in adjustable
rate  mortgage-backed   securities,   although  it  may  invest  in  fixed  rate
mortgage-backed  securities.  Mortgage-backed  securities are based on different
types of mortgages  including  those on  commercial  real estate or  residential
properties.  Mortgage-backed  securities  often have stated  maturities of up to
thirty years when they are issued,  depending  upon the length of the  mortgages
underlying the securities. In practice,  however,  unscheduled or early payments
of principal and interest on the underlying  mortgages may make the  securities'
effective  maturity shorter than this, and the prevailing  interest rates may be
higher or lower than the current  yield of the Fund's  portfolio at the time the
Fund receives the payments for reinvestment. Mortgage-backed securities may have
less potential for capital appreciation than comparable fixed income securities,
due to the  likelihood of increased  prepayments  of mortgages as interest rates
decline.  If the Fund buys  mortgage-backed  securities  at a premium,  mortgage
foreclosures  and  prepayments of principal by mortgagors  (which may be made at
any time  without  penalty)  may  result  in some loss of the  Fund's  principal
investment to the extent of the premium paid.


     The value of  mortgage-backed  securities  may also change due to shifts in
the market's perception of issuers.  In addition,  regulatory or tax changes may
adversely affect the mortgage  securities  markets as a whole.  Non-governmental
mortgage-backed  securities  may  offer  higher  yields  than  those  issued  by
government  entities,  but also may be  subject to greater  price  changes  than
governmental issues.

     Guaranteed   Mortgage   Pass-Through   Securities.    Guaranteed   mortgage
pass-through   securities   represent   participation   interests  in  pools  of
residential  mortgage  loans and are  issued  by U.S.  governmental  or  private
lenders  and  guaranteed  by the  U.S.  government  or one  of its  agencies  or
instrumentalities,  including  but not  limited to GNMA,  FNMA and  FHLMC.  GNMA
certificates are guaranteed by the full faith and credit of the U.S.  government
for  timely  payment  of  principal  and  interest  on  the  certificates.  FNMA
certificates  are guaranteed by FNMA, a federally  chartered and privately owned
corporation,  for full and  timely  payment of  principal  and  interest  on the
certificates.   FHLMC   certificates   are  guaranteed  by  FHLMC,  a  corporate
instrumentality of the U.S.  government,  for timely payment of interest and the
ultimate collection of all principal of the related mortgage loans.

     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.  Because
there are no direct or indirect  government or agency  guarantees of payments in
pools created by such  non-governmental  issuers,  they generally offer a higher
rate of interest than government and government-related pools. Timely payment of
interest  and  principal  of  these  pools  may be  supported  by  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.

     Mortgage-related   securities   without  insurance  or  guarantees  may  be
purchased if the Advisor  determines that the securities meet the Fund's quality
standards.  Mortgage-related  securities issued by certain private organizations
may not be readily marketable.

     Multiple-Class   Pass-Through   Securities   and   CMOS.   CMOs  and  REMIC
pass-through or participation  certificates may be issued by, among others, U.S.
government agencies and instrumentalities as well as private issuers. REMICs are
CMO vehicles that qualify for special tax treatment  under the Internal  Revenue
Code of 1986,  as  amended  (the  "Code")  and invest in  mortgages  principally
secured by interests in real  property  and other  investments  permitted by the
Code.  CMOs and REMIC  certificates  are  issued  in  multiple  classes  and the
principal  of and interest on the  mortgage  assets may be  allocated  among the
several classes of CMOs or REMIC certificates in various ways. Each class of CMO
or REMIC certificate,  often referred to as a "tranche," is issued at a specific
adjustable  or fixed  interest  rate and must be fully retired no later than its
final distribution date.  Generally,  interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis.

     Typically,  CMOs are collateralized by GNMA, FNMA or FHLMC certificates but
also may be  collateralized  by other  mortgage  assets  such as whole  loans or
private mortgage pass-through securities.  Debt service on CMOs is provided from
payments of principal  and interest on  collateral  of mortgaged  assets and any
reinvestment income thereon.

     Stripped    Mortgage-Backed    Securities.    SMBS    are    multiple-class
mortgage-backed  securities that are created when a U.S.  government agency or a
financial  institution  separates  the interest and  principal  components  of a
mortgage-backed  security  and sells  them as  individual  securities.  The Fund
invests  in SMBS that are  usually  structured  with two  classes  that  receive
different  proportions  of interest  and  principal  distributions  on a pool of
mortgage  assets.  A typical  SMBS will  have one  class  receiving  some of the
interest and most of the  principal,  while the other class will receive most of
the interest and the  remaining  principal.  The holder of the  "principal-only"
security  ("PO")  receives  the  principal   payments  made  by  the  underlying
mortgage-backed  security,  while  the  holder of the  "interest-only"  security
("IO") receives interest payments from the same underlying security.  The prices
of stripped  mortgage-backed  securities may be particularly affected by changes
in interest  rates. As interest rates fall,  prepayment  rates tend to increase,
which tends to reduce prices of IOs and increase  prices of POs. Rising interest
rates can have the opposite effect.  Although the market for these securities is
increasingly   liquid,   the  Advisor  may  determine   that  certain   stripped
mortgage-backed  securities  issued  by the U.S.  government,  its  agencies  or
instrumentalities are not readily marketable. If so, these securities,  together
with privately-issued  stripped mortgage-backed  securities,  will be considered
illiquid.  The yields and market risk of interest only and principal  only SMBS,
respectively, may be more volatile than those of other fixed income securities.

     The Fund also may invest in planned  amortization  class ("PAC") and target
amortization  class ("TAC") CMO bonds which involve less exposure to prepayment,
extension  and  interest  rate  risks  than  other  mortgage-backed  securities,
provided that  prepayment  rates remain  within  expected  prepayment  ranges or
"collars."  To  the  extent  that  the  prepayment  rates  remain  within  these
prepayment  ranges,  the residual or support tranches of PAC and TAC CMOs assume
the extra  prepayment,  extension  and interest rate risks  associated  with the
underlying mortgage assets.

     Risk  Factors  Associated  With  Mortgage-Backed  Securities.  Investing in
mortgage-backed  securities  involves certain risks,  including the failure of a
counterparty  to meet its  commitments,  adverse  interest  rate changes and the
effects of  prepayments  on mortgage cash flows.  In addition,  investing in the
lowest  tranche of CMOs and REMIC  certificates  involves risks similar to those
associated  with  investing in equity  securities.  However,  due to adverse tax
consequences  under  current  tax  laws,  the Fund does not  intend  to  acquire
"residual"  interests  in  REMICs.   Further,   the  yield   characteristics  of
mortgage-backed  securities  differ  from  those  of  traditional  fixed  income
securities.  The major differences  typically include more frequent interest and
principal payments (usually monthly), the adjustability of interest rates of the
underlying instrument,  and the possibility that prepayments of principal may be
made substantially earlier than their final distribution dates.

     Prepayment  rates are influenced by changes in current interest rates and a
variety  of  economic,  geographic,  social  and  other  factors  and  cannot be
predicted with  certainty.  Both  adjustable  rate mortgage loans and fixed rate
mortgage  loans may be subject to a greater rate of principal  prepayments  in a
declining   interest  rate  environment  and  to  a  lesser  rate  of  principal
prepayments in an increasing  interest rate environment.  Under certain interest
rate and  prepayment  rate  scenarios,  the Fund may fail to  recoup  fully  its
investment in mortgage-backed  securities notwithstanding any direct or indirect
governmental,  agency  or  other  guarantee.  When the  Fund  reinvests  amounts
representing payments and unscheduled  prepayments of principal, it may obtain a
rate of  interest  that is  lower  than  the rate on  existing  adjustable  rate
mortgage  pass-through  securities.   Thus,   mortgage-backed   securities,  and
adjustable  rate mortgage  pass-through  securities in  particular,  may be less
effective than other types of U.S. government  securities as a means of "locking
in" interest rates.


     DOLLAR ROLLS.  The Fund may enter into dollar rolls in which the Fund sells
securities for delivery in the current month and  simultaneously  contracts with
the same  counterparty to purchase similar (same type,  coupon and maturity) but
not identical securities on a specified future date. During the roll period, the
Fund loses the right to receive  principal and interest  paid on the  securities
sold.  However,  the Fund would benefit to the extent of any difference  between
the price received for the  securities  sold and the lower forward price for the
future  purchase  (often  referred  to as the  "drop")  or fee  income  plus the
interest earned on the cash proceeds of the securities sold until the settlement
date of the forward  purchase.  Unless such benefits exceed the income,  capital
appreciation  and gain or loss due to mortgage  prepayments that would have been
realized  on the  securities  sold as part of the dollar  roll,  the use of this
technique  will diminish the  investment  performance  of the Fund compared with
what such performance  would have been without the use of dollar rolls. All cash
proceeds will be invested in instruments  that are  permissible  investments for
the Fund.  The Fund will hold and  maintain in a  segregated  account  until the
settlement  date cash or liquid  securities  in an amount  equal to its  forward
purchase price.


     For financial  reporting and tax purposes,  the Fund treats dollar rolls as
two  separate  transactions;  one  involving  the  purchase of a security  and a
separate  transaction  involving a sale.  The Fund does not currently  intend to
enter into dollar rolls that are accounted for as borrowing.


     Dollar  rolls  involve  certain  risks  including  the  following:  if  the
broker-dealer to whom the Fund sells the security becomes insolvent,  the Fund's
right to purchase the mortgage-related securities subject to the dollar roll may
be restricted and the  instrument  which the Fund is required to purchase may be
worth less than an instrument which the Fund originally held.  Successful use of
dollar rolls will depend upon the Advisor's  ability to manage its interest rate
and mortgage prepayments exposure. For these reasons, there is no assurance that
dollar rolls can be successfully employed.


     WHEN-ISSUED  AND  DELAYED  DELIVERY  SECURITIES.   The  Fund  may  purchase
securities,  including U.S. government securities, on a when-issued basis or may
purchase or sell securities for delayed delivery. In such transactions, delivery
of the securities occurs beyond the normal settlement  period, but no payment or
delivery  is made by the Fund  prior to the  actual  delivery  or payment by the
other  party  to the  transaction.  The  Fund  will  not  earn  income  on these
securities  until  delivered.  The purchase of securities  on a  when-issued  or
delayed  delivery  basis  involves  the risk  that the  value of the  securities
purchased will decline prior to the settlement  date. The sale of securities for
delayed  delivery  involves the risk that the prices  available in the market on
the delivery  date may be greater than those  obtained in the sale  transaction.
The  Fund's  obligations  with  respect  to  when-issued  and  delayed  delivery
transactions will be fully  collateralized  by segregating  liquid assets with a
value equal to the Fund's obligations. See "Asset Segregation."

     PREFERRED  SHARES.  Preferred shares are equity  securities,  but they have
many  characteristics  of  fixed  income  securities,  such as a fixed  dividend
payment  rate and/or a liquidity  preference  over the issuer's  common  shares.
However,  because  preferred  shares  are  equity  securities,  they may be more
susceptible to risks  traditionally  associated with equity investments than the
Fund's fixed income investments.

     REAL ESTATE INVESTMENT TRUSTS ("REITS") AND ASSOCIATED RISK FACTORS.  REITs
are companies  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 in some  cases  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.

     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 and may trade less  frequently
and in a more limited volume than larger company securities.

     OTHER INVESTMENT COMPANIES.  The Fund may invest in the securities of other
investment companies to the extent that such investments are consistent with the
Fund's  investment  objective and policies and permissible  under the Investment
Company Act of 1940,  as amended (the "1940 Act").  Under the 1940 Act, the Fund
may not  acquire  the  securities  of  other  domestic  or  non-U.S.  investment
companies if, as a result, (i) more than 10% of the Fund's total assets would be
invested in securities of other investment  companies,  (ii) such purchase would
result in more than 3% of the total  outstanding  voting  securities  of any one
investment  company  being held by the Fund, or (iii) more than 5% of the Fund's
total assets would be invested in any one investment company.  These limitations
do not apply to the purchase of shares of any  investment  company in connection
with a merger, consolidation, reorganization or acquisition of substantially all
the assets of another investment company.  Notwithstanding  the foregoing,  as a
result of an exemptive order received from the  Commission,  the Fund may invest
cash  balances  in shares of other  money  market  funds  advised  by the Fund's
Advisor or its affiliates in amounts up to 25% of the Fund's total assets.

     The Fund, as a holder of the securities of other investment companies, will
bear its pro rata portion of the other investment companies' expenses, including
advisory  fees.  These  expenses  are in addition to the direct  expenses of the
Fund's own operations.


     MONEY  MARKET  INSTRUMENTS.   Money  market  instruments  are  high-quality
instruments  that present minimal credit risk. They may include U.S.  Government
obligations,  commercial paper and other short-term corporate  obligations,  and
certificates  of  deposit,  bankers'  acceptances,   bank  deposits,  and  other
financial institution obligations. These instruments may carry fixed or variable
interest rates.


         INTEREST RATE TRANSACTIONS

     Interest Rate Swaps,  Collars, Caps and Floors. In order to hedge the value
of the Fund's  portfolio  against  interest rate  fluctuations or to enhance the
Fund's income, the Fund may, but is not required to, enter into various interest
rate  transactions  such as  interest  rate  swaps and the  purchase  or sale of
interest  rate caps and  floors.  To the extent  that the Fund enters into these
transactions, the Fund expects to do so primarily to preserve a return or spread
on a particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund  anticipates  purchasing at a later
date. The Fund intends to use these transactions primarily as a hedge and not as
a  speculative  investment.  However,  the Fund also may invest in interest rate
swaps to enhance  income or to increase the Fund's  yield,  for example,  during
periods of steep  interest rate yield curves  (i.e.,  wide  differences  between
short-term and long-term  interest rates). The Fund is not required to hedge its
portfolio  and may  choose  not to do so.  The Fund  cannot  guarantee  that any
hedging strategies it uses will work.

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

     The Fund usually will enter into  interest rate swaps on a net basis (i.e.,
the two payment streams are netted out with the Fund receiving or paying, as the
case may be,  only the net  amount of the two  payments).  The net amount of the
excess, if any, of the Fund's  obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis,  and an amount of cash
or liquid  instruments having an aggregate net asset value at least equal to the
accrued  excess  will  be  maintained  in a  segregated  account  by the  Fund's
custodian. If the interest rate swap transaction is entered into on other than a
net basis, the full amount of the Fund's  obligations will be accrued on a daily
basis,  and the full amount of the Fund's  obligations  will be  maintained in a
segregated account by the Fund's custodian.

     The Fund  also may  engage in  interest  rate  transactions  in the form of
purchasing  or  selling  interest  rate caps or  floors.  The Fund will not sell
interest  rate caps or floors that it does not own.  The purchase of an interest
rate cap entitles the purchaser,  to the extent that a specified index exceeds a
predetermined  interest  rate,  to receive  payments  of  interest  equal to the
difference  of the  index and the  predetermined  rate on a  notional  principal
amount (i.e.,  the reference  amount with respect to which interest  obligations
are determined  although no actual exchange of principal  occurs) from the party
selling such interest rate cap. The purchase of an interest rate floor  entitles
the purchaser,  to the extent that a specified index falls below a predetermined
interest  rate, to receive  payments of interest at the  difference of the index
and the predetermined rate on a notional principal amount from the party selling
such interest  rate floor.  The Fund will not enter into caps or floors if, on a
net  basis,  the  aggregate  notional  principal  amount  with  respect  to such
agreements exceeds the net assets of the Fund.

     Typically,  the parties with which the Fund will enter into  interest  rate
transactions will be broker-dealers and other financial  institutions.  The Fund
will not enter into any interest rate swap, cap or floor transaction  unless the
unsecured senior debt or the claims-paying ability of the other party thereto is
rated investment grade quality by at least one nationally recognized statistical
rating  organization  at the time of  entering  into such  transaction  or whose
creditworthiness  is believed by the Advisor to be equivalent to such rating. If
there is a default by the other party to such a transaction,  the Fund will have
contractual remedies pursuant to the agreements related to the transaction.  The
swap market has grown substantially in recent years with a large number of banks
and investment  banking firms acting both as principals and as agents  utilizing
standardized  swap  documentation.  As a  result,  the swap  market  has  become
relatively  liquid in comparison  with other similar  instruments  traded in the
interbank market. Caps and floors,  however, are less liquid than swaps. Certain
federal  income  tax  requirements  may limit the  Fund's  ability  to engage in
interest rate swaps.

     FUTURES  CONTRACTS  AND  OPTIONS ON  FUTURES  CONTRACTS.  To hedge  against
changes in securities  prices or currency  exchange rates or to seek to increase
total return, the Fund may purchase and sell various kinds of futures contracts,
and  purchase  and write  (sell)  call and put  options  on any of such  futures
contracts.  The Fund may also enter into closing purchase and sale  transactions
with respect to any of such contracts and options.  The futures contracts may be
based on various  securities (such as U.S.  government  securities),  securities
indices,  non-U.S.  currencies and other financial  instruments and indices. The
Fund will  engage in futures  and  related  options  transactions  for bona fide
hedging and  non-hedging  purposes as  described  below.  All futures  contracts
entered  into by the Fund are traded on U.S.  exchanges  or boards of trade that
are licensed and  regulated by the Commodity  Futures  Trading  Commission  (the
CFTC) or on non-U.S. exchanges.

     Futures  Contracts.  A futures  contract  may  generally be described as an
agreement between two parties to buy and sell particular  financial  instruments
for an agreed  price  during a  designated  month (or to deliver  the final cash
settlement  price,  in the case of a contract  relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).

     When interest rates are rising or securities  prices are falling,  the Fund
can seek to offset a decline in the value of its  current  portfolio  securities
through  the sale of  futures  contracts.  When  interest  rates are  falling or
securities  prices  are  rising,  the Fund,  through  the  purchase  of  futures
contracts,  can  attempt to secure  better  rates or prices  than might later be
available in the market when it effects anticipated  purchases.  Similarly,  the
Fund can sell  futures  contracts on a specified  currency to protect  against a
decline  in the  value  of such  currency  and a  decline  in the  value  of its
portfolio  securities  which  are  denominated  in such  currency.  The Fund can
purchase futures contracts on a non-U.S. currency to establish the price in U.S.
dollars of a security denominated in such currency that the Fund has acquired or
expects to acquire.

     Positions  taken in the futures  markets are not normally  held to maturity
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures contracts on securities or currency will usually
be  liquidated in this manner,  the Fund may instead make, or take,  delivery of
the  underlying   securities  or  currency  whenever  it  appears   economically
advantageous  to do so. A clearing  corporation  associated with the exchange on
which  futures on securities  or currency are traded  guarantees  that, if still
open, the sale or purchase will be performed on the settlement date.

     Hedging  Strategies.  Hedging,  by  use  of  futures  contracts,  seeks  to
establish with more certainty the effective  price,  rate of return and currency
exchange  rate on  portfolio  securities  and  securities  that the Fund owns or
proposes to acquire.  The Fund may, for example,  take a "short" position in the
futures  market  by  selling  futures  contracts  in order to hedge  against  an
anticipated  rise in  interest  rates or a decline in market  prices or non-U.S.
currency  rates that would  adversely  affect the value of the Fund's  portfolio
securities. Such futures contracts may include contracts for the future delivery
of securities  held by the Fund or securities  with  characteristics  similar to
those of the Fund's portfolio securities.  Similarly,  the Fund may sell futures
contracts  in  a  non-U.S.  currency  in  which  its  portfolio  securities  are
denominated  or in one currency to hedge  against  fluctuations  in the value of
securities  denominated  in a  different  currency  if there  is an  established
historical pattern of correlation between the two currencies. If, in the opinion
of the Advisor, there is a sufficient degree of correlation between price trends
for the  Fund's  portfolio  securities  and  futures  contracts  based  on other
financial  instruments,  securities indices or other indices,  the Fund may also
enter into such futures  contracts as part of its hedging  strategies.  Although
under some  circumstances  prices of securities  in the Fund's  portfolio may be
more or less  volatile than prices of such futures  contracts,  the Advisor will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any such  differential by having the Fund enter into
a greater or lesser number of futures contracts or by attempting to achieve only
a partial hedge against price changes affecting the Fund's portfolio securities.
When hedging of this character is successful,  any  depreciation in the value of
portfolio  securities will be substantially  offset by appreciation in the value
of the futures position.  On the other hand, any  unanticipated  appreciation in
the value of the Fund's portfolio  securities would be substantially offset by a
decline in the value of the futures position.

     On other  occasions,  the Fund may  take a "long"  position  by  purchasing
futures contracts.  This may be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency  exchange  rates then available in the applicable
market to be less favorable than prices or rates that are currently available.

     Options on Futures  Contracts.  The  acquisition of put and call options on
futures  contracts will give the Fund the right (but not the  obligation)  for a
specified  price to sell or to purchase,  respectively,  the underlying  futures
contract at any time during the option period.  As the purchaser of an option on
a futures  contract,  the Fund  obtains the  benefit of the futures  position if
prices move in a favorable direction but limits its risk of loss in the event of
an unfavorable price movement to the loss of the premium and transaction costs.

     The  writing of a call  option on a futures  contract  generates  a premium
which may  partially  offset a decline  in the value of the  Fund's  assets.  By
writing a call option, the Fund becomes obligated,  in exchange for the premium,
to sell a futures contract (if the option is exercised),  which may have a value
higher than the  exercise  price.  Conversely,  the writing of a put option on a
futures  contract  generates a premium which may partially offset an increase in
the price of  securities  that the Fund intends to purchase.  However,  the Fund
becomes  obligated to purchase a futures  contract (if the option is  exercised)
which may have a value lower than the exercise price. Thus, the loss incurred by
the Fund in writing  options on futures is potentially  unlimited and may exceed
the amount of the premium  received.  The Fund will incur  transaction  costs in
connection with the writing of options on futures.

     The holder or writer of an option on a futures  contract may  terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee  that such  closing  transactions  can be  effected.  The Fund's
ability to establish  and close out positions on such options will be subject to
the development and maintenance of a liquid market.

     Other  Considerations.  The Fund will engage in futures and related options
transactions  only for bona fide hedging or  non-hedging  purposes in accordance
with  CFTC  regulations  which  permit  principals  of  an  investment   company
registered under the 1940 Act to engage in such transactions without registering
as commodity pool operators. The Fund will determine that the price fluctuations
in the futures  contracts  and options on futures used for hedging  purposes are
substantially  related to price  fluctuations  in securities held by the Fund or
which the Fund expects to purchase.  Except as stated below,  the Fund's futures
transactions  will be  entered  into  for  traditional  hedging  purposes--i.e.,
futures  contracts  will be sold to  protect  against a decline  in the price of
securities (or the currency in which they are  denominated)  that the Fund owns,
or futures  contracts  will be purchased to protect the Fund against an increase
in the price of securities  (or the currency in which they are  denominated)  it
intends to purchase.  As evidence of this hedging intent,  the Fund expects that
on 75% or more of the  occasions  on  which it takes a long  futures  or  option
position  (involving  the  purchase  of futures  contracts),  the Fund will have
purchased,  or will be in the  process  of  purchasing,  equivalent  amounts  of
related  securities or assets  denominated  in the related  currency in the cash
market at the time when the futures or option  position is closed out.  However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures  position may be terminated  or an option may expire  without the
corresponding purchase of securities or other assets.

     As an  alternative  to  literal  compliance  with  the  bona  fide  hedging
definition,  a CFTC  regulation  permits  the  Fund to elect  to  comply  with a
different test, under which the sum of the amounts of initial margin deposits on
the Fund's existing  non-hedging futures contracts and premiums paid for options
on  futures  entered  into  for  non-hedging  purposes  (net of the  amount  the
positions  are in the  money")  would not exceed 5% of the  market  value of the
Fund's total assets.  The Fund does not use derivatives as a primary  investment
technique and generally does not anticipate  using  derivatives  for non-hedging
purposes.  In the event the Fund uses derivatives for non-hedging  purposes,  no
more than 3% of the Fund's total assets will be committed to initial  margin for
derivatives  for such purposes.  The Fund will engage in transactions in futures
contracts  and  related  options  only  to  the  extent  such  transactions  are
consistent with the  requirements of the Code for maintaining its  qualification
as a regulated investment company for federal income tax purposes.

     Futures  contracts and related options  involve  brokerage  costs,  require
margin deposits and, in the case of contracts and options obligating the Fund to
purchase securities or currencies, require the Fund to segregate assets to cover
such contracts and options.

     While  transactions in futures  contracts and options on futures may reduce
certain risks,  such transactions  themselves entail certain other risks.  Thus,
while the Fund may  benefit  from the use of futures  and  options  on  futures,
unanticipated changes in interest rates,  securities prices or currency exchange
rates may result in a poorer overall performance for the Fund than if it had not
entered into any futures contracts or options  transactions.  In the event of an
imperfect  correlation between a futures position and a portfolio position which
is intended to be protected,  the desired protection may not be obtained and the
Fund may be exposed to risk of loss.

     Options on Securities and Securities Indices. The Fund may purchase put and
call options on any security in which it may invest or options on any securities
index based on securities in which it may invest. The Fund would also be able to
enter into  closing  sale  transactions  in order to realize  gains or  minimize
losses on options it has purchased.

     Writing Call and Put Options on  Securities.  A call option  written by the
Fund obligates the Fund to sell specified securities to the holder of the option
at a  specified  price  if the  option  is  exercised  at any  time  before  the
expiration  date. All call options written by the Fund are covered,  which means
that the Fund will own the  securities  subject  to the  options  as long as the
options are outstanding, or the Fund will use the other methods described below.
The Fund's purpose in writing  covered call options is to realize greater income
than would be realized on portfolio securities  transactions alone. However, the
Fund may forgo the opportunity to profit from an increase in the market price of
the underlying security.

     A put  option  written  by the Fund  would  obligate  the Fund to  purchase
specified  securities  from the option holder at a specified price if the option
is exercised at any time before the expiration  date. All put options written by
the Fund would be  covered,  which  means  that the Fund  would have  segregated
assets with a value at least equal to the exercise price of the put option.  The
purpose of writing such options is to generate  additional  income for the Fund.
However, in return for the option premium, the Fund accepts the risk that it may
be  required  to purchase  the  underlying  security at a price in excess of its
market value at the time of purchase.

     Call and put  options  written  by the Fund will also be  considered  to be
covered to the extent that the Fund's  liabilities under such options are wholly
or partially  offset by its rights  under call and put options  purchased by the
Fund. In addition,  a written call option or put may be covered by entering into
an offsetting  forward contract and/or by purchasing an offsetting option or any
other option which,  by virtue of its exercise  price or otherwise,  reduces the
Fund's net exposure on its written option position.

     Writing Call and Put Options on Securities Indices. The Fund may also write
(sell)  covered  call  and put  options  on any  securities  index  composed  of
securities in which it may invest.  Options on securities indices are similar to
options on  securities,  except that the exercise of  securities  index  options
requires  cash  payments  and does not  involve  the actual  purchase or sale of
securities. In addition,  securities index options are designed to reflect price
fluctuations  in a group of  securities  or  segments of the  securities  market
rather than price fluctuations in a single security.

     The Fund may cover call options on a securities index by owning  securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities  without
additional cash  consideration (or for additional  consideration if cash in such
amount is  segregated)  upon  conversion or exchange of other  securities in its
portfolio.  The Fund may cover  call and put  options on a  securities  index by
segregating assets with a value equal to the exercise price.

     Purchasing  Call and Put Options.  The Fund would  normally  purchase  call
options in  anticipation of an increase in the market value of securities of the
type in which it may invest.  The  purchase of a call option  would  entitle the
Fund,  in return for the premium  paid,  to purchase  specified  securities at a
specified price during the option period.  The Fund would  ordinarily  realize a
gain if, during the option period, the value of such securities exceeded the sum
of the exercise  price,  the premium paid and transaction  costs;  otherwise the
Fund would realize either no gain or a loss on the purchase of the call option.

     The Fund would normally  purchase put options in  anticipation of a decline
in the market value of  securities in its  portfolio  ("protective  puts") or in
securities  in which it may invest.  The purchase of a put option would  entitle
the Fund, in exchange for the premium paid,  to sell  specified  securities at a
specified  price during the option  period.  The purchase of protective  puts is
designed to offset or hedge  against a decline in the market value of the Fund's
holdings.  Put  options  may also be  purchased  by the Fund for the  purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. The Fund would ordinarily  realize a gain if, during the option period,
the  value of the  underlying  securities  decreased  below the  exercise  price
sufficiently to more than cover the premium and transaction costs; otherwise the
Fund would  realize  either no gain or a loss on the purchase of the put option.
Gains and losses on the  purchase of  protective  put  options  would tend to be
offset  by  countervailing  changes  in the  value of the  underlying  portfolio
securities.

     The Fund may terminate its obligations under an exchange-traded call or put
option by purchasing an option identical to the one it has written.  Obligations
under  over-the-counter  options  may be  terminated  only by  entering  into an
offsetting  transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."

     Risks of Trading  Options.  There is no assurance  that a liquid  secondary
market on an  options  exchange  will exist for any  particular  exchange-traded
option,  or at any  particular  time.  If the Fund is unable to effect a closing
purchase  transaction  with respect to covered options it has written,  the Fund
will not be able to sell the underlying  securities or dispose of its segregated
assets  until the options  expire or are  exercised.  Similarly,  if the Fund is
unable to effect a closing  sale  transaction  with  respect  to  options it has
purchased,  it will have to exercise  the options in order to realize any profit
and will  incur  transaction  costs  upon  the  purchase  or sale of  underlying
securities.

     Reasons for the absence of a liquid secondary market on an exchange include
the  following:  (i) there  may be  insufficient  trading  interest  in  certain
options;  (ii)  restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen  circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing  Corporation (OCC) may not
at all times be adequate to handle current trading  volume;  or (vi) one or more
exchanges could,  for economic or other reasons,  decide or be compelled at some
future date to  discontinue  the trading of options  (or a  particular  class or
series of options),  in which event the secondary market on that exchange (or in
that class or series of  options)  would  cease to exist,  although  outstanding
options on that exchange, if any, that had been issued by the OCC as a result of
trades on that exchange  would  continue to be  exercisable  in accordance  with
their terms.

     The Fund may  purchase  and sell both  options  that are traded on U.S. and
options  traded over the counter with  broker-dealers  who make markets in these
options. The ability to terminate  over-the-counter options is more limited than
with  exchange-traded  options  and may  involve  the risk  that  broker-dealers
participating in such transactions will not fulfill their obligations.

     Transactions  by the Fund in  options on  securities  and  indices  will be
subject to limitations established by each of the exchanges,  boards of trade or
other trading  facilities  governing the maximum number of options in each class
which may be written or  purchased  by a single  investor or group of  investors
acting in  concert.  Thus,  the  number of  options  which the Fund may write or
purchase may be affected by options  written or  purchased  by other  investment
advisory  clients of the Advisor.  An exchange,  board of trade or other trading
facility may order the  liquidations of positions found to be in excess of these
limits, and it may impose certain other sanctions.

     The writing and purchase of options is a highly specialized  activity which
involves  investment  techniques and risks different from those  associated with
ordinary  portfolio  securities  transactions.  The successful use of protective
puts for hedging  purposes  depends in part on the Advisor's  ability to predict
future price fluctuations and the degree of correlation  between the options and
securities markets.

     The hours of trading for options may not conform to the hours  during which
the  underlying  securities are traded.  To the extent that the options  markets
close  before the  markets  for the  underlying  securities,  significant  price
movements can take place in the  underlying  markets that cannot be reflected in
the options markets.

     In  addition  to the risks of  imperfect  correlation  between  the  Fund's
portfolio and the index underlying the option,  the purchase of securities index
options  involves  the risk that the premium and  transaction  costs paid by the
Fund in  purchasing  an option  will be lost.  This  could  occur as a result of
unanticipated movements in the price of the securities comprising the securities
index on which the option is based.

         FOREIGN CURRENCY TRANSACTIONS.

     Foreign  Currency  Exchange  Transactions.  The Fund may  engage in foreign
currency  exchange  transactions to protect against  uncertainty in the level of
future exchange rates. The Sub-Advisor may engage in foreign  currency  exchange
transactions  in connection  with the purchase and sale of portfolio  securities
("transaction  hedging"),  and  to  protect  the  value  of  specific  portfolio
positions ("position hedging").

     The Fund may engage in "transaction hedging" to protect against a change in
the foreign currency  exchange rate between the date on which the Fund contracts
to purchase or sell the security and the  settlement  date,  or to "lock in" the
U.S. dollar  equivalent of a dividend or interest payment in a foreign currency.
For that purpose, the Fund may purchase or sell a foreign currency on a spot (or
cash) basis at the  prevailing  spot rate in connection  with the  settlement of
transactions in portfolio  securities  denominated in or exposed to that foreign
currency.

     If conditions  warrant,  the Fund may also enter into contracts to purchase
or sell foreign  currencies at a future date ("forward  contracts") and purchase
and sell  foreign  currency  futures  contracts  as a hedge  against  changes in
foreign  currency  exchange  rates  between  the trade and  settlement  dates on
particular  transactions  and not for  speculation.  A foreign  currency forward
contract is a negotiated  agreement  to exchange  currency at a future time at a
rate or rates that may be higher or lower than the spot rate.  Foreign  currency
futures  contracts are  standardized  exchange-traded  contracts and have margin
requirements.

     For   transaction   hedging   purposes,   the  Fund   may   also   purchase
exchange-listed  and  over-the-counter  call and put options on foreign currency
futures contracts and on foreign currencies.  A put option on a futures contract
gives the Fund the  right to assume a short  position  in the  futures  contract
until  expiration  of the option.  A put option on  currency  gives the Fund the
right to sell a  currency  at an  exercise  price  until the  expiration  of the
option. A call option on a futures contract gives the Fund the right to assume a
long position in the futures contract until the expiration of the option. A call
option on  currency  gives  the Fund the right to  purchase  a  currency  at the
exercise price until the expiration of the option.

     The Fund may engage in "position  hedging" to protect  against a decline in
the value  relative to the U.S.  dollar of the currencies in which its portfolio
securities are denominated, or quoted or exposed (or an increase in the value of
currency  for  securities  which the Fund  intends  to buy,  when it holds  cash
reserves and short-term  investments).  For position hedging purposes,  the Fund
may purchase or sell foreign  currency  futures  contracts and foreign  currency
forward  contracts,  and may purchase  put or call  options on foreign  currency
futures contracts and on foreign currencies on exchanges or in  over-the-counter
markets. In connection with position hedging, the Fund may also purchase or sell
foreign currency on a spot basis.

     The  precise  matching  of  the  amounts  of  foreign   currency   exchange
transactions  and the  value  of the  portfolio  securities  involved  will  not
generally  be  possible  since the future  value of such  securities  in foreign
currencies  will change as a  consequence  of market  movements  in the value of
those  securities  between  the dates the  currency  exchange  transactions  are
entered into and the dates they mature.

     It is impossible  to forecast with  precision the market value of portfolio
securities  at the  expiration  or  maturity  of a forward or futures  contract.
Accordingly,  it may be necessary  for the Fund to purchase  additional  foreign
currency  on the spot  market  (and bear the  expense of such  purchase)  if the
market value of the security or securities  being hedged is less than the amount
of foreign  currency  the Fund is obligated to deliver and if a decision is made
to sell the security or securities  and make  delivery of the foreign  currency.
Conversely,  it may be  necessary to sell on the spot market some of the foreign
currency  received upon the sale of the portfolio  security or securities if the
market  value of such  security  or  securities  exceeds  the  amount of foreign
currency the Fund is obligated to deliver.

     Hedging  transactions  involve costs and may result in losses. The Fund may
write covered call options on foreign  currencies to offset some of the costs of
hedging those  currencies.  The Fund's  ability to engage in hedging and related
option transactions may be limited by tax considerations.

     Transaction  and  position  hedging do not  eliminate  fluctuations  in the
underlying  prices of the securities  which the Fund owns or intends to purchase
or sell. They simply  establish a rate of exchange which one can achieve at some
future point in time.  Additionally,  although these techniques seek to minimize
the risk of loss due to a decline in the value of the hedged currency, they seek
to limit any potential gain which might result from the increase in the value of
such currency.

     Currency Forward and Futures Contracts. A forward foreign currency exchange
contract  involves an  obligation  to purchase or sell a specific  currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the  parties,  at a price set at the time of the  contract.  In the
case of a cancelable  forward  contract,  the holder has the unilateral right to
cancel the  contract at maturity by paying a specified  fee. The  contracts  are
traded in the interbank  market  conducted  directly  between  currency  traders
(usually  large  commercial  banks)  and their  customers.  A  forward  contract
generally  has no deposit  requirement,  and no  commissions  are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified  amount of a foreign currency at a future
date at a  price  set at the  time of the  contract.  Foreign  currency  futures
contracts  traded in the U.S. are designed by and traded on exchanges  regulated
by the CFTC, such as the New York Mercantile Exchange.

     The Advisor  anticipates  that forward  contracts will be used primarily by
the Sub-Advisor to adjust the foreign  exchange  exposure of the Fund to protect
against  uncertainty in the level of future foreign exchange rates, and the Fund
might  be  expected   to  enter  into  such   contracts   under  the   following
circumstances:

     Lock In. When the  Sub-Advisor  desires to lock in the U.S. dollar price on
the purchase or sale of a security denominated in a foreign currency.

     Cross  Hedge.  If a  particular  currency is  expected to decrease  against
another  currency,  the Fund may sell the  currency  expected  to  decrease  and
purchase a currency  which is expected to increase  against the currency sold in
an amount  approximately equal to some or all of the Fund's holdings denominated
in the currency sold.

     Direct Hedge. If the Sub-Advisor  wants to eliminate  substantially  all of
the risk of owning a particular currency,  and/or if the Sub-Advisor thinks that
the Fund can benefit from price appreciation in a given country's bonds but does
not want to hold the  currency,  it may employ a direct hedge back into the U.S.
dollar. In either case, the Fund would enter into a forward contract to sell the
currency in which a portfolio  security is denominated and purchase U.S. dollars
at an exchange rate established at the time it initiated the contract.  The cost
of the direct  hedge  transaction  may  offset  most,  if not all,  of the yield
advantage  offered by the foreign  security,  but the Fund would hope to benefit
from an increase (if any) in value of the bond.

     Proxy Hedge. The Sub-Advisor  might choose to use a proxy hedge,  which may
be less costly than a direct hedge. In this case, the Fund,  having  purchased a
security,  will sell a currency  whose value is believed to be closely linked to
the currency in which the security is denominated.  Interest rates prevailing in
the country  whose  currency was sold would be expected to be closer to those in
the U.S. and lower than those of securities  denominated  in the currency of the
original holding.  This type of hedging entails greater risk than a direct hedge
because it is  dependent  on a stable  relationship  between the two  currencies
paired as proxies and the relationships can be very unstable at times.

     Forward foreign  currency  exchange  contracts differ from foreign currency
futures  contracts  in certain  respects.  For example,  the maturity  date of a
forward  contract  may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in any given month.
Forward  contracts may be in any amounts  agreed upon by the parties rather than
predetermined  amounts.  Also,  forward  foreign  exchange  contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.

     At the  maturity  of a forward  or  futures  contract,  the Fund may either
accept or make  delivery of the  currency  specified in the  contract,  or at or
prior to maturity  enter into a closing  transaction  involving  the purchase or
sale of an offsetting  contract.  Closing  transactions  with respect to forward
contracts are usually  effected  with the currency  trader who is a party to the
original  forward  contract.   Closing  transactions  with  respect  to  futures
contracts  are  effected  on a  commodities  exchange;  a  clearing  corporation
associated  with  the  exchange  assumes  responsibility  for  closing  out such
contracts.

     Positions in foreign currency  futures  contracts may be closed out only on
an  exchange  or  board of trade  which  provides  a  secondary  market  in such
contracts.  Although  the Fund  intends to  purchase  or sell  foreign  currency
futures contracts only on exchanges or boards of trade where there appears to be
an active secondary market, there can be no assurance that a secondary market on
an exchange or board of trade will exist for any  particular  contract or at any
particular  time.  In such  event,  it may not be  possible  to close a  futures
position and, in the event of adverse price  movements,  the Fund would continue
to be required to make daily cash payments of variation margin.

     Foreign Currency Options.  Options on foreign  currencies operate similarly
to  options on  securities,  and are traded  primarily  in the  over-the-counter
market,  although  options on foreign  currencies  have  recently been listed on
several  exchanges.  The Sub-Advisor  anticipates  that foreign currency options
will be  purchased  or written  only when it  believes  that a liquid  secondary
market  exists  for  such  options.  There  can be no  assurance  that a  liquid
secondary  market  will  exist for a  particular  option at any  specific  time.
Options  on  foreign  currencies  are  affected  by all of those  factors  which
influence foreign exchange rates and investments generally.

     The value of a foreign  currency  option is dependent upon the value of the
foreign  currency  and the  U.S.  dollar  and may  have no  relationship  to the
investment merits of a foreign security.  Because foreign currency  transactions
occurring in the interbank  market  involve  substantially  larger  amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying  foreign  currencies at
prices that are less favorable than for round lots.

     There is no  systematic  reporting  of last sale  information  for  foreign
currencies  and there is no regulatory  requirement  that  quotations  available
through  dealers or other market  sources be firm or revised on a timely  basis.
Available  quotation  information  is  generally  representative  of very  large
transactions in the interbank market and thus may not reflect relatively smaller
transactions  (less than $1  million)  where  rates may be less  favorable.  The
interbank market in foreign currencies is a global,  around-the-clock market. To
the extent that the U.S.  options  markets are closed  while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.

     Foreign  Currency  Conversion.  Although  foreign  exchange  dealers do not
charge a fee for  currency  conversion,  they do  realize a profit  based on the
difference  (the  "spread")  between prices at which they are buying and selling
various  currencies.  Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate,  while  offering  a lesser  rate of  exchange  should the Fund
desire to resell that currency to the dealer.

Asset Segregation

     The 1940 Act requires that the Fund  segregate  assets in  connection  with
certain types of transactions  that may have the effect of leveraging the Fund's
portfolio. If the Fund enters into a transaction requiring segregation,  such as
a forward commitment,  the custodian or the Advisor will segregate liquid assets
in an amount required to comply with the 1940 Act. Such  segregated  assets will
be valued at market daily.  If the  aggregate  value of such  segregated  assets
declines below the aggregate value required to satisfy the 1940 Act,  additional
liquid assets will be segregated.

Downgrades in Fixed Income Debt Securities

     The Advisor does not intend to purchase  illiquid or restricted  securities
(securities  that the Fund cannot  easily  resell  within  seven days at current
value or that have  contractual or legal  restrictions  on resale) or distressed
securities  (securities  which are the  subject  of  bankruptcy  proceedings  or
otherwise  in  default  as to the  repayment  of  principal  and/or  payment  of
interest).  However,  the Fund is not  required  to sell or  dispose of any debt
security that falls into either category subsequent to its purchase.

     If a security held by the Fund  subsequently  is categorized as illiquid or
restricted, the Fund may be unable to quickly resell the security quickly or may
be able to sell it only at a price  below  current  market  value or could  have
difficulty valuing this holding precisely.  Distressed  securities frequently do
not produce income while they are  outstanding  and may require the Fund to bear
certain  extraordinary  expenses in order to protect and recover its investment.
Therefore, the Fund's ability to achieve current income may be diminished.  Such
securities  are also subject to  uncertainty  as to when, in what manner and for
what  value the  obligations  evidenced  by the  distressed  securities  will be
satisfied.


The Advisor's and Sub-Advisor's Investment Process

     The Fund combines investments in high yield debt securities,  international
debt  securities  and  adjustable  rate  securities.  Each of these fixed income
sectors  has its  own  distinct  attributes  that  the  Advisor  believes  could
contribute to the potential  for the Fund to achieve its  investment  objective.
For example,  because  foreign  debt  securities  have the  potential to provide
higher  yield than U.S.  Treasuries  but do not always move in tandem with them,
international  diversification  may increase the yield potential and help manage
overall portfolio risk. Because adjustable rate  mortgage-backed  securities are
subject  to  periodic  yield  adjustments,  they  have the  potential  to absorb
interest  rate  changes  without  the wide price  swings of other  fixed  income
investments.  There is no  guarantee  that the Fund will  obtain its  investment
objective.

     As discussed in the  prospectus,  the Fund is managed  following a rigorous
investment  process that emphasizes both quality and value.  Each portion of the
Fund's assets is managed by its  respective  portfolio  management  team,  whose
investment strategies are summarized as follows.

     U.S. High Yield Debt  Securities.  The high yield team  emphasizes  quality
companies with stable or improving financial situations.  Extensive, proprietary
research  helps manage  risk,  as does broad  sector  diversification.  The team
considers both macro- and  microeconomic  factors - such as inflation,  consumer
spending and wages - that affect the conditions of firms in the portfolio.

     Adjustable  Rate  Securities.  The adjustable  rate team pursues a balanced
approach  targeting yield and price stability in all interest rate environments.
Using  proprietary  research,  the group seeks to manage risks  associated  with
adjustable  rate  mortgage-backed  securities.  Economic  issues that can affect
these  securities,  including  inflation,  employment  and GDP growth,  are also
analyzed.

     International  Debt Securities.  To uncover  opportunities in international
debt,  the  international  team  conducts  extensive  research of  economic  and
business conditions across a wide array of sectors and regions. In addition, the
team  seeks to reduce  risk  through  careful  management  of  foreign  currency
exposure.




                                       INVESTMENT RESTRICTIONS

     The Fund has  adopted the  fundamental  investment  restrictions  set forth
below  which may not be changed  without  the vote of a  majority  of the Fund's
outstanding  shares,  as  defined  in the 1940 Act.  If the Fund were to issue a
class of preferred  shares,  the  investment  restrictions  could not be changed
without  the  approval  of a majority of the  outstanding  common and  preferred
shares,  voting  together  as a class,  and the  approval  of a majority  of the
outstanding  preferred shares,  voting separately by class. Where necessary,  an
explanation  beneath a fundamental  policy  describes the Fund's  practices with
respect to that policy, as allowed by current law. If the law governing a policy
changes, the Fund's practices may change accordingly without a shareholder vote.
Unless otherwise  stated,  all references to the assets of the Fund are in terms
of current market value.

1.       Diversification

     The  Fund  may not  make  any  investment  that is  inconsistent  with  its
classification as a diversified investment company under the 1940 Act.

         Further Explanation of Diversification Policy:

     To remain  classified  as a diversified  investment  company under the 1940
Act, the Fund must conform with the following:  With respect to 75% of its total
assets,  a  diversified  investment  company  may not invest more than 5% of its
total assets,  determined at market or other fair value at the time of purchase,
in the  securities  of any  one  issuer,  or  invest  in  more  than  10% of the
outstanding  voting  securities  of any one  issuer,  determined  at the time of
purchase.  These limitations do not apply to investments in securities issued or
guaranteed  by  the  United   States  (U.S.)   government  or  its  agencies  or
instrumentalities.

2.       Concentration

     The Fund may not  concentrate  its investments in the securities of issuers
primarily  engaged in any particular  industry  (other than  securities that are
issued   or   guaranteed   by  the   U.S.   government   or  its   agencies   or
instrumentalities).

         Further Explanation of Concentration Policy:

     The Fund may not invest more than 25% of its total assets,  taken at market
value, in the securities of issuers primarily engaged in any particular industry
(other  than  securities  issued or  guaranteed  by the U.S.  government  or its
agencies or instrumentalities).


3.       Issuing Senior Securities

     Except  as  permitted  under the 1940  Act,  the Fund may not issue  senior
     securities.


         Further Explanation of Senior Securities Policy:

     The Fund may not  issue  any  class of  senior  security,  or sell any such
security of which it is the issuer,  unless (i) if such class of senior security
represents  an  indebtedness,  immediately  after such issuance or sale, it will
have an asset coverage of at least 300% or (ii) if such class of senior security
is a  stock,  immediately  after  such  issuance  or sale it will  have an asset
coverage of at least 200%.



4.       Borrowing

          The Fund may not  borrow  money,  except to the  extent  permitted  by
          applicable law.

         Further Explanation of Borrowing Policy:

     The Fund may borrow from banks and enter into reverse repurchase agreements
in an amount up to 33 1/3% of its total assets,  taken at market value. The Fund
intends to limit its borrowing  through reverse  repurchase  agreements to up to
20% of its total assets.  The Fund may also borrow up to an additional 5% of its
total assets from banks or others.  The Fund may purchase  securities  on margin
and engage in short sales to the extent permitted by applicable law.

5.       Underwriting

     The Fund may not underwrite securities of other issuers,  except insofar as
the Fund may be deemed to be an underwriter in connection  with the  disposition
of its portfolio securities.

6.       Real Estate

     The Fund may not purchase or sell real estate,  except that,  to the extent
permitted  by  applicable  law, the Fund may invest in (a)  securities  that are
directly or  indirectly  secured by real  estate,  or (b)  securities  issued by
issuers that invest in real estate.

7.       Commodities

     The Fund may not purchase or sell  commodities or contracts on commodities,
except to the extent that the Fund may engage in financial futures contracts and
related options and currency  contracts and related options and may otherwise do
so in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act.

8.       Lending

     The Fund may not make loans to other persons, except that the Fund may lend
its portfolio  securities in accordance  with applicable law. The acquisition of
investment securities or other investment  instruments shall not be deemed to be
the making of a loan.

         Further Explanation of Lending Policy:

          To generate  income and offset  expenses,  the Fund may lend portfolio
     securities to broker-dealers and other financial  institutions in an amount
     up to 33 1/3% of its total assets,  taken at market value. While securities
     are on loan,  the  borrower  will pay the Fund any income  accruing  on the
     security.  The Fund may invest any  collateral  it receives  in  additional
     portfolio securities, such as U.S. Treasury notes, certificates of deposit,
     other   high-grade,   short-term   obligations  or  interest  bearing  cash
     equivalents.  Increases or decreases in the market value of a security lent
     will affect the Fund and its shareholders.

          When the Fund lends its  securities,  it will  require the borrower to
     give the Fund  collateral in cash or government  securities.  The Fund will
     require  collateral  in an  amount  equal to at least  100% of the  current
     market value of the securities lent,  including accrued interest.  The Fund
     has the right to call a loan and  obtain  the  securities  lent any time on
     notice of not more than five  business  days.  The Fund may pay  reasonable
     fees in connection with such loans.

          All other investment  policies of the Fund in the prospectus under the
     heading "Investment  Objective and Principal Investment  Strategies" and in
     this  statement of  additional  information  under the heading  "Investment
     Objective and Policies" are considered  non-fundamental  and may be changed
     by the Board of Trustees  without prior approval of the Fund's  outstanding
     voting shares.

          Under the 1940 Act,  the Fund may invest up to 10% of its total assets
     in the  aggregate in shares of other  investment  companies and up to 5% of
     its total assets in any one  investment  company,  provided the  investment
     does  not  represent  more  than 3% of the  voting  stock  of the  acquired
     investment company at the time such shares are purchased.  As a shareholder
     in any  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 advisory fees and other expenses with respect to assets so invested.
     Holders of common shares would therefore be subject to duplicative expenses
     to the extent the Fund invests in other investment companies.  In addition,
     the securities of other investment companies may also be leveraged and will
     therefore be subject to the same leverage risks described herein and in the
     prospectus. As described in the prospectus 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.

          In addition, to comply with federal tax requirements for qualification
     as a "regulated investment company," the Fund's investments will be limited
     in a manner such that at the close of each quarter of each tax year, (a) no
     more than 25% of the value of the Fund's  total  assets are invested in the
     securities (other than United States government securities or securities of
     other  regulated  investment  companies)  of a single issuer or two or more
     issuers  controlled by the Fund and engaged in the same, similar or related
     trades or  businesses  and (b) with  regard  to at least 50% of the  Fund's
     total  assets,  no more than 5% of its total  assets  are  invested  in the
     securities (other than United States government securities or securities of
     other regulated investment companies) of a single issuer. These tax-related
     limitations  may be changed by the  Trustees to the extent  appropriate  in
     light of changes to applicable tax requirements.



                                     MANAGEMENT OF THE FUND

Trustees of the Fund

          The Fund's  Board of  Trustees  provides  broad  supervision  over the
     Fund's  affairs.  The Trustees  meet  periodically  throughout  the year to
     oversee the Fund's  activities,  reviewing,  among other things, the Fund's
     performance   and  its  contractual   arrangements   with  various  service
     providers. Each Trustee is paid a fee for his or her services. The officers
     of the Fund are responsible for the Fund's operations.  The Fund's Trustees
     and officers are listed below,  together with their  principal  occupations
     during the past five years.


          The Trustees are not required to contribute to the capital of the Fund
     or to hold shares in the Fund.  A majority of the  Trustees are persons who
     are not  "interested  persons"  (as  defined  in the 1940  Act) of the Fund
     (collectively, the "Disinterested Trustees").

          The Fund has an  Executive  Committee  which  consists  of  Michael S.
     Scofield, K. Dun Gifford and Russell A. Salton III, M.D., each of whom is a
     Disinterested  Trustee. The Executive Committee recommends Trustees to fill
     vacancies,  prepares the agenda for Board of Trustees  meetings and acts on
     routine  matters  between  scheduled  Board  of  Trustees.   The  Executive
     Committee  may solicit  suggestions  for persons to fill  vacancies  on the
     Board of Trustees from such sources as they deem appropriate, including the
     Advisor.  Nominations by shareholders will not be considered.  The Trustees
     will consider such  nominations  at the next regularly  scheduled  Board of
     Trustees meeting.

          The Fund has an  Audit  Committee  which  consists  of K. Dun  Gifford
     (Chairperson),  Charles A.  Austin  III,  Gerald M.  McDonnell,  William W.
     Pettit and Russell A. Salton III,  M.D. The purpose of the Audit  Committee
     is to evaluate financial  management,  meet with the auditors and deal with
     other matters of a financial nature that they deem  appropriate.  The Audit
     Committee is comprised entirely of Disinterested Trustees.

          The Fund has a  Performance  Committee  which  consists  of Richard J.
     Shima  (Chairperson),  Leroy  Keith,  Jr.,  Richard K. Wagoner and David M.
     Richardson.  The  Performance  Committee  reviews all activities  involving
     investment-related  issues  and  activities  of the  Advisor  to the  Fund,
     reviews the  performance  of the other service  providers to the Fund,  and
     assesses the performance of the Fund.


          Set  forth  below  are the  Trustees  of the  Fund.  Unless  otherwise
     indicated,  the address for each  Trustee is 200 Berkeley  Street,  Boston,
     Massachusetts 02116.

Disinterested Trustees:

<TABLE>
<CAPTION>

-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
                                                                                                   Number of           Other
        Name and                                                                                   Portfolios      Trusteeships
                            Position      Beginning                                               Overseen in      held outside
      Date of Birth           with      Year of Term     Principal Occupations for Last Five       Evergreen       of Evergreen
                              Fund       of Office*                     Years                    Funds complex     Funds complex
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------

<S>                          <C>            <C>        <C>                                            <C>              <C>

Charles A. Austin III        Trustee        2003       Investment Counselor, Anchor Capital           107              None
======================       =======        ====       =====================================          ===              ====
                                                       Advisors, Inc. (investment advice);
                                                       ====================================
                                                       Former Director, Executive Vice
                                                       ================================
                                                       President and Treasurer, State Street
                                                       ======================================
                                                       Research & Management Company
                                                       ==============================
                                                       (investment advice); Director, The
                                                       ===================================
                                                       Andover Companies (insurance); Trustee,
                                                       ========================================
                                                       Arthritis Foundation of New England;
                                                       =====================================
DOB: 10/23/34                                          Director, The Francis Ouimet Society;
=============                                          ======================================
                                                       Former Investment Counselor, Appleton
                                                       =====================================
                                                       Partners, Inc. (investment advice);
                                                       ===================================
                                                       Former Director, Health Development
                                                       ===================================
                                                       Corp. (fitness-wellness centers);
                                                       =================================
                                                       Former Director, Mentor Income Fund,
                                                       ====================================
                                                       Inc.; Former Trustee, Mentor Funds and
                                                       ======================================
                                                       Cash Resource Trust.
                                                       ====================

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

K. Dun Gifford               Trustee        2003       Chairman and President, Oldways                107              None
===============              =======        ====       ================================               ===              ====
                                                       Preservation and Exchange Trust
                                                       ================================
                                                       (education); Trustee, Treasurer and
                                                       ====================================
                                                       Chairman of the Finance Committee,
                                                       ===================================
                                                       Cambridge College; Former Managing
                                                       ===================================
                                                       Partner, Roscommon Capital Corp.;
                                                       ==================================
                                                       Former Chairman of the Board, Director,
                                                       ========================================
DOB: 10/23/38                                          and Executive Vice President, The
=============                                          ==================================
                                                       London Harness Company (leather goods
                                                       =====================================
                                                       purveyor); Former Chairman, Gifford,
                                                       ====================================
                                                       Drescher & Associates (environmental
                                                       ====================================
                                                       consulting); Former Director, Mentor
                                                       ====================================
                                                       Income Fund, Inc.; Former Trustee,
                                                       ==================================
                                                       Mentor Funds and Cash Resource Trust.
                                                       =====================================

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

                                                       Partner, Stonington Partners, Inc.
                                                       (private investment firm); Trustee of
                                                       Phoenix Series Fund, Phoenix
                                                       Multi-Portfolio Fund, and The Phoenix
                                                       Big Edge Series Fund; Former Chairman                     Trustee, Phoenix
                                                       of the Board and Chief Executive                          Series Fund,
                                                       Officer, Carson Products Company                          Phoenix
Leroy Keith, Jr.             Trustee        2003       (manufacturing); Former Director of            107        Multi-Portfolio
=================            =======        ====       ====================================           ===        ===============
DOB: 2/14/39                                           Phoenix Total Return Fund and Equifax,                    Fund, and The
============                                           =======================================                   =============
                                                       Inc. (worldwide information                               Phoenix Big Edge
                                                       management); Former President,                            Series Fund
                                                       Morehouse College; Former Director,
                                                       Mentor Income Fund, Inc.; Former
                                                       Trustee, Mentor Funds and Cash Resource
                                                       Trust.

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

                                                       Sales Manager, SMI-STEEL - South
                                                       Carolina (steel producer); Former Sales
Gerald M. McDonnell                                    and Marketing Management, Nucor Steel
DOB: 7/14/39                 Trustee        2003       Company; Former Director, Mentor Income        107              None
============                 =======        ====       ========================================       ===              ====
                                                       Fund, Inc.; Former Trustee, Mentor
                                                       ==================================
                                                       Funds and Cash Resource Trust.
                                                       ==============================

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

                                                       Partner and Vice President in the law
                                                       firm of Kellam & Pettit, P.A.; Former
William Walt Pettit          Trustee        2003       Director, Mentor Income Fund, Inc.;            107              None
===================          =======        ====       ====================================           ===              ====
DOB: 8/26/55                                           Former Trustee, Mentor Funds and Cash
=============                                          =====================================
                                                       Resource Trust.

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

                                                       President, Richardson, Runden & Company
                                                       ========================================
                                                       (new business development/consulting
                                                       =====================================
                                                       company); Managing Director, Kennedy
                                                       =====================================
                                                       Information, Inc. (executive
                                                       =============================
                                                       recruitment information and research
                                                       =====================================
                                                       company); Trustee, 411 Technologies,
                                                       =====================================
                                                       LLP (communications); Director, J&M
                                                       ====================================
                                                       Cumming Paper Co. (paper
                                                       =========================
David M. Richardson                                    merchandising); Columnist, Commerce and
DOB: 9/19/41                 Trustee        2003       Industry Association of New Jersey;            107              None
============                 =======        ====       ====================================           ===              ====
                                                       Former Vice Chairman, DHR
                                                       =========================
                                                       International, Inc. (executive
                                                       ==============================
                                                       recruitment); Former Senior Vice
                                                       ================================
                                                       President, Boyden International Inc.
                                                       ====================================
                                                       (executive recruitment); Former
                                                       ===============================
                                                       Director, Mentor Income Fund, Inc.;
                                                       ===================================
                                                       Former Trustee, Mentor Funds and Cash
                                                       =====================================
                                                       Resource Trust.
                                                       ===============

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

                                                       Medical Director, Healthcare Resource
                                                       Associates, Inc.; Former Medical
                                                       Director, U.S. Health Care/Aetna Health
Russell A. Salton, III MD                              Services; Former Consultant, Managed
DOB: 6/2/47                  Trustee        2003       Health Care; Former President, Primary         107              None
===========                  =======        ====       =======================================        ===              ====
                                                       Physician Care; Former Director, Mentor
                                                       =======================================
                                                       Income Fund, Inc.; Former Trustee,
                                                       ==================================
                                                       Mentor Funds and Cash Resource Trust.
                                                       =====================================

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


<PAGE>



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

                                                       Attorney, Law Offices of Michael S.
Michael S. Scofield                                    Scofield; Former Director, Mentor
DOB: 2/20/43                 Trustee        2003       Income Fund, Inc.; Former Trustee,             107              None
============                 =======        ====       ===================================            ===              ====
                                                       Mentor Funds and Cash Resource Trust.
                                                       =====================================

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

Richard J. Shima             Trustee        2003       Independent Consultant; Director, Trust        107              None
================             =======        ====       ========================================       ===              ====
                                                       Company of CT; Trustee, Saint Joseph
                                                       =====================================
                                                       College (CT); Director of Hartford
                                                       ===================================
                                                       Hospital, Old State House Association;
                                                       =======================================
                                                       Trustee, Greater Hartford YMCA; Former
                                                       =======================================
                                                       Chairman, Environmental Warranty, Inc.
                                                       =======================================
                                                       (insurance agency); Former Executive
                                                       =====================================
                                                       Consultant, Drake Beam Morin, Inc.
                                                       ===================================
                                                       (executive outplacement); Former
                                                       =================================
DOB: 8/11/39                                           Director of Enhance Financial Services,
============                                           ========================================
                                                       Inc.; Former Director of CTG Resources,
                                                       =======================================
                                                       Inc. (natural gas); Former Director
                                                       ===================================
                                                       Middlesex Mutual Assurance Company;
                                                       ===================================
                                                       Former Chairman, Board of Trustees,
                                                       ===================================
                                                       Hartford Graduate Center; Former
                                                       ================================
                                                       Director, Mentor Income Fund, Inc.;
                                                       ===================================
                                                       Former Trustee, Mentor Funds and Cash
                                                       =====================================
                                                       Resource Trust.
                                                       ===============

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

Interested Trustee:

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









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

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

Richard K. Wagoner,         Trustee        2003     Current Member and Former President, North        107              None
====================        =======        ====     ===========================================       ===              ====
                                                    Carolina Securities Traders Association;
                                                    =========================================
                                                    Member, Financial Analysts Society; Former
                                                    ===========================================
                                                    Chief Investment Officer, Executive Vice
                                                    =========================================
                                                    President and Head of Capital Management
                                                    =========================================
CFA**                                               Group, First Union National Bank; Former
DOB: 12/12/37                                       Consultant to the Boards of Trustees of
                                                    the Evergreen Funds; Former Member, New
                                                    York Stock Exchange; Former Trustee,
                                                    Mentor Funds and Cash Resource Trust.

------------------------ -------------- ----------- -------------------------------------------- --------------- ------------------
</TABLE>

* Each  Trustee  serves  until a successor is duly elected or qualified or until
his death, resignation, retirement or removal from office.


** Mr. Wagoner is an  "interested  person" of the funds because of his ownership
of shares in Wachovia Corporation (formerly First Union Corporation), the parent
to the Advisor.





Trustee Ownership of Evergreen Funds Shares


          Set forth below is the dollar range of the Trustees' investment in the
     Fund and the  aggregate  dollar range of their  investment in the Evergreen
     fund complex,  as of December 31, 2002.  As of December 31, 2002,  the Fund
     had not been formed and therefore had not issued any shares.


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



                                                    Aggregate Dollar Range
Trustees                        Dollar Range of     of Investment in Fund
                               Investment in Fund           Complex

------------------------------ -------------------- ------------------------
============================== ==================== ========================

Charles A. Austin, III*                $0           Over $100,000
=======================                ==           =============

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

K. Dun Gifford*                        $0           $0**
===============                        ==           ====

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

Leroy Keith, Jr.                       $0           $0
================                       ==           ==

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

Gerald M. McDonnell*                   $0           $10,001-$50,000
====================                   ==           ===============

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

William Walt Pettit*                   $0           $10,001-$50,000
====================                   ==           ===============

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

David M. Richardson                    $0           $10,001-$50,000
===================                    ==           ===============

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

Russell A. Salton, III*                $0           $0
=======================                ==           ==

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

Michael S. Scofield*                   $0           Over $100,000
====================                   ==           =============

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

Richard J. Shima                       $0           Over $100,000
================                       ==           =============

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

Richard K. Wagoner                     $0           Over $100,000
==================                     ==           =============

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


* In addition to the above  investment  amounts,  the Trustee has over  $100,000
indirectly   invested  in  certain  of  the  Evergreen  funds  through  Deferred
Compensation  plans.

** In January  2003,  Mr.  Gifford made an  investment  of
$10,001-$50,000 in the Evergreen Funds complex.




<PAGE>

<TABLE>
<CAPTION>


Officers of the Fund

         Set forth below are the officers of the Fund.

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

                                   Position with Fund               Principal Occupation for Last Five Years
         Name, Address
       and Date of Birth

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



<S>                              <C>                      <C>

                                 President                President and Chief Executive Officer, Evergreen Investment
William M. Ennis                                          Company and Chief Operating Officer, Capital Management
301 S. Tryon, 12th Floor                                  Group, Wachovia Bank, N.A.
Charlotte, NC 28288
DOB: 6/26/60


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


Carol Kosel                      Treasurer                Senior Vice President, Evergreen Investment Services, Inc.
200 Berkeley Street                                       and Treasurer, Vestaur Securities, Inc.; former Senior
Boston, MA 02116                                          Manager, KPMG LLP.
DOB: 12/25/63

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


                                                          Senior Vice President and General Counsel, Evergreen
Michael H. Koonce                Secretary                Investment Services, Inc.; Senior Vice President and
200 Berkeley Street                                       Assistant General Counsel, Wachovia Corporation; former
Boston, MA 02116                                          Senior Vice President and General Counsel, Colonial
                                                          Management Associates, Inc.; former Vice President and
DOB: 4/20/60                                              Counsel, Colonial Management Associates, Inc.

-------------------------------- ------------------------ -------------------------------------------------------------
</TABLE>


Trustees Compensation


          Listed below is the Trustee  compensation  estimated to be paid by the
     Fund  individually  for the period  beginning , 2003 and ending on December
     31,  2003  and by the  Fund  and the  nine  trusts  and one  other  limited
     liability company in the Evergreen fund complex for the twelve months ended
     December  31, 2002.  As of December 31, 2002,  the Fund had not been formed
     and therefore did not pay compensation to the Trustees for that period. The
     Trustees do not receive pension or retirement benefits from the Fund.



===============================================================================
<TABLE>
<CAPTION>


           Trustee               Aggregate Compensation    Total Compensation from the
                                       from Fund             Evergreen Fund Complex *

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

<S>                                         <C>                      <C>


Charles A. Austin, III                      $                        $125,000
======================                      =                        ========

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

K. Dun Gifford                              $                        $143,500
==============                              =                        ========

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

Leroy Keith, Jr.                            $                        $125,000
================                            =                        ========

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

Gerald M. McDonnell                         $                        $134,727
===================                         =                        ========

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

William Walt Pettit                         $                        $125,000
===================                         =                        ========

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

David M. Richardson                         $                        $125,000
===================                         =                        ========

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

Russell A. Salton, III                      $                        $144,000
======================                      =                        ========

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

Michael S. Scofield                         $                        $160,000
===================                         =                        ========

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

Richard J. Shima                            $                        $125,000
================                            =                        ========

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

Richard K. Wagoner                          $                        $125,000
==================                          =                        ========

=========================================================================================
</TABLE>

* Certain Trustees have elected to defer all or part of their total compensation
for the twelve months ended  December 31, 2002. The amounts listed below will be
payable in later years to the respective Trustees:


Austin                $93,750
======                =======
Pettit               $125,000
======               ========
Scofield             $125,000
========             ========



          Election  of  Trustees is  non-cumulative.  Accordingly,  holders of a
     majority of the outstanding common shares may elect all of the trustees who
     may be elected by such holders.

Limitation of Trustees' Liability

          The Agreement and  Declaration  of Trust  provides that a Trustee will
     not be liable  for  errors of  judgment  or  mistakes  of fact or law,  but
     nothing  in the  Agreement  and  Declaration  of Trust  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
     his duties  involved in the conduct of his office or the  discharge  of his
     functions.

          In addition,  the Fund's  Agreement and  Declaration of Trust provides
     that the Fund will indemnify its Trustees and officers against  liabilities
     and expenses in connection  with the  performance of their duties on behalf
     of the Fund to the fullest extent permitted by law, including the advancing
     of expenses incurred in connection therewith.  Under Delaware law, the Fund
     is entitled to indemnify and hold harmless any Trustee or other person from
     and against any and all claims and demands whatsoever.  Indemnification may
     be  against  judgments,   penalties,   fines,  compromises  and  reasonable
     accountants'  and counsel fees actually  incurred by the Trustee or officer
     in connection with the proceeding.

          In  the  view  of the  staff  of the  Commission,  an  indemnification
     provision   is   consistent   with  the  1940  Act  if  it  (1)   precludes
     indemnification for any liability,  whether or not there is an adjudication
     of liability,  arising by reason of willful  misfeasance,  bad faith, gross
     negligence or reckless  disregard of the duties  described in Section 17(h)
     and (i) of the 1940 Act ("disabling conduct") and (2) sets forth reasonable
     and fair means for determining  whether  indemnification  shall be made; in
     the case of the Fund, "reasonable and fair means" would include (1) a final
     decision on the merits by a court or other body before whom the  proceeding
     was brought that the person to be indemnified ("indemnitee") was not liable
     by  reason  of  disabling   conduct   (including  a  dismissal  because  of
     insufficiency of evidence) and (2) a reasonable determination, based upon a
     review  of the  facts,  that the  indemnitee  was not  liable  by reason of
     disabling conduct by (a) the vote of a majority of a quorum of Trustees who
     are neither "interested persons" of the Fund as defined in Section 2(a)(19)
     of the 1940 Act nor parties to the proceeding,  or (b) a written opinion of
     independent legal counsel.

          The indemnification rights provided or authorized by the Agreement and
     Declaration  of Trust or  applicable  law are not  exclusive  of any  other
     rights to which a person seeking  indemnification may be entitled. The Fund
     intends to obtain liability insurance at its expense for the benefit of its
     Trustees and officers  which includes  coverage for liability  arising from
     the  performance  of  their  duties  on  behalf  of the  Fund  which is not
     inconsistent  with the  indemnification  provisions  of the  Agreement  and
     Declaration of Trust and applicable law.



         THE ADVISOR, ADMINISTRATOR AND TRANSFER AGENT

Advisor


          Evergreen  Investment  Management Company,  LLC (previously defined as
     the "Advisor"),  a wholly owned  subsidiary of Wachovia Bank,  N.A., is the
     investment  adviser to the Fund.  Wachovia Bank, N.A., located at 201 South
     College Street,  Charlotte,  North Carolina 28288-0630,  is a subsidiary of
     Wachovia  Corporation,  formerly First Union  Corporation.  As of March 31,
     2003,  the Advisor had more than $229 billion in assets  under  management,
     including more than $93 billion in fixed income  assets.  Among these fixed
     income assets under management were almost $4 billion in high yield assets,
     more than $15 billion in adjustable rate assets and more than $8 billion in
     international  bond  assets.  The  Advisor  has a 70-year  history of money
     management  and is the 12th  largest  mutual  fund  company  in the  United
     States. The Advisor employs over 350 investment  professionals and has more
     than 4 million individual and institutional clients.


          The Advisor is a Delaware limited  liability  company.  The Advisor is
     registered  with  the  Commission  as  an  investment   adviser  under  the
     Investment  Advisers Act of 1940, as amended.  The business  address of the
     Advisor and its  officers  and  Trustees is 200  Berkeley  Street,  Boston,
     Massachusetts  02116-5034.  Subject  to  the  authority  of  the  Board  of
     Trustees,  the Advisor is responsible for overall  management of the Fund's
     business affairs.


          Day-to-day  management of the portion of the Fund's  portfolio that is
     described as the U.S. high yield debt securities  portion in the prospectus
     under "Investment Objective and Principal Investment Strategies - Principal
     Investment  Strategies-  U.S.  High  Yield  Debt  Securities"  above is the
     responsibility  of a team of portfolio  management  professionals  from the
     Advisor's  High  Yield  Bond  team,  which  includes  specialized  industry
     analysts  responsible  for  various  sectors.  The team is led by  Prescott
     Crocker,  CFA,  who has  more  than 25 years  of  fixed  income  investment
     experience.  Mr. Crocker has been a managing  director and senior portfolio
     manager with the Advisor since 1997.  Among the portfolios the team manages
     is the open-end Evergreen High Yield Bond Fund and the closed-end Evergreen
     Income Advantage Fund.  Together the team managed almost $4 billion in high
     yield  securities  as of March 31,  2003.  To help  manage  risk,  the team
     focuses on  higher-quality  high yield  corporate debt securities and seeks
     companies with improving operating profiles and strong balance sheets.

          Day-to-day  management of the portion of the Fund's  portfolio that is
     described  as  the  adjustable   rate  portion  in  the  prospectus   under
     "Investment  Objectives  and  Principal  Investment  Strategies - Principal
     Investment   Strategies  -  Adjustable  Rate   Securities"   above  is  the
     responsibility  of a team of portfolio  management  professionals  from the
     Advisor's   Customized   Fixed  Income  team.  The  team  is  led  by  Lisa
     Brown Premo,  who has  more  than 19 years of  investment  experience.  Ms.
     Brown Premo has been with the Advisor since 1986 and currently  serves as a
     managing director and senior portfolio manager. She serves as Group Manager
     for mortgage-backed  securities and structured products.  Together the team
     managed almost $15 billion in assets under management as of March 31, 2003.
     The  team  focuses  on  high-quality  securities  that  may  enhance  price
     stability by quickly absorbing changes in interest rates.

          Day-to-day  management of the portion of the Fund's  portfolio that is
     described as the foreign debt  securities  portion in the prospectus  under
     "Investment  Objectives  and  Principal  Investment  Strategies - Principal
     Investment   Strategies   -   Foreign   Debt   Securities"   above  is  the
     responsibility  of a team  of  portfolio  management  professionals  of the
     Sub-Advisor.  The Sub-Advisor  managed  approximately $8 billion in assets,
     which includes one of the Evergreen  Funds,  as of March 31, 2003. The team
     is led by  George  McNeill,  who has  more  than  40  years  of  investment
     experience,  working  exclusively  in fixed income  markets since 1977. Mr.
     McNeill joined the  Sub-Advisor in 1990 and currently  serves as a managing
     director. The team emphasizes strict quantitative disciplines and continual
     risk monitoring.


Investment Management Contract


          The Board of  Trustees,  including  a  majority  of the  Disinterested
     Trustees,  has the responsibility  under the 1940 Act to approve the Fund's
     management  contract  for its initial  term and  annually  thereafter  at a
     meeting called for the purpose of voting on such matters.  The Fund's Board
     of Trustees,  including the Disinterested Trustees, approved the management
     contract for an initial  two-year  term on April 25, 2003. In approving the
     management  contract,  the  Trustees  reviewed  materials  provided  by the
     Advisor and considered the following:  (1) the level of the management fees
     and estimated expense ratio of the Fund as compared to competitive funds of
     a comparable  size; (2) the nature and quality of the services  rendered by
     the Advisor to the Fund,  (3) the costs of providing  services to the Fund,
     and (4) the  anticipated  profitability  of the  Fund  to the  Advisor.  In
     particular,  the Trustees considered the outstanding  performance  achieved
     over the one-, three-, and five-year periods ended February 28, 2003 by the
     Advisor's  portfolio  management teams responsible for managing  high-yield
     bond and adjustable rate  mortgage-backed  security portfolios for open-end
     funds.  The  Trustees  also  noted  that the  proposed  management  fee was
     competitive  with (and  generally  lower  than)  those of other  comparable
     leveraged  closed-end  funds.  Prior  to the  commencement  of  the  Fund's
     operations, the management contract will also be considered for approval by
     the Fund's sole shareholder.


          The management contract will continue in effect for two years from its
     effective date and, thereafter, from year to year only if approved at least
     annually  by the Board of Trustees or by a vote of a majority of the Fund's
     outstanding  voting  securities  (as  provided in the 1940 Act).  In either
     case, the terms of the management  contract and continuance thereof must be
     approved by the vote of a majority of the  Disinterested  Trustees  cast in
     person at a meeting called for the purpose of voting on such approval.  The
     management contract may be terminated, without penalty, on 60 days' written
     notice  by the  Fund's  Board of  Trustees  or by a vote of a  majority  of
     outstanding voting securities of the Fund or by the Advisor by either party
     to the other. The management contract will terminate automatically upon its
     "assignment" as that term is defined in the 1940 Act.

          Under the management  contract,  and subject to the supervision of the
     Fund's Board of  Trustees,  the Advisor  furnishes  to the Fund  investment
     advisory,  management and administrative services,  office facilities,  and
     equipment in connection  with its services for managing the  investment and
     reinvestment of the Fund's assets. The Advisor pays for all of the expenses
     incurred in connection with the provision of its services.

          Pursuant  to the  management  contract,  the Advisor may enter into an
     agreement  to retain,  at its own  expense,  a firm or firms to provide the
     Fund with all of the  services  to be  provided  by the  Advisor  under the
     management  contract,  provided  such  agreement is approved as required by
     law.

          The management contract further provides that the Advisor shall not be
     liable for any error of judgment or mistake of law or for any loss suffered
     by the Fund in connection with the  performance of such contract,  except a
     loss resulting from the Advisor's  willful  misfeasance,  bad faith,  gross
     negligence, or reckless disregard by it of its obligations and duties under
     such contract.


          The  management  contract  provides  that  the Fund  shall  pay to the
     Advisor a fee for its  services  which is equal to the annual rate of 0.55%
     of the Fund's average weekly Total Assets. The advisory fee will be payable
     monthly.


Sub-Advisor


          As authorized by the Advisory Agreement, First International Advisors,
     LLC, d/b/a  Evergreen  International  Advisors  (previously  defined as the
     "Sub-Advisor") has been assigned  responsibility  for providing  day-to-day
     investment management services to the portion of the Fund's assets that are
     invested in foreign  debt  securities,  subject to the  supervision  of the
     Advisor. The Sub-Advisor is located at Centurion House, 24 Monument Street,
     London,  England,  U.K.  EC3R 8AQ.  The  Sub-Advisor,  an  affiliate of the
     Advisor, is a wholly-owned subsidiary of Wachovia Corporation.


Investment Sub-Advisory Agreement


          The Sub-Advisor provides services to the Fund pursuant to the terms of
     a  sub-advisory   agreement  entered  into  between  the  Advisor  and  the
     Sub-Advisor   dated  as  of   April, 25, 2003  (the   "Sub-Advisory
     Agreement").  In consideration of the services provided by the Sub-Advisor,
     the  Advisor  pays a monthly fee to the  Sub-Advisor  equal to 0.05% of the
     Fund's Total Assets.

          The  Sub-Advisory  Agreement  was  approved  by the Board of  Trustees
     (including a majority of the Disinterested  Trustees) on April 25, 2003. In
     approving the Sub-Advisory  Agreement,  the Trustees  considered the nature
     and  quality  of  the  services  to be  provided  by  the  Sub-Advisor.  In
     particular,  the Trustees noted that the Sub-Advisor's portfolio management
     team had achieved  well-above average performance for the one-, three-, and
     five-year  periods  ended  February  28, 2003 in managing an  international
     fixed-income  security  portfolio for an open-end  fund.  The Trustees also
     considered  the  fact  that  the  Sub-Advisor's  fee  would  be paid by the
     Advisor.  The  Sub-Advisory  Agreement  will be approved by the Fund's sole
     shareholder before the Fund commences operations.

          The  Sub-Advisory  Agreement has an initial term of two years from the
     date of its  execution,  and may be  continued  in effect from year to year
     thereafter  if such  continuance  is  approved  annually  by the  Board  of
     Trustees or by vote of a majority of the outstanding  voting  securities of
     the Fund; provided that in either event the continuance is also approved by
     a  majority  of the  Disinterested  Trustees  by vote  cast in  person at a
     meeting called for the purpose of voting on such approval. The Sub-Advisory
     Agreement is terminable without penalty,  on 60 days' prior written notice:
     by the Board of Trustees,  by vote of a majority of the outstanding  voting
     securities  of  the  Fund;  by the  Advisor;  or by  the  Sub-Advisor.  The
     Sub-Advisory  Agreement also provides that it will terminate  automatically
     in the event of its  "assignment," as defined by the 1940 Act and the rules
     thereunder.


          Under the Sub-Advisory Agreement,  the Advisor will indemnify,  defend
     and hold harmless the Sub-Advisor and its officers, directors, shareholders
     and employees  from and against any and all claims,  liabilities,  actions,
     judgments,  causes of  action,  fines,  assessments,  penalties,  costs and
     expenses (including,  but not limited to, reasonable attorneys' fees, court
     costs,  the costs associated with  investigating  any claims and any agreed
     upon amount paid in settlement) arising out of, relating to or otherwise in
     connection with the Sub-Advisory  Agreement or the services provided by the
     Sub-Advisor  thereunder  or otherwise  relating to the Advisor or the Fund,
     their  operations  or  investors  in the  Fund,  except  where a  court  of
     competent jurisdiction has finally determined (excluding any appeal of such
     decision  unless such  decision is stayed  pending  such  appeal)  that the
     claim,  liability,  action,  judgment,  cause of action, fine,  assessment,
     penalty,  costs or expenses arose  directly out of the gross  negligence or
     willful  misconduct of the Sub-Advisor in rendering its services under this
     Agreement.

Administrator


          Evergreen Investment Services,  Inc. ("EIS"), serves as administrator,
     subject to the supervision and control of the Fund's Board of Trustees. EIS
     provides the Fund with  administrative  office  facilities,  equipment  and
     personnel. For these services, the Fund will pay a monthly fee at an annual
     rate of 0.05% of its Total Assets.


Transfer Agent


          EquiServe  Trust  Company,  N.A.  ("EquiServe")  has  entered  into  a
     transfer  agency and  service  agreement  with the Fund  pursuant to which,
     among other services,  EquiServe  provides certain transfer agency services
     to the Fund. The transfer agency and service agreement may be terminated by
     the Fund or EquiServe  (without  penalty) at any time upon not less than 60
     days' prior written notice to the other party to the agreement.


Code of Ethics


          The Fund,  Advisor  and the  Sub-Advisor  have each  adopted a code of
     ethics as required  under the 1940 Act.  Subject to certain  conditions and
     restrictions,  these codes permit personnel  subject to the codes to invest
     in securities  for their own  accounts,  including  securities  that may be
     purchased,  held or sold by the Fund.  Securities  transactions  by some of
     these persons may be subject to prior approval.  Securities transactions of
     certain   personnel   are  subject  to  quarterly   reporting   and  review
     requirements.  The codes of the Fund, Advisor and Sub-Advisor are on public
     file with, and available from, the Commission.


          The codes of ethics may be  reviewed  and  copied at the  Commission's
     Public  Reference  Room ("PRR"),  in  Washington,  D.C.  Information on the
     operation  of  the  PRR  may be  obtained  by  calling  the  Commission  at
     1-202-942-8090.  The  codes of  ethics  are  also  available  on the  EDGAR
     database on the Commission's  Internet site at  http://www.sec.gov.  Copies
     are also available  (subject to a duplicating  fee) at the following E-mail
     address:   publicinfo@sec.gov,   or  by  writing  the  Commission's  Public
     Reference Section, Washington, D.C. 20549-0102.

Potential Conflicts of Interest

          The Fund is managed by the Advisor and its affiliate, the Sub-Advisor,
     which both also serve as  investment  adviser and  investment  sub-adviser,
     respectively,  to other  Evergreen funds and other accounts with investment
     objectives identical or similar to those of the Fund. Securities frequently
     meet the investment  objectives of the Fund, the other  Evergreen funds and
     such other accounts. In such cases, the decision to recommend a purchase to
     one fund or account  rather  than  another is based on a number of factors.
     The  determining  factors in most cases are the amount of securities of the
     issuer then  outstanding,  the value of those securities and the market for
     them. Other factors  considered in the investment  recommendations  include
     other  investments which each fund or account presently has in a particular
     industry and the availability of investment funds in each fund or account.

          It is possible that at times identical securities will be held by more
     than one fund and/or account. However, positions in the same issue may vary
     and the  length of time  that any fund or  account  may  choose to hold its
     investment  in the same issue may  likewise  vary.  To the extent that more
     than one of the Evergreen funds or a private account managed by the Advisor
     or  Sub-Advisor  seeks to acquire the same security at about the same time,
     the Fund may not be able to acquire as large a position in such security as
     it  desires  or it may  have  to  pay a  higher  price  for  the  security.
     Similarly,  the Fund may not be able to obtain as large an  execution of an
     order to sell or as high a price for any particular  portfolio  security if
     the Advisor or Sub-Advisor decides to sell on behalf of another account the
     same  portfolio  security at the same time.  On the other hand, if the same
     securities  are  bought  or sold at the same  time by more than one fund or
     account,  the resulting  participation in volume transactions could produce
     better  executions  for the  Fund.  In the  event  more  than  one  account
     purchases or sells the same  security on a given date,  the  purchases  and
     sales will normally be made as nearly as practicable on a pro rata basis in
     proportion to the amounts  desired to be purchased or sold by each account.
     Although the other Evergreen funds may have the same or similar  investment
     objective and policies as the Fund,  their  portfolios may not  necessarily
     consist  of the same  investments  as the  Fund or each  other,  and  their
     performance results are likely to differ from those of the Fund.



                                 PORTFOLIO TRANSACTIONS

          All orders for the purchase or sale of portfolio securities are placed
     on  behalf  of the Fund by the  Advisor  and the  Sub-Advisor  pursuant  to
     authority contained in the Fund's management contract. Securities purchased
     and  sold  on  behalf  of  the  Fund   normally   will  be  traded  in  the
     over-the-counter  market on a net basis (i.e.,  without commission) through
     dealers  acting  for their own  account  and not as  brokers  or  otherwise
     through transactions  directly with the issuer of the instrument.  The cost
     of  securities  purchased  from  underwriters   includes  an  underwriter's
     commission or concession,  and the prices at which securities are purchased
     and sold from and to dealers  include a dealer's  markup or  markdown.  The
     Advisor and the Sub-Advisor normally seek to deal directly with the primary
     market  makers  unless,  in  its  opinion,   better  prices  are  available
     elsewhere.  Some  securities  are  purchased  and sold on an exchange or in
     over-the-counter  transactions  conducted  on an agency  basis  involving a
     commission.  The  Advisor  and the  Sub-Advisor  seek to  obtain  the  best
     execution on portfolio  trades.  The price of securities and any commission
     rate paid are always  factors,  but  frequently  not the only  factors,  in
     judging best execution.  In selecting  brokers or dealers,  the Advisor and
     the Sub-Advisor  considers  various relevant  factors,  including,  but not
     limited to, the size and type of the transaction;  the nature and character
     of the markets for the  security to be  purchased  or sold;  the  execution
     efficiency,  settlement  capability and financial  condition of the dealer;
     the dealer's  execution  services  rendered on a continuing  basis; and the
     reasonableness of any dealer spreads.

          The Advisor and the Sub-Advisor may select broker-dealers that provide
     brokerage  and/or  research  services to the Fund and/or  other  investment
     companies  or other  accounts  managed by the  Advisor or  Sub-Advisor.  In
     addition,  consistent with Section 28(e) of the Securities  Exchange Act of
     1934, as amended (the "Exchange  Act"),  if the Advisor or the  Sub-Advisor
     determine  in good  faith  that the  amount  of  commissions  charged  by a
     broker-dealer  is  reasonable in relation to the value of the brokerage and
     research services provided by such broker,  the Fund may pay commissions to
     such  broker-dealer  in an amount  greater than the amount another firm may
     charge.   Such  services  may  include  advice   concerning  the  value  of
     securities;  the  advisability  of  investing  in,  purchasing  or  selling
     securities;  the availability of securities or the purchasers or sellers of
     securities;  providing  stock  quotation  services,  credit rating  service
     information  and  comparative   fund   statistics;   furnishing   analyses,
     electronic  information  services,  manuals and reports concerning issuers,
     industries,  securities,  economic factors and trends,  portfolio strategy,
     and  performance  of accounts  and  particular  investment  decisions;  and
     effecting  securities  transactions  and  performing  functions  incidental
     thereto (such as clearance and settlement). The Advisor and the Sub-Advisor
     maintain a listing of  broker-dealers  who provide such services on regular
     basis.  However,  because many transactions on behalf of the Fund and other
     investment  companies or accounts managed by the Advisor or the Sub-Advisor
     are placed with  broker-dealers  (including  broker-dealers on the listing)
     without regard to the  furnishing of such  services,  it is not possible to
     estimate  the  proportion  of such  transactions  directed to such  dealers
     solely because such services were provided. The Advisor and the Sub-Advisor
     believe that no exact dollar value can be calculated for such services.

          The research received from broker-dealers may be useful to the Advisor
     and the Sub-Advisor in rendering investment management services to the Fund
     as well as other  investment  companies  or other  accounts  managed by the
     Advisor and the  Sub-Advisor,  although not all such research may be useful
     to the Fund.  Conversely,  such information  provided by brokers or dealers
     who have executed  transaction  orders on behalf of such other accounts may
     be  useful  to the  Advisor  and the  Sub-Advisor  in  carrying  out  their
     respective  obligations  to the Fund.  The receipt of such research has not
     reduced  the  Advisor's  or  Sub-Advisor's   normal  independent   research
     activities;  however,  it enables the Advisor and the  Sub-Adviser to avoid
     the additional expenses which might otherwise be incurred if either of them
     were to attempt to develop comparable information through their own staff.

          In  circumstances  where two or more  broker-dealers  offer comparable
     prices and executions, preference may be given to a broker-dealer which has
     sold  shares of the Fund as well as shares  of other  investment  companies
     managed by the  Advisor or the  Sub-Advisor.  This  policy does not imply a
     commitment to execute all portfolio transactions through all broker-dealers
     that  sell  shares of the Fund.  The  Evergreen  funds  have  entered  into
     third-party  brokerage  and/or  expense offset  arrangements  to reduce the
     funds'  total  operating  expenses.   Pursuant  to  third-party   brokerage
     arrangements,  certain of the funds that invest  primarily  in U.S.  equity
     securities  may  incur  lower  custody  fees  by  directing   brokerage  to
     third-party  broker-dealers.  Pursuant to expense offset arrangements,  the
     funds incur  lower  transfer  agency  expenses  by  maintaining  their cash
     balances with the custodian.

          The Board of Trustees will  periodically  review the Advisor's and the
     Sub-Advisor's  performance of their responsibilities in connection with the
     placement of portfolio transactions on behalf of the Fund.



                                     REPURCHASE OF COMMON SHARES

          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,  dividend  stability,  relative  demand  for and supply of such
     shares in the market,  general  market and  economic  conditions  and other
     factors. Shares of closed-end funds frequently trade at a discount to their
     net asset value. Common shares of closed-end  investment companies like the
     Fund that invest  predominantly  in high yield  securities have during some
     periods traded at prices higher than their net asset value (at a "premium")
     and during other periods  traded at prices lower than their net asset value
     (at a  "discount").  This is in part because the market price  reflects the
     dividend yield on the common shares.  When the yield on the net asset value
     per share is higher  than  yields  generally  available  in the  market for
     comparable  securities,  the  market  price  will tend to  reflect  this by
     trading  higher than the net asset value per share to adjust the yield to a
     comparable  market  rate.  To the extent  the  common  shares do trade at a
     discount, the Fund's Board of Trustees may from time to time engage in open
     market  repurchases or tender offers for shares after balancing the benefit
     to  shareholders of the increase in the net asset value per share resulting
     from such  purchases  against  the  decrease  in the assets of the Fund and
     potential  increase in the expense  ratio of expenses to assets of the Fund
     and consequent  reduction in yield. The Board of Trustees  believes that in
     addition to the beneficial  effects  described above, any such purchases or
     tender  offers may result in the  temporary  narrowing  of any discount but
     will not have any long-term effect on the level of any discount.

          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 preferred shares dividends 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).  Any service fees
     incurred in connection with any tender offer made by the Fund will be borne
     by the Fund and will not  reduce  the  stated  consideration  to be paid to
     tendering shareholders.

          Subject to its investment restrictions, 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 Fund's Board of Trustees would have
     to comply with the Exchange Act, the 1940 Act and the rules and regulations
     thereunder.

          Although  the  decision to take action in response to a discount  from
     net  asset  value  will be made by the  Board  of  Trustees  at the time it
     considers  such  issue,  it is the  Board's  present  policy,  which may be
     changed by the Board of Trustees,  not to authorize  repurchases  of common
     shares or a tender  offer for such  shares  if: (1) such  transactions,  if
     consummated,  would (a) result in the  delisting of the common  shares from
     the American Stock Exchange, or (b) impair the Fund's status as a regulated
     investment  company  under the Code,  (which  would make the Fund a taxable
     entity,  causing the Fund's  income to be taxed at the  corporate  level in
     addition to the taxation of  shareholders  who receive  dividends  from the
     Fund) or as a registered  closed-end investment company under the 1940 Act;
     (2) the Fund  would not be able to  liquidate  portfolio  securities  in an
     orderly  manner and  consistent  with the Fund's  investment  objective and
     policies  in order to  repurchase  shares;  or (3) there is, in the Board's
     judgment,  any (a)  material  legal  action  or  proceeding  instituted  or
     threatened  challenging such transactions or otherwise materially adversely
     affecting the Fund,  (b) general  suspension of or limitation on prices for
     trading  securities on the New York Stock  Exchange,  (c)  declaration of a
     banking  moratorium by federal or state  authorities  or any  suspension of
     payment  by  United  States  or New York  banks,  (d)  material  limitation
     affecting the Fund or the issuers of its portfolio securities by federal or
     state authorities on the extension of credit by lending  institutions or on
     the  exchange  of  foreign   currency,   (e)  commencement  of  war,  armed
     hostilities  or  other  international  or  national  calamity  directly  or
     indirectly  involving  the United  States,  or (f) other event or condition
     which  would have a material  adverse  effect  (including  any  adverse tax
     effect) on the Fund or its  shareholders  if shares were  repurchased.  The
     Board of Trustees  may in the future  modify these  conditions  in light of
     experience.

          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 tender offers 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  from  time to time,  or that the Fund may be
     converted to an open-end investment 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  which 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.

          Before deciding  whether to take any action if the common shares trade
     below net asset value,  the Fund's Board of Trustees would likely  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.



                                   U.S. FEDERAL INCOME TAX MATTERS

          The following is a summary  discussion of certain U.S.  federal income
     tax  consequences  that may be  relevant  to a  shareholder  of  acquiring,
     holding and disposing of common shares of the Fund.  This  discussion  only
     addresses U.S.  federal income tax  consequences to U.S.  shareholders  who
     hold their  shares as capital  assets and does not  address all of the U.S.
     federal  income  tax  consequences  that  may  be  relevant  to  particular
     shareholders in light of their  individual  circumstances.  This discussion
     also does not address the tax  consequences to shareholders who are subject
     to special rules,  including,  without limitation,  financial institutions,
     insurance companies,  dealers in securities or foreign currencies,  foreign
     holders,  persons who hold their shares as or in a hedge  against  currency
     risk, a  constructive  sale,  or  conversion  transaction,  holders who are
     subject to the  alternative  minimum  tax, or  tax-exempt  or  tax-deferred
     plans,  accounts, or entities. In addition, the discussion does not address
     any state, local, or foreign tax consequences,  and it does not address any
     federal tax consequences  other than U.S. federal income tax  consequences.
     The discussion  reflects applicable tax laws of the United States as of the
     date of this  statement of  additional  information,  which tax laws may be
     changed  or subject to new  interpretations  by the courts or the  Internal
     Revenue Service (the "IRS")  retroactively or prospectively.  No attempt is
     made to  present a  detailed  explanation  of all U.S.  federal  income tax
     concerns  affecting the Fund and its  shareholders,  and the discussion set
     forth herein does not constitute tax advice. Investors are urged to consult
     their  own  tax  advisers  to  determine  the tax  consequences  to them of
     investing in the Fund,  including the applicable federal,  state, local and
     foreign tax  consequences to them and the effect of possible changes in tax
     laws.

          The Fund  intends  to elect be treated  and to qualify  each year as a
     "regulated investment company" under Subchapter M of the Code and to comply
     with applicable distribution requirements so that it generally will not pay
     U.S.  federal  income  tax on  income  and  capital  gains  distributed  to
     shareholders.  In order to qualify as a regulated  investment company under
     Subchapter M of the Code,  which this  discussion  assumes,  the Fund must,
     among  other  things,  derive  at least 90% of its  gross  income  for each
     taxable year from dividends,  interest, payments with respect to securities
     loans,  gains from the sale or other  disposition  of stock,  securities or
     foreign currencies,  or other income (including gains from options, futures
     and forward contracts) derived with respect to its business of investing in
     such stock,  securities or  currencies  (the "90% income test") and satisfy
     certain  quarterly  diversification  requirements.  For purposes of the 90%
     income test,  the character of income  earned by certain  entities in which
     the Fund invests that are not treated as corporations  (e.g.,  partnerships
     or trusts) for U.S. federal income tax purposes will generally pass through
     to the Fund.  Consequently,  the Fund may be  required  to limit its equity
     investments  in such entities that earn fee income,  rental income or other
     nonqualifying income.

          If the Fund qualifies as a regulated  investment company and, for each
     taxable  year, it  distributes  to its  shareholders  an amount equal to or
     exceeding the sum of (i) 90% of its "investment  company taxable income" as
     that term is defined  in the Code  (which  includes,  among  other  things,
     dividends,  taxable interest,  and the excess of any net short-term capital
     gains over net long-term capital losses,  as reduced by certain  deductible
     expenses)  without  regard to the deduction for dividends paid and (ii) 90%
     of the  excess of its  gross  tax-exempt  interest,  if any,  over  certain
     disallowed deductions,  the Fund will generally be relieved of U.S. federal
     income tax on any income of the Fund,  including  long-term  capital gains,
     distributed to  shareholders.  However,  if the Fund retains any investment
     company  taxable  income or "net capital gain" (the excess of net long-term
     capital  gain over net  short-term  capital  loss),  it  generally  will be
     subject  to U.S.  federal  income  tax at  regular  corporate  rates on the
     amounts  retained.  The Fund intends to distribute at least annually all or
     substantially all of its investment  company taxable income, net tax-exempt
     interest,  and net capital  gain.  If for any taxable year the Fund did not
     qualify  as a  regulated  investment  company,  it  would be  treated  as a
     corporation subject to U.S. federal income tax. In addition, in such cases,
     any  distributions  out of earnings  (including  net capital gain) would be
     taxed as ordinary  income and it may be difficult for the Fund to requalify
     under Subchapter M.

          Under the Code, the Fund will be subject to a nondeductible 4% federal
     excise tax on a portion of its  undistributed  ordinary  income and capital
     gains if it fails to meet certain distribution requirements with respect to
     each  calendar  year.  The Fund intends to make  distributions  in a timely
     manner and  accordingly  does not  expect to be subject to the excise  tax,
     but,  as  described  below,  there  can be no  assurance  that  the  Fund's
     distributions will be sufficient to entirely avoid this tax.


          Commencing  within  approximately  90  days  from  the  date  of  this
     statement of additional information, the Fund intends to declare a dividend
     from  all or a  portion  of its net  investment  income  monthly.  The Fund
     intends to distribute  any net short- and long-term  capital gains at least
     annually.  The Fund intends to seek an exemptive  order from the Commission
     that would allow it to distribute capital gains monthly to further allow it
     to maintain a stable level of distributions to shareholders. Dividends from
     income and/or  capital gains may also be paid at such other times as may be
     necessary for the Fund to avoid U.S. federal income or excise tax.


          Unless a shareholder is ineligible to participate or elects otherwise,
     cash  distributions  will be automatically  reinvested in additional common
     shares of the Fund pursuant to the  Automatic  Dividend  Reinvestment  Plan
     (the "Plan").  For U.S.  federal  income tax purposes,  such  distributions
     generally are taxable whether a shareholder  takes them in cash or they are
     reinvested  pursuant  to the Plan in  additional  shares  of the  Fund.  In
     general, assuming there are sufficient earnings and profits, dividends from
     investment  company  taxable  income are  taxable as ordinary  income,  and
     designated  dividends  from  net  capital  gain,  if any,  are  taxable  as
     long-term capital gains for U.S. federal income tax purposes without regard
     to the  length  of time  the  shareholder  has  held  shares  of the  Fund.
     Distributions  by the Fund in excess of the Fund's current and  accumulated
     earnings  and profits  will be treated as a return of capital to the extent
     of (and in reduction of) the shareholder's tax basis in its shares, and any
     such  amount in excess of that  basis will be treated as gain from the sale
     of the shares as discussed below. The U.S. federal income tax status of all
     distributions will be reported to shareholders annually.

          If the Fund retains any net capital  gain,  the Fund may designate the
     retained amount as undistributed  capital gains in a notice to shareholders
     who, if subject to U.S. federal income tax on long-term  capital gains, (i)
     will be required to include in income for U.S. federal income tax purposes,
     as long-term capital gain, their proportionate shares of such undistributed
     amount, and (ii) will be entitled to credit their  proportionate  shares of
     the tax paid by the Fund on the  undistributed  amount  against  their U.S.
     federal income tax liabilities,  if any, and to claim refunds to the extent
     the credit exceeds such liabilities, (iii) will be entitled to increase the
     tax basis of their shares by the  difference  between  their  proportionate
     shares of such includible gains and their  proportionate  shares of the tax
     deemed paid.

          Any  dividend  declared  by the Fund as of a record  date in  October,
     November or December and paid during the following  January will be treated
     for U.S.  federal  income tax  purposes  as  received  by  shareholders  on
     December 31 of the calendar year in which it is declared.

          If the Fund  acquires any equity  interest  (under  proposed  Treasury
     regulations,  generally  including  not only  stock  but also an  option to
     acquire stock such as is inherent in a convertible bond) in certain foreign
     corporations  that  receive at least 75% of their  annual gross income from
     passive sources (such as interest,  dividends, certain rents and royalties,
     or capital  gains) or that hold at least 50% of their assets in investments
     producing such passive income ("passive foreign investment companies"), the
     Fund could be subject to U.S.  federal income tax and  additional  interest
     charges on "excess  distributions"  received from such companies or on gain
     from the disposition of stock in such companies, even if all income or gain
     actually  received by the Fund is timely  distributed to its  shareholders.
     The Fund may not be able to pass through to its  shareholders any credit or
     deduction for such a tax. An election may generally be available that would
     ameliorate  these adverse tax  consequences,  but any such  election  could
     require  the Fund to  recognize  taxable  income  or gain  (subject  to tax
     distribution  requirements)  without the concurrent  receipt of cash. These
     investments could also result in the treatment of associated  capital gains
     as  ordinary  income.  The Fund may limit  and/or  manage its  holdings  in
     passive foreign investment companies to limit its tax liability or maximize
     its return from these investments.

          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 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
     issues  will be  addressed  by the Fund,  in the event 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.

          If the Fund utilizes leverage through borrowing, a failure by the Fund
     to meet the asset coverage  requirements  imposed by the 1940 Act or by any
     rating organization that has rated such leverage or additional restrictions
     that may be imposed  by certain  lenders  on the  payment of  dividends  or
     distributions potentially could limit or suspend the Fund's ability to make
     distributions  on its common shares.  Such a suspension or limitation could
     prevent  the Fund from  distributing  at least 90% of its net  income as is
     required under the Code and therefore might jeopardize the Fund's reduction
     or exemption  from  corporate  taxation as a regulated  investment  company
     and/or  might  subject the Fund to the 4% excise  tax.  Upon any failure to
     meet  such  asset  coverage  requirements,   the  Fund  may,  in  its  sole
     discretion,  purchase  or  redeem  shares  of  preferred  stock in order to
     maintain  or restore the  requisite  asset  coverage  and avoid the adverse
     consequences  to the Fund and its  shareholders  of failing to satisfy  the
     distribution requirement. There can be no assurance, however, that any such
     action would  achieve  these  objectives.  The Fund will  endeavor to avoid
     restrictions on its ability to distribute dividends.


          If the Fund  invests in certain  pay-in-kind  securities,  zero coupon
     securities,  certain preferred shares,  deferred interest securities or, in
     general,  any other securities with original issue discount (or with market
     discount  if  the  Fund  elects  to  include  market   discount  in  income
     currently),  the Fund generally must accrue income on such  investments for
     each  taxable  year,  which  generally  will be prior to the receipt of the
     corresponding cash payments.  However,  the Fund must distribute,  at least
     annually,  all or  substantially  all of its  net  income,  including  such
     accrued  income,  to  shareholders  to  qualify as a  regulated  investment
     company  under the Code and avoid U.S.  federal  income  and excise  taxes.
     Therefore,  the Fund may have to dispose of its portfolio  securities under
     disadvantageous  circumstances  to generate  cash,  or may have to leverage
     itself by borrowing the cash, to satisfy distribution requirements.


          At the time of an investor's  purchase of the Fund's shares, a portion
     of the  purchase  price  may be  attributable  to  realized  or  unrealized
     appreciation in the Fund's portfolio or undistributed taxable income of the
     Fund.  Consequently,  subsequent  distributions by the Fund with respect to
     these  shares  from such  appreciation  or income  may be  taxable  to such
     investor  even if the net asset  value of the  investor's  shares  is, as a
     result of the  distributions,  reduced below the  investor's  cost for such
     shares and the distributions  economically  represent a return of a portion
     of the investment.

          Sales  and other  dispositions  of the  Fund's  shares  generally  are
     taxable  events for  shareholders  that are  subject  to tax.  Shareholders
     should  consult their own tax advisers with  reference to their  individual
     circumstances to determine whether any particular transaction in the Fund's
     shares is properly  treated as a sale for tax  purposes,  as the  following
     discussion assumes, and the tax treatment of any gains or losses recognized
     in such transactions.  In general, if Fund shares are sold, the shareholder
     will  recognize  gain or loss equal to the  difference  between  the amount
     realized on the sale and the  shareholder's  adjusted  basis in the shares.
     Such gain or loss  generally  will be treated as long-term  gain or loss if
     the shares were held for more than one year and otherwise generally will be
     treated as short-term  gain or loss.  Any loss  recognized by a shareholder
     upon the sale or other  disposition  of shares with a tax holding period of
     six months or less generally will be treated as a long-term capital loss to
     the extent of any amounts  treated as  distributions  of long-term  capital
     gain with respect to such shares.  Losses on sales or other dispositions of
     shares may be  disallowed  under  "wash  sale"  rules in the event of other
     investments in the Fund  (including  those made pursuant to reinvestment of
     dividends  and/or  capital gain  distributions)  within a period of 61 days
     beginning  30  days  before  and  ending  30 days  after  a sale  or  other
     disposition of shares.


          The  Fund's  transactions  in  foreign  currencies,  foreign  currency
     denominated  debt  securities  and  certain  foreign  currency  options and
     contracts may give rise to ordinary income or loss to the extent the income
     or loss results  from  fluctuations  in the value of the  relevant  foreign
     currency.

          Options written or purchased and futures contracts entered into by the
     Fund on certain  securities,  indices  and foreign  currencies,  as well as
     certain forward foreign currency contracts, may cause the Fund to recognize
     gains or losses from  marking-to-market  even  though such  options may not
     have  lapsed,  been closed out, or  exercised,  or such  futures or forward
     contracts  may not  have  been  performed  or  closed  out.  The tax  rules
     applicable  to these  contracts  may  affect the  characterization  of some
     capital gains and losses recognized by the Fund as long-term or short-term.
     As noted above, certain options,  futures and forward contracts relating to
     foreign  currency may be subject to Section 988 and accordingly may produce
     ordinary  income  or  loss.  Additionally,  the  Fund  may be  required  to
     recognize gain if an option, futures contract, forward contract, short sale
     or other  transaction  that is not subject to the  mark-to-market  rules is
     treated as a  "constructive  sale" of an "appreciated  financial  position"
     held by the Fund under  Section  1259 of the Code.  Any net  mark-to-market
     gains and/or gains from constructive  sales may also have to be distributed
     to satisfy the distribution  requirements referred to above even though the
     Fund may receive no  corresponding  cash  amounts,  possibly  requiring the
     disposition  of portfolio  securities  or borrowing to obtain the necessary
     cash.  Losses on  certain  options,  futures or  forward  contracts  and/or
     offsetting positions (portfolio  securities or other positions with respect
     to which the Fund's risk of loss is substantially diminished by one or more
     options,  futures or forward  contracts) may also be deferred under the tax
     straddle rules of the Code, which may also affect the  characterization  of
     capital  gains or losses from  straddle  positions  and  certain  successor
     positions  as  long-term  or  short-term.  Certain  tax  elections  may  be
     available that would enable the Fund to ameliorate  some adverse effects of
     the tax rules  described in this  paragraph.  The tax rules  applicable  to
     options,  futures,  forward  contracts and straddles may affect the amount,
     timing and  character of the Fund's income and gains or losses and hence of
     its distributions to shareholders.

          The  Fund  may  invest  in  REMICs  and in REITs  that  hold  residual
     interests in REMICs.  Under Treasury  regulations,  a portion of the Fund's
     income from a REIT that is attributable  to a residual  interest in a REMIC
     (referred  to in the Code as an  "excess  inclusion")  will be  subject  to
     federal income tax in all events.  In addition,  such  regulations  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
     foreign  shareholder,  will not qualify for any  reduction in U.S.  federal
     withholding  tax. 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's   distributions  to  its  corporate   shareholders   would
     potentially  qualify in their  hands for the  corporate  dividends-received
     deduction subject to certain holding period requirements and limitations on
     debt financings under the Code, only to the extent the Fund earned dividend
     income from stock  investments in U.S.  domestic  corporations  and certain
     other  requirements are satisfied.  The Fund is permitted to acquire stocks
     of U.S. domestic  corporations,  and it is therefore  possible that a small
     portion of the Fund's  distributions,  from the dividends  attributable  to
     such  stocks,  may  qualify  for  the  dividends-received  deduction.  Such
     qualifying portion, if any, may affect a corporate  shareholder's liability
     for  alternative  minimum tax and/or result in basis  reductions  and other
     consequences in certain circumstances.

          The IRS has taken the position that if a regulated  investment company
     has two classes of shares,  it must  designate  distributions  made to each
     class in any year as consisting of no more than such class's  proportionate
     share of particular types of income, including dividends qualifying for the
     corporate  dividends-received  deduction (if any) and net capital  gains. A
     class's  proportionate  share of a particular  type of income is determined
     according  to the  percentage  of  total  dividends  paid by the  regulated
     investment  company  during the year to such class.  Consequently,  if both
     common shares and  preferred  shares are  outstanding,  the Fund intends to
     designate  distributions  made to the classes of particular types of income
     in accordance with the classes'  proportionate shares of such income. Thus,
     the  Fund  will   designate   dividends   qualifying   for  the   corporate
     dividends-received  deduction  (if  any),  income  not  qualifying  for the
     dividends-received  deduction  and  net  capital  gains  in a  manner  that
     allocates  such income  between the holders of common  shares and preferred
     shares in  proportion to the total  dividends  paid to each class during or
     for the taxable year, or otherwise as required by applicable law.


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


          Federal law requires that the Fund withhold (as "backup  withholding")
     tax at a rate of 30% for 2003 on reportable  payments,  including dividends
     and capital gain  distributions  paid to certain  shareholders who have not
     complied  with IRS  regulations.  Corporations  are  generally  exempt from
     backup  withholding.  In  order  to  avoid  this  withholding  requirement,
     shareholders must certify on their Account Applications, or on separate IRS
     Forms W-9, that the Social Security Number or other Taxpayer Identification
     Number they provide is their correct number and that they are not currently
     subject  to  backup  withholding,  or that  they  are  exempt  from  backup
     withholding.  The Fund may  nevertheless  be  required  to  withhold  if it
     receives  notice  from the IRS that the number  provided  is  incorrect  or
     backup withholding is applicable as a result of previous  underreporting of
     income.  Similar  backup  withholding  rules may  apply to a  shareholder's
     broker with respect to the proceeds of sales or other  dispositions  of the
     Fund's shares by such shareholder.  Backup withholding is not an additional
     tax.  Any amounts  withheld  from  payments  made to a  shareholder  may be
     refunded or credited  against such  shareholder's  U.S.  federal income tax
     liability,  if any,  provided that the required  information is provided to
     the IRS.


          The Bush  Administration has announced a proposal to eliminate the tax
     on the  receipt of certain  dividends.  In  addition,  several  alternative
     proposals  regarding  the taxation of dividends and capital gains are being
     considered  by  Congress.  It is  uncertain  if,  and in what  form,  these
     proposals will  ultimately be adopted.  Accordingly,  it is not possible to
     evaluate how these proposals might affect the tax discussion herein.

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


          The description of certain  federal tax provisions  above relates only
     to U.S.  federal  income tax  consequences  for  shareholders  who are U.S.
     persons,   i.e.,   U.S.   citizens  or  residents  or  U.S.   corporations,
     partnerships, trusts or estates, and who are subject to U.S. federal income
     tax. Investors other than U.S. persons may be subject to different U.S. tax
     treatment,  including a U.S. withholding tax on amounts treated as ordinary
     dividends  from the Fund and,  unless an effective IRS Form W-8BEN or other
     authorized  withholding  certificate  is on file, to backup  withholding on
     certain other payments from the Fund. Shareholders should consult their own
     tax  advisers on these  matters and on any  specific  questions  as to U.S.
     federal, foreign, state, local and other applicable tax laws.



                        PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION

Performance-Related Information

          The Fund may quote  certain  performance-related  information  and may
     compare  certain  aspects of its  portfolio  and structure to other 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 and Lipper, that the Fund believes to
     be generally accurate.

          From  time to  time,  the  Fund  and/or  the  Advisor  may  report  to
     shareholders  or to the public in  advertisements  concerning the Advisor's
     performance as an advisor to Evergreen  mutual funds and clients other than
     the Fund, or on the  comparative  performance or standing of the Advisor in
     relation to other money  managers.  The Advisor may also provide to 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  compiled  or
     provided  by  independent   ratings  services  or  by  news  organizations.
     Performance information for the Fund or for other Evergreen mutual funds or
     accounts  managed by the Advisor may also be compared to various  unmanaged
     indexes  or to other  benchmarks,  some of which may not be  available  for
     direct investment. Any performance information, whether related to the Fund
     or the  Advisor,  should be  considered  in light of the Fund's  investment
     objective and policies,  the  characteristics  and quality of the Fund, and
     the market conditions  during the time period indicated,  and it should not
     be considered to be  representative  of what may be achieved in the future.
     The  Advisor  may provide  its  opinion  with  respect to general  economic
     conditions  including  such matters as trends in default  rates or economic
     cycles.

          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.  At any time in the  future,  yields and total
     return may be higher or lower than past yields and total return,  and there
     can be no assurance that any historical results will continue.

The Advisor

          From time to time, the Advisor or the Fund may use, in  advertisements
     or   information   furnished  to  present  or   prospective   shareholders,
     information   regarding   the  Advisor   including,   without   limitation,
     information   regarding  the  Advisor's  investment  style,   countries  of
     operation,  organization,  professional  staff,  clients  (including  other
     registered investment  companies),  assets under management and performance
     record.  These materials may refer to opinions or rankings of the Advisor's
     overall investment management  performance contained in third-party reports
     or publications.

          Advertisements  for the Fund may make reference to certain other open-
     or closed-end investment companies managed by Evergreen.

          The Advisor may present an investment  allocation model  demonstrating
     the Fund's  weightings in investment  types,  sectors or rating  categories
     such as U.S. high yield,  emerging markets or investment grade  securities.
     The model allocations are representative of the Fund's investment strategy,
     the  Advisor's  analysis of the market for high yield  securities as of the
     date of the  model  and  certain  factors  that may  alter  the  allocation
     percentages   include  global  economic   conditions,   individual  company
     fundamentals or changes in market valuations. Such models may also indicate
     an expected or targeted weighted average rating of the Fund's portfolio.

Comparative Information

          From time to time, the Fund's  advertisements or information furnished
     to present or prospective  shareholders may refer to the returns and yields
     offered by various  types of  investments,  as well as the yield spreads on
     such investments. For instance, such advertisements may refer to the spread
     in corporate  bond yield and government  bond yield,  or the yield of other
     types of investments.  For purposes of advertisements or related materials,
     yields and returns may be  measured by various  indices  such as the Lehman
     Municipal  Bond Index,  the Merrill  Lynch  Global Bond Index,  the Merrill
     Lynch  Government  Master Index, the Merrill Lynch Mortgage Master Index or
     other such indices.  Advertisements and related materials may also note the
     Advisor's  belief that yields on  short-term,  intermediate-  and long-term
     bonds  offer  attractive  current  yields  and set  forth  yields  on other
     investments,   including  without  limitation,   3-month  T-Bills,  10-year
     Treasury bonds and 30-year Treasury bonds.


          The Fund's  advertising  materials may also compare the performance of
     investment  companies  with  differing  investment  styles,  objectives  or
     portfolio   securities.   Returns  for  investment  companies  that  invest
     primarily in bonds may be compared with the returns of investment companies
     that invest  primarily in equities.  Such material may also assert that, in
     an  uncertain   equity   environment,   bonds  can  provide  an  attractive
     alternative to equity  investments.  The Fund's  advertising  materials may
     also include comparative graphics, for example:

          The Fund seeks  attractive  yield  potential  while  maintaining a low
     correlation with 10-year  Treasuries,  which  historically  have moved with
     interest rates. Interest rates are currently at 40-year lows.

                          HISTORICAL INTEREST RATES FOR 10-YEAR TREASURIES*

                     DATE                                             VALUE(%)
                     ====                                             =====
                  04-01-1963                                          3.97
                  ==========                                          ====
                  05-01-1963                                          3.93
                  ==========                                          ====
                  06-01-1963                                          3.99
                  ==========                                          ====
                  07-01-1963                                          4.02
                  ==========                                          ====
                  08-01-1963                                          4.00
                  ==========                                          ====
                  09-01-1963                                          4.08
                  ==========                                          ====
                  10-01-1963                                          4.11
                  ==========                                          ====
                  11-01-1963                                          4.12
                  ==========                                          ====
                  12-01-1963                                          4.13
                  ==========                                          ====
                  01-01-1964                                          4.17
                  ==========                                          ====
                  02-01-1964                                          4.15
                  ==========                                          ====
                  03-01-1964                                          4.22
                  ==========                                          ====
                  04-01-1964                                          4.23
                  ==========                                          ====
                  05-01-1964                                          4.20
                  ==========                                          ====
                  06-01-1964                                          4.17
                  ==========                                          ====
                  07-01-1964                                          4.19
                  ==========                                          ====
                  08-01-1964                                          4.19
                  ==========                                          ====
                  09-01-1964                                          4.20
                  ==========                                          ====
                  10-01-1964                                          4.19
                  ==========                                          ====
                  11-01-1964                                          4.15
                  ==========                                          ====
                  12-01-1964                                          4.18
                  ==========                                          ====
                  01-01-1965                                          4.19
                  ==========                                          ====
                  02-01-1965                                          4.21
                  ==========                                          ====
                  03-01-1965                                          4.21
                  ==========                                          ====
                  04-01-1965                                          4.20
                  ==========                                          ====
                  05-01-1965                                          4.21
                  ==========                                          ====
                  06-01-1965                                          4.21
                  ==========                                          ====
                  07-01-1965                                          4.20
                  ==========                                          ====
                  08-01-1965                                          4.25
                  ==========                                          ====
                  09-01-1965                                          4.29
                  ==========                                          ====
                  10-01-1965                                          4.35
                  ==========                                          ====
                  11-01-1965                                          4.45
                  ==========                                          ====
                  12-01-1965                                          4.62
                  ==========                                          ====
                  01-01-1966                                          4.61
                  ==========                                          ====
                  02-01-1966                                          4.83
                  ==========                                          ====
                  03-01-1966                                          4.87
                  ==========                                          ====
                  04-01-1966                                          4.75
                  ==========                                          ====
                  05-01-1966                                          4.78
                  ==========                                          ====
                  06-01-1966                                          4.81
                  ==========                                          ====
                  07-01-1966                                          5.02
                  ==========                                          ====
                  08-01-1966                                          5.22
                  ==========                                          ====
                  09-01-1966                                          5.18
                  ==========                                          ====
                  10-01-1966                                          5.01
                  ==========                                          ====
                  11-01-1966                                          5.16
                  ==========                                          ====
                  12-01-1966                                          4.84
                  ==========                                          ====
                  01-01-1967                                          4.58
                  ==========                                          ====
                  02-01-1967                                          4.63
                  ==========                                          ====
                  03-01-1967                                          4.54
                  ==========                                          ====
                  04-01-1967                                          4.59
                  ==========                                          ====
                  05-01-1967                                          4.85
                  ==========                                          ====
                  06-01-1967                                          5.02
                  ==========                                          ====
                  07-01-1967                                          5.16
                  ==========                                          ====
                  08-01-1967                                          5.28
                  ==========                                          ====
                  09-01-1967                                          5.30
                  ==========                                          ====
                  10-01-1967                                          5.48
                  ==========                                          ====
                  11-01-1967                                          5.75
                  ==========                                          ====
                  12-01-1967                                          5.70
                  ==========                                          ====
                  01-01-1968                                          5.53
                  ==========                                          ====
                  02-01-1968                                          5.56
                  ==========                                          ====
                  03-01-1968                                          5.74
                  ==========                                          ====
                  04-01-1968                                          5.64
                  ==========                                          ====
                  05-01-1968                                          5.87
                  ==========                                          ====
                  06-01-1968                                          5.72
                  ==========                                          ====
                  07-01-1968                                          5.50
                  ==========                                          ====
                  08-01-1968                                          5.42
                  ==========                                          ====
                  09-01-1968                                          5.46
                  ==========                                          ====
                  10-01-1968                                          5.58
                  ==========                                          ====
                  11-01-1968                                          5.70
                  ==========                                          ====
                  12-01-1968                                          6.03
                  ==========                                          ====
                  01-01-1969                                          6.04
                  ==========                                          ====
                  02-01-1969                                          6.19
                  ==========                                          ====
                  03-01-1969                                          6.30
                  ==========                                          ====
                  04-01-1969                                          6.17
                  ==========                                          ====
                  05-01-1969                                          6.32
                  ==========                                          ====
                  06-01-1969                                          6.57
                  ==========                                          ====
                  07-01-1969                                          6.72
                  ==========                                          ====
                  08-01-1969                                          6.69
                  ==========                                          ====
                  09-01-1969                                          7.16
                  ==========                                          ====
                  10-01-1969                                          7.10
                  ==========                                          ====
                  11-01-1969                                          7.14
                  ==========                                          ====
                  12-01-1969                                          7.65
                  ==========                                          ====
                  01-01-1970                                          7.79
                  ==========                                          ====
                  02-01-1970                                          7.24
                  ==========                                          ====
                  03-01-1970                                          7.07
                  ==========                                          ====
                  04-01-1970                                          7.39
                  ==========                                          ====
                  05-01-1970                                          7.91
                  ==========                                          ====
                  06-01-1970                                          7.84
                  ==========                                          ====
                  07-01-1970                                          7.46
                  ==========                                          ====
                  08-01-1970                                          7.53
                  ==========                                          ====
                  09-01-1970                                          7.39
                  ==========                                          ====
                  10-01-1970                                          7.33
                  ==========                                          ====
                  11-01-1970                                          6.84
                  ==========                                          ====
                  12-01-1970                                          6.39
                  ==========                                          ====
                  01-01-1971                                          6.24
                  ==========                                          ====
                  02-01-1971                                          6.11
                  ==========                                          ====
                  03-01-1971                                          5.70
                  ==========                                          ====
                  04-01-1971                                          5.83
                  ==========                                          ====
                  05-01-1971                                          6.39
                  ==========                                          ====
                  06-01-1971                                          6.52
                  ==========                                          ====
                  07-01-1971                                          6.73
                  ==========                                          ====
                  08-01-1971                                          6.58
                  ==========                                          ====
                  09-01-1971                                          6.14
                  ==========                                          ====
                  10-01-1971                                          5.93
                  ==========                                          ====
                  11-01-1971                                          5.81
                  ==========                                          ====
                  12-01-1971                                          5.93
                  ==========                                          ====
                  01-01-1972                                          5.95
                  ==========                                          ====
                  02-01-1972                                          6.08
                  ==========                                          ====
                  03-01-1972                                          6.07
                  ==========                                          ====
                  04-01-1972                                          6.19
                  ==========                                          ====
                  05-01-1972                                          6.13
                  ==========                                          ====
                  06-01-1972                                          6.11
                  ==========                                          ====
                  07-01-1972                                          6.11
                  ==========                                          ====
                  08-01-1972                                          6.21
                  ==========                                          ====
                  09-01-1972                                          6.55
                  ==========                                          ====
                  10-01-1972                                          6.48
                  ==========                                          ====
                  11-01-1972                                          6.28
                  ==========                                          ====
                  12-01-1972                                          6.36
                  ==========                                          ====
                  01-01-1973                                          6.46
                  ==========                                          ====
                  02-01-1973                                          6.64
                  ==========                                          ====
                  03-01-1973                                          6.71
                  ==========                                          ====
                  04-01-1973                                          6.67
                  ==========                                          ====
                  05-01-1973                                          6.85
                  ==========                                          ====
                  06-01-1973                                          6.90
                  ==========                                          ====
                  07-01-1973                                          7.13
                  ==========                                          ====
                  08-01-1973                                          7.40
                  ==========                                          ====
                  09-01-1973                                          7.09
                  ==========                                          ====
                  10-01-1973                                          6.79
                  ==========                                          ====
                  11-01-1973                                          6.73
                  ==========                                          ====
                  12-01-1973                                          6.74
                  ==========                                          ====
                  01-01-1974                                          6.99
                  ==========                                          ====
                  02-01-1974                                          6.96
                  ==========                                          ====
                  03-01-1974                                          7.21
                  ==========                                          ====
                  04-01-1974                                          7.51
                  ==========                                          ====
                  05-01-1974                                          7.58
                  ==========                                          ====
                  06-01-1974                                          7.54
                  ==========                                          ====
                  07-01-1974                                          7.81
                  ==========                                          ====
                  08-01-1974                                          8.04
                  ==========                                          ====
                  09-01-1974                                          8.04
                  ==========                                          ====
                  10-01-1974                                          7.90
                  ==========                                          ====
                  11-01-1974                                          7.68
                  ==========                                          ====
                  12-01-1974                                          7.43
                  ==========                                          ====
                  01-01-1975                                          7.50
                  ==========                                          ====
                  02-01-1975                                          7.39
                  ==========                                          ====
                  03-01-1975                                          7.73
                  ==========                                          ====
                  04-01-1975                                          8.23
                  ==========                                          ====
                  05-01-1975                                          8.06
                  ==========                                          ====
                  06-01-1975                                          7.86
                  ==========                                          ====
                  07-01-1975                                          8.06
                  ==========                                          ====
                  08-01-1975                                          8.40
                  ==========                                          ====
                  09-01-1975                                          8.43
                  ==========                                          ====
                  10-01-1975                                          8.14
                  ==========                                          ====
                  11-01-1975                                          8.05
                  ==========                                          ====
                  12-01-1975                                          8.00
                  ==========                                          ====
                  01-01-1976                                          7.74
                  ==========                                          ====
                  02-01-1976                                          7.79
                  ==========                                          ====
                  03-01-1976                                          7.73
                  ==========                                          ====
                  04-01-1976                                          7.56
                  ==========                                          ====
                  05-01-1976                                          7.90
                  ==========                                          ====
                  06-01-1976                                          7.86
                  ==========                                          ====
                  07-01-1976                                          7.83
                  ==========                                          ====
                  08-01-1976                                          7.77
                  ==========                                          ====
                  09-01-1976                                          7.59
                  ==========                                          ====
                  10-01-1976                                          7.41
                  ==========                                          ====
                  11-01-1976                                          7.29
                  ==========                                          ====
                  12-01-1976                                          6.87
                  ==========                                          ====
                  01-01-1977                                          7.21
                  ==========                                          ====
                  02-01-1977                                          7.39
                  ==========                                          ====
                  03-01-1977                                          7.46
                  ==========                                          ====
                  04-01-1977                                          7.37
                  ==========                                          ====
                  05-01-1977                                          7.46
                  ==========                                          ====
                  06-01-1977                                          7.28
                  ==========                                          ====
                  07-01-1977                                          7.33
                  ==========                                          ====
                  08-01-1977                                          7.40
                  ==========                                          ====
                  09-01-1977                                          7.34
                  ==========                                          ====
                  10-01-1977                                          7.52
                  ==========                                          ====
                  11-01-1977                                          7.58
                  ==========                                          ====
                  12-01-1977                                          7.69
                  ==========                                          ====
                  01-01-1978                                          7.96
                  ==========                                          ====
                  02-01-1978                                          8.03
                  ==========                                          ====
                  03-01-1978                                          8.04
                  ==========                                          ====
                  04-01-1978                                          8.15
                  ==========                                          ====
                  05-01-1978                                          8.35
                  ==========                                          ====
                  06-01-1978                                          8.46
                  ==========                                          ====
                  07-01-1978                                          8.64
                  ==========                                          ====
                  08-01-1978                                          8.41
                  ==========                                          ====
                  09-01-1978                                          8.42
                  ==========                                          ====
                  10-01-1978                                          8.64
                  ==========                                          ====
                  11-01-1978                                          8.81
                  ==========                                          ====
                  12-01-1978                                          9.01
                  ==========                                          ====
                  01-01-1979                                          9.10
                  ==========                                          ====
                  02-01-1979                                          9.10
                  ==========                                          ====
                  03-01-1979                                          9.12
                  ==========                                          ====
                  04-01-1979                                          9.18
                  ==========                                          ====
                  05-01-1979                                          9.25
                  ==========                                          ====
                  06-01-1979                                          8.91
                  ==========                                          ====
                  07-01-1979                                          8.95
                  ==========                                          ====
                  08-01-1979                                          9.03
                  ==========                                          ====
                  09-01-1979                                          9.33
                  ==========                                          ====
                  10-01-1979                                          10.30
                  ==========                                          =====
                  11-01-1979                                          10.65
                  ==========                                          =====
                  12-01-1979                                          10.39
                  ==========                                          =====
                  01-01-1980                                          10.80
                  ==========                                          =====
                  02-01-1980                                          12.41
                  ==========                                          =====
                  03-01-1980                                          12.75
                  ==========                                          =====
                  04-01-1980                                          11.47
                  ==========                                          =====
                  05-01-1980                                          10.18
                  ==========                                          =====
                  06-01-1980                                          9.78
                  ==========                                          ====
                  07-01-1980                                          10.25
                  ==========                                          =====
                  08-01-1980                                          11.10
                  ==========                                          =====
                  09-01-1980                                          11.51
                  ==========                                          =====
                  10-01-1980                                          11.75
                  ==========                                          =====
                  11-01-1980                                          12.68
                  ==========                                          =====
                  12-01-1980                                          12.84
                  ==========                                          =====
                  01-01-1981                                          12.57
                  ==========                                          =====
                  02-01-1981                                          13.19
                  ==========                                          =====
                  03-01-1981                                          13.12
                  ==========                                          =====
                  04-01-1981                                          13.68
                  ==========                                          =====
                  05-01-1981                                          14.10
                  ==========                                          =====
                  06-01-1981                                          13.47
                  ==========                                          =====
                  07-01-1981                                          14.28
                  ==========                                          =====
                  08-01-1981                                          14.94
                  ==========                                          =====
                  09-01-1981                                          15.32
                  ==========                                          =====
                  10-01-1981                                          15.15
                  ==========                                          =====
                  11-01-1981                                          13.39
                  ==========                                          =====
                  12-01-1981                                          13.72
                  ==========                                          =====
                  01-01-1982                                          14.59
                  ==========                                          =====
                  02-01-1982                                          14.43
                  ==========                                          =====
                  03-01-1982                                          13.86
                  ==========                                          =====
                  04-01-1982                                          13.87
                  ==========                                          =====
                  05-01-1982                                          13.62
                  ==========                                          =====
                  06-01-1982                                          14.30
                  ==========                                          =====
                  07-01-1982                                          13.95
                  ==========                                          =====
                  08-01-1982                                          13.06
                  ==========                                          =====
                  09-01-1982                                          12.34
                  ==========                                          =====
                  10-01-1982                                          10.91
                  ==========                                          =====
                  11-01-1982                                          10.55
                  ==========                                          =====
                  12-01-1982                                          10.54
                  ==========                                          =====
                  01-01-1983                                          10.46
                  ==========                                          =====
                  02-01-1983                                          10.72
                  ==========                                          =====
                  03-01-1983                                          10.51
                  ==========                                          =====
                  04-01-1983                                          10.40
                  ==========                                          =====
                  05-01-1983                                          10.38
                  ==========                                          =====
                  06-01-1983                                          10.85
                  ==========                                          =====
                  07-01-1983                                          11.38
                  ==========                                          =====
                  08-01-1983                                          11.85
                  ==========                                          =====
                  09-01-1983                                          11.65
                  ==========                                          =====
                  10-01-1983                                          11.54
                  ==========                                          =====
                  11-01-1983                                          11.69
                  ==========                                          =====
                  12-01-1983                                          11.83
                  ==========                                          =====
                  01-01-1984                                          11.67
                  ==========                                          =====
                  02-01-1984                                          11.84
                  ==========                                          =====
                  03-01-1984                                          12.32
                  ==========                                          =====
                  04-01-1984                                          12.63
                  ==========                                          =====
                  05-01-1984                                          13.41
                  ==========                                          =====
                  06-01-1984                                          13.56
                  ==========                                          =====
                  07-01-1984                                          13.36
                  ==========                                          =====
                  08-01-1984                                          12.72
                  ==========                                          =====
                  09-01-1984                                          12.52
                  ==========                                          =====
                  10-01-1984                                          12.16
                  ==========                                          =====
                  11-01-1984                                          11.57
                  ==========                                          =====
                  12-01-1984                                          11.50
                  ==========                                          =====
                  01-01-1985                                          11.38
                  ==========                                          =====
                  02-01-1985                                          11.51
                  ==========                                          =====
                  03-01-1985                                          11.86
                  ==========                                          =====
                  04-01-1985                                          11.43
                  ==========                                          =====
                  05-01-1985                                          10.85
                  ==========                                          =====
                  06-01-1985                                          10.16
                  ==========                                          =====
                  07-01-1985                                          10.31
                  ==========                                          =====
                  08-01-1985                                          10.33
                  ==========                                          =====
                  09-01-1985                                          10.37
                  ==========                                          =====
                  10-01-1985                                          10.24
                  ==========                                          =====
                  11-19-8501                                          9.78
                  ==========                                          ====
                  12-01-1985                                          9.26
                  ==========                                          ====
                  01-01-1986                                          9.19
                  ==========                                          ====
                  02-01-1986                                          8.70
                  ==========                                          ====
                  03-01-1986                                          7.78
                  ==========                                          ====
                  04-01-1986                                          7.30
                  ==========                                          ====
                  05-01-1986                                          7.71
                  ==========                                          ====
                  06-01-1986                                          7.80
                  ==========                                          ====
                  07-01-1986                                          7.30
                  ==========                                          ====
                  08-01-1986                                          7.17
                  ==========                                          ====
                  09-01-1986                                          7.45
                  ==========                                          ====
                  10-01-1986                                          7.43
                  ==========                                          ====
                  11-01-1986                                          7.25
                  ==========                                          ====
                  12-01-1986                                          7.11
                  ==========                                          ====
                  01-01-1987                                          7.08
                  ==========                                          ====
                  02-01-1987                                          7.25
                  ==========                                          ====
                  03-01-1987                                          7.25
                  ==========                                          ====
                  04-01-1987                                          8.02
                  ==========                                          ====
                  05-01-1987                                          8.61
                  ==========                                          ====
                  06-01-1987                                          8.40
                  ==========                                          ====
                  07-01-1987                                          8.45
                  ==========                                          ====
                  08-01-1987                                          8.76
                  ==========                                          ====
                  09-01-1987                                          9.42
                  ==========                                          ====
                  10-01-1987                                          9.52
                  ==========                                          ====
                  11-01-1987                                          8.86
                  ==========                                          ====
                  12-01-1987                                          8.99
                  ==========                                          ====
                  01-01-1988                                          8.67
                  ==========                                          ====
                  02-01-1988                                          8.21
                  ==========                                          ====
                  03-01-1988                                          8.37
                  ==========                                          ====
                  04-01-1988                                          8.72
                  ==========                                          ====
                  05-01-1988                                          9.09
                  ==========                                          ====
                  06-01-1988                                          8.92
                  ==========                                          ====
                  07-01-1988                                          9.06
                  ==========                                          ====
                  08-01-1988                                          9.26
                  ==========                                          ====
                  09-01-1988                                          8.98
                  ==========                                          ====
                  10-01-1988                                          8.80
                  ==========                                          ====
                  11-01-1988                                          8.96
                  ==========                                          ====
                  12-01-1988                                          9.11
                  ==========                                          ====
                  01-01-1989                                          9.09
                  ==========                                          ====
                  02-01-1989                                          9.17
                  ==========                                          ====
                  03-01-1989                                          9.36
                  ==========                                          ====
                  04-01-1989                                          9.18
                  ==========                                          ====
                  05-01-1989                                          8.86
                  ==========                                          ====
                  06-01-1989                                          8.28
                  ==========                                          ====
                  07-01-1989                                          8.02
                  ==========                                          ====
                  08-01-1989                                          8.11
                  ==========                                          ====
                  09-01-1989                                          8.19
                  ==========                                          ====
                  10-01-1989                                          8.01
                  ==========                                          ====
                  11-01-1989                                          7.87
                  ==========                                          ====
                  12-01-1989                                          7.84
                  ==========                                          ====
                  01-01-1990                                          8.21
                  ==========                                          ====
                  02-01-1990                                          8.47
                  ==========                                          ====
                  03-01-1990                                          8.59
                  ==========                                          ====
                  04-01-1990                                          8.79
                  ==========                                          ====
                  05-01-1990                                          8.76
                  ==========                                          ====
                  06-01-1990                                          8.48
                  ==========                                          ====
                  07-01-1990                                          8.47
                  ==========                                          ====
                  08-01-1990                                          8.75
                  ==========                                          ====
                  09-01-1990                                          8.89
                  ==========                                          ====
                  10-01-1990                                          8.72
                  ==========                                          ====
                  11-01-1990                                          8.39
                  ==========                                          ====
                  12-01-1990                                          8.08
                  ==========                                          ====
                  01-01-1991                                          8.09
                  ==========                                          ====
                  02-01-1991                                          7.85
                  ==========                                          ====
                  03-01-1991                                          8.11
                  ==========                                          ====
                  04-01-1991                                          8.04
                  ==========                                          ====
                  05-01-1991                                          8.07
                  ==========                                          ====
                  06-01-1991                                          8.28
                  ==========                                          ====
                  07-01-1991                                          8.27
                  ==========                                          ====
                  08-01-1991                                          7.90
                  ==========                                          ====
                  09-01-1991                                          7.65
                  ==========                                          ====
                  10-01-1991                                          7.53
                  ==========                                          ====
                  11-01-1991                                          7.42
                  ==========                                          ====
                  12-01-1991                                          7.09
                  ==========                                          ====
                  01-01-1992                                          7.03
                  ==========                                          ====
                  02-01-1992                                          7.34
                  ==========                                          ====
                  03-01-1992                                          7.54
                  ==========                                          ====
                  04-01-1992                                          7.48
                  ==========                                          ====
                  05-01-1992                                          7.39
                  ==========                                          ====
                  06-01-1992                                          7.26
                  ==========                                          ====
                  07-01-1992                                          6.84
                  ==========                                          ====
                  08-01-1992                                          6.59
                  ==========                                          ====
                  09-01-1992                                          6.42
                  ==========                                          ====
                  10-01-1992                                          6.59
                  ==========                                          ====
                  11-01-1992                                          6.87
                  ==========                                          ====
                  12-01-1992                                          6.77
                  ==========                                          ====
                  01-01-1993                                          6.60
                  ==========                                          ====
                  02-01-1993                                          6.26
                  ==========                                          ====
                  03-01-1993                                          5.98
                  ==========                                          ====
                  04-01-1993                                          5.97
                  ==========                                          ====
                  05-01-1993                                          6.04
                  ==========                                          ====
                  06-01-1993                                          5.96
                  ==========                                          ====
                  07-01-1993                                          5.81
                  ==========                                          ====
                  08-01-1993                                          5.68
                  ==========                                          ====
                  09-01-1993                                          5.36
                  ==========                                          ====
                  10-01-1993                                          5.33
                  ==========                                          ====
                  11-01-1993                                          5.72
                  ==========                                          ====
                  12-01-1993                                          5.77
                  ==========                                          ====
                  01-01-1994                                          5.75
                  ==========                                          ====
                  02-01-1994                                          5.97
                  ==========                                          ====
                  03-01-1994                                          6.48
                  ==========                                          ====
                  04-01-1994                                          6.97
                  ==========                                          ====
                  05-01-1994                                          7.18
                  ==========                                          ====
                  06-01-1994                                          7.10
                  ==========                                          ====
                  07-01-1994                                          7.30
                  ==========                                          ====
                  08-01-1994                                          7.24
                  ==========                                          ====
                  09-01-1994                                          7.46
                  ==========                                          ====
                  10-01-1994                                          7.74
                  ==========                                          ====
                  11-01-1994                                          7.96
                  ==========                                          ====
                  12-01-1994                                          7.81
                  ==========                                          ====
                  01-01-1995                                          7.78
                  ==========                                          ====
                  02-01-1995                                          7.47
                  ==========                                          ====
                  03-01-1995                                          7.20
                  ==========                                          ====
                  04-01-1995                                          7.06
                  ==========                                          ====
                  05-01-1995                                          6.63
                  ==========                                          ====
                  06-01-1995                                          6.17
                  ==========                                          ====
                  07-01-1995                                          6.28
                  ==========                                          ====
                  08-01-1995                                          6.49
                  ==========                                          ====
                  09-01-1995                                          6.20
                  ==========                                          ====
                  10-01-1995                                          6.04
                  ==========                                          ====
                  11-01-1995                                          5.93
                  ==========                                          ====
                  12-01-1995                                          5.71
                  ==========                                          ====
                  01-01-1996                                          5.65
                  ==========                                          ====
                  02-01-1996                                          5.81
                  ==========                                          ====
                  03-01-1996                                          6.27
                  ==========                                          ====
                  04-01-1996                                          6.51
                  ==========                                          ====
                  05-01-1996                                          6.74
                  ==========                                          ====
                  06-01-1996                                          6.91
                  ==========                                          ====
                  07-01-1996                                          6.87
                  ==========                                          ====
                  08-01-1996                                          6.64
                  ==========                                          ====
                  09-01-1996                                          6.83
                  ==========                                          ====
                  10-01-1996                                          6.53
                  ==========                                          ====
                  11-01-1996                                          6.20
                  ==========                                          ====
                  12-01-1996                                          6.30
                  ==========                                          ====
                  01-01-1997                                          6.58
                  ==========                                          ====
                  02-01-1997                                          6.42
                  ==========                                          ====
                  03-01-1997                                          6.69
                  ==========                                          ====
                  04-01-1997                                          6.89
                  ==========                                          ====
                  05-01-1997                                          6.71
                  ==========                                          ====
                  06-01-1997                                          6.49
                  ==========                                          ====
                  07-01-1997                                          6.22
                  ==========                                          ====
                  08-01-1997                                          6.30
                  ==========                                          ====
                  09-01-1997                                          6.21
                  ==========                                          ====
                  10-01-1997                                          6.03
                  ==========                                          ====
                  11-01-1997                                          5.88
                  ==========                                          ====
                  12-01-1997                                          5.81
                  ==========                                          ====
                  01-01-1998                                          5.54
                  ==========                                          ====
                  02-01-1998                                          5.57
                  ==========                                          ====
                  03-01-1998                                          5.65
                  ==========                                          ====
                  04-01-1998                                          5.64
                  ==========                                          ====
                  05-01-1998                                          5.65
                  ==========                                          ====
                  06-01-1998                                          5.50
                  ==========                                          ====
                  07-01-1998                                          5.46
                  ==========                                          ====
                  08-01-1998                                          5.34
                  ==========                                          ====
                  09-01-1998                                          4.81
                  ==========                                          ====
                  10-01-1998                                          4.53
                  ==========                                          ====
                  11-01-1998                                          4.83
                  ==========                                          ====
                  12-01-1998                                          4.65
                  ==========                                          ====
                  01-01-1999                                          4.72
                  ==========                                          ====
                  02-01-1999                                          5.00
                  ==========                                          ====
                  03-01-1999                                          5.23
                  ==========                                          ====
                  04-01-1999                                          5.18
                  ==========                                          ====
                  05-01-1999                                          5.54
                  ==========                                          ====
                  06-01-1999                                          5.90
                  ==========                                          ====
                  07-01-1999                                          5.79
                  ==========                                          ====
                  08-01-1999                                          5.94
                  ==========                                          ====
                  09-01-1999                                          5.92
                  ==========                                          ====
                  10-01-1999                                          6.11
                  ==========                                          ====
                  11-01-1999                                          6.03
                  ==========                                          ====
                  12-01-1999                                          6.28
                  ==========                                          ====
                  01-01-2000                                          6.66
                  ==========                                          ====
                  02-01-2000                                          6.52
                  ==========                                          ====
                  03-01-2000                                          6.26
                  ==========                                          ====
                  04-01-2000                                          5.99
                  ==========                                          ====
                  05-01-2000                                          6.44
                  ==========                                          ====
                  06-01-2000                                          6.10
                  ==========                                          ====
                  07-01-2000                                          6.05
                  ==========                                          ====
                  08-01-2000                                          5.83
                  ==========                                          ====
                  09-01-2000                                          5.80
                  ==========                                          ====
                  10-01-2000                                          5.74
                  ==========                                          ====
                  11-01-2000                                          5.72
                  ==========                                          ====
                  12-01-2000                                          5.24
                  ==========                                          ====
                  01-01-2001                                          5.16
                  ==========                                          ====
                  02-01-2001                                          5.10
                  ==========                                          ====
                  03-01-2001                                          4.89
                  ==========                                          ====
                  04-01-2001                                          5.14
                  ==========                                          ====
                  05-01-2001                                          5.39
                  ==========                                          ====
                  06-01-2001                                          5.28
                  ==========                                          ====
                  07-01-2001                                          5.24
                  ==========                                          ====
                  08-01-2001                                          4.97
                  ==========                                          ====
                  09-01-2001                                          4.73
                  ==========                                          ====
                  10-01-2001                                          4.57
                  ==========                                          ====
                  11-01-2001                                          4.65
                  ==========                                          ====
                  12-01-2001                                          5.09
                  ==========                                          ====
                  01-01-2002                                          5.04
                  ==========                                          ====
                  02-01-2002                                          4.91
                  ==========                                          ====
                  03-01-2002                                          5.28
                  ==========                                          ====
                  04-01-2002                                          5.21
                  ==========                                          ====
                  05-01-2002                                          5.16
                  ==========                                          ====
                  06-01-2002                                          4.93
                  ==========                                          ====
                  07-01-2002                                          4.65
                  ==========                                          ====
                  08-01-2002                                          4.26
                  ==========                                          ====
                  09-01-2002                                          3.87
                  ==========                                          ====
                  10-01-2002                                          3.94
                  ==========                                          ====
                  11-01-2002                                          4.05
                  ==========                                          ====
                  12-01-2002                                          4.03
                  ==========                                          ====
                  01-01-2003                                          4.05
                  ==========                                          ====
                  02-01-2003                                          3.90
                  ==========                                          ====
                  03-01-2003                                          3.81
                  ==========                                          ====



          *PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.  Source: Board of
     Governors of the Federal  Reserve  System.  The chart uses the 10-Year U.S.
     Treasury  Constant  Maturity Rate as a proxy to illustrate  the  historical
     movement of interest rates.  Treasuries are U.S.  government  guaranteed to
     return  interest and  principal  at maturity.  It is not possible to invest
     directly  in an index.  This table is not  intended  to predict  the Fund's
     performance.




The Fund


          The Fund's expected listing of its common shares on the American Stock
     Exchange  is  expected to provide  liquidity,  convenience  and daily price
     visibility through electronic services and in newspaper stock tables.

          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.  The  Fund  may be a  suitable
     investment for a shareholder who is thinking of adding bond  investments to
     his portfolio to balance the  appreciated  stocks that the  shareholder  is
     holding.

Performance Calculations

Average Annual Total Return

          Described  below are the total  return  calculations  the Fund may use
     from time to time in advertisements.

          Total  return  quotations  for a  class  of  shares  of the  Fund  are
     calculated by finding the average  annual  compounded  rates of return over
     one, five and ten year periods, or the time periods for which such class of
     shares has been effective,  whichever is relevant, on a hypothetical $1,000
     investment  that would equate the initial  amount  invested in the class to
     the ending  redeemable  value. To the initial  investment all dividends and
     distributions  are added, and all recurring fees charged to all shareholder
     accounts  are  deducted.  The ending  redeemable  value  assumes a complete
     redemption at the end of the relevant periods. The following is the formula
     used to calculate average annual total return:





         P =  initial payment of $1,000.
         T =  average annual total return.
         n =  number of years.
         ERV = ending redeemable value of the initial $1,000.

Yield

          Described  below  are  yield  calculations  the Fund  may  use.  Yield
     quotations  are  expressed  in  annualized  terms  and may be  quoted  on a
     compounded basis.  Yields based on these  calculations do not represent the
     Fund's yield for any future period.

30-Day Yield

          If the Fund invests  primarily in bonds, it may quote its 30-day yield
     in advertisements or in reports or other communications to shareholders. It
     is calculated by dividing the net investment income per share earned during
     the period by the maximum  offering  price per share on the last day of the
     period, according to the following formula:



         Where:
         a = Dividends and interest earned during the period
         b = Expenses accrued for the period (net of reimbursements)
         c = The average daily number of shares outstanding during the period
                that were entitled to receive dividends
         d = The maximum offering price per share on the last day of the period

7-Day Current and Effective Yield

          If the Fund  invests  primarily in money  market  instruments,  it may
     quote its 7-day current yield or effective  yield in  advertisements  or in
     reports or other communications to shareholders.

          The  current  yield  is  calculated  by  determining  the net  change,
     excluding  capital changes and income other than investment  income, in the
     value of a hypothetical, pre-existing account having a balance of one share
     at the  beginning  of the 7-day base  period,  subtracting  a  hypothetical
     charge reflecting  deductions from shareholder  accounts,  and dividing the
     difference  by the value of the account at the beginning of the base period
     to obtain the base  period  return,  and then  multiplying  the base period
     return by (365/7).

          The effective  yield is based on a compounding  of the current  yield,
     according to the following formula:




Tax Equivalent Yield

          If the Fund  invests  primarily in  municipal  bonds,  it may quote in
     advertisements or in reports or other  communications to shareholders a tax
     equivalent  yield,  which is what an investor would  generally need to earn
     from a fully taxable investment in order to realize,  after income taxes, a
     benefit equal to the tax free yield  provided by the Fund.  Tax  equivalent
     yield is calculated using the following formula:



          The  quotient  is then added to that  portion,  if any,  of the Fund's
     yield that is not tax exempt. Depending on the Fund's objective, the income
     tax rate used in the  formula  above may be  federal  or a  combination  of
     federal and state.

Non-Standardized Performance

          In addition to the performance  information  described above, the Fund
     may provide total return  information for designated  periods,  such as for
     the most recent six months or most recent twelve months.  This total return
     information is computed as described under "Total Return" above except that
     no annualization is made.



<PAGE>




                                            EXPERTS


          The  statement of assets and  liabilities  of the Fund as of May 16,
     2003 appearing in this statement of additional information has been audited
     by KPMG LLP,  independent  auditors,  as set forth in their report  thereon
     appearing  elsewhere  herein,  and is included in reliance upon such report
     given  upon  the  authority  of such  firm as  experts  in  accounting  and
     auditing. KPMG LLP, located at 99 High Street, Boston, Massachusetts 02110,
     provides accounting and auditing services to the Fund.




                                   ADDITIONAL INFORMATION

          A Registration  Statement on Form N-2, including  amendments  thereto,
     relating to the shares offered hereby,  has been filed by the Fund with the
     Commission,   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
     hereby,  reference  is  made  to  the  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.  A copy of the Registration  Statement may be inspected  without
     charge at the Commission's principal office in Washington, D.C., and copies
     of all or any part  thereof may be obtained  from the  Commission  upon the
     payment of certain fees prescribed by the Commission.



<PAGE>



         FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT








                          EVERGREEN MANAGED INCOME FUND

                       Statement of Assets and Liabilities

                                  May 16, 2003

                   (With Independent Auditors' Report Thereon)



<PAGE>


                          EVERGREEN MANAGED INCOME FUND
                       Statement of Assets and Liabilities
                                  May 16, 2003





<TABLE>
<CAPTION>


<S>                   <C>                                                                                 <C>       <C>

ASSETS

                      Cash                                                                                 $         100,000
                      Deferred offering costs                                                                        600,000

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

                      Total Assets                                                                         $         700,000

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


LIABILITIES

                      Payable for offering costs                                                                    600,000

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


NET ASSETS                                                                                                      $   100,000
==========                                                                                                      ============




Shares Outstanding                                                                                                    5,000

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


Net asset value                                                                                                       $20.00

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

     ($100,000/5,000 shares outstanding)

</TABLE>

The accompanying notes are an integral part of the financial statement.







<PAGE>




                              EVERGREEN MANAGED INCOME FUND

                       Notes to Statement of Assets and Liabilities

                                       May 16, 2003

Note 1 - Organization

     Evergreen Managed Income Fund (the "Fund"),  a Delaware statutory trust, is
     registered under the Investment  Company Act of 1940, as amended (the "1940
     Act"), as a closed-end, diversified, management investment company.

     The Fund's  investment  objective is to seek a high level of current income
     consistent  with  limiting its overall  exposure to domestic  interest rate
     risk.

Note 2 - Significant Accounting Policies

     (A) Valuation of Cash: Cash is valued at cost,  which  approximates  market
     value.

     (B)  Organization  Expenses  and  Offering  Costs:   Organization  expenses
     relating to organizing the Fund have been incurred by Evergreen  Investment
     Management  Company  LLC  ("EIMC").  Offering  costs  are  estimated  to be
     approximately  $600,000.  EIMC  has  also  agreed  to  pay  offering  costs
     (excluding sales charges) that exceed $0.04 per share. Offering costs up to
     $0.04  per  share  and  sales  charges  will be  borne  by the Fund and its
     shareholders  and will be accounted  for as a reduction to paid in capital.
     Based on an estimated  expected offering of 15,000,000  shares,  all of the
     offering costs will be borne by the Fund.

     (C) Federal Taxes: The Fund intends to qualify for treatment as a regulated
     investment company under the Internal Revenue Code of 1986, as amended, and
     distribute all its taxable  income.  In addition,  by  distributing in each
     calendar year  substantially all its net investment  income,  capital gains
     and certain other amounts,  if any, the Fund will not be subject to Federal
     excise tax.  Therefore,  no Federal  income or excise tax provision will be
     required.

Note 3 - Investment Adviser and Other Affiliated Transactions

     EIMC serves as investment  adviser to the Fund. As compensation  for EIMC's
     services,  the Fund will pay EIMC a  management  fee at an  annual  rate of
     0.55% of the Fund's average daily total assets.

     Evergreen Investment Services,  Inc. ("EIS") serves as administrator to the
     Fund. As administrator,  EIS provides the Fund certain  administrative  and
     accounting  services  and is paid an  annual  fee of  0.05%  of the  Fund's
     average daily total assets.

Note 4 - Service Providers

     The Fund has  retained  State Street Bank and Trust  Company as  custodian.
     EquiServe,  Inc.  will serve as the  transfer  agent and  registrar  of the
     Fund's shares.

Note 5 - Fund Shares

     The Fund has authorized 100 million shares of no par value capital stock of
     which 5,000 shares were issued and outstanding at May 16, 2003.



<PAGE>


                        Independent Auditors' Report



The Board of Trustees and Shareholders
Evergreen Managed Income Fund:

We have  audited  the  accompanying  statement  of  assets  and  liabilities  of
Evergreen  Managed Income Fund ("the Fund"),  as of May 16, 2003. This statement
of assets and liabilities is the  responsibility of the Fund's  management.  Our
responsibility is to express an opinion on this financial statement based on our
audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the statement of
assets and liabilities is free of material misstatement. An audit of a statement
of  assets  and  liabilities  includes  examining,  on a  test  basis,  evidence
supporting  the  amounts  and  disclosures  in  that  statement  of  assets  and
liabilities. An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our  opinion,  the  statement  of assets and  liabilities  referred  to above
presents fairly, in all material  respects,  the financial position of Evergreen
Managed Income Fund as of May 16, 2003, in conformity with accounting principles
generally accepted in the United States of America.

                                                    /s/ KPMG LLP

Boston, Massachusetts
May 19, 2003




<PAGE>


                          APPENDIX A - DESCRIPTION OF RATINGS

                          CORPORATE AND MUNICIPAL BOND RATINGS

          The Fund relies on ratings provided by independent  rating services to
     help determine the credit quality of bonds and other  obligations  the Fund
     intends to purchase or already  owns. A rating is an opinion of an issuer's
     ability to pay  interest  and/or  principal  when due.  Ratings  reflect an
     issuer's overall  financial  strength and whether it can meet its financial
     commitments under various economic conditions.

          If a  security  held by the Fund  loses its  rating or has its  rating
     reduced  after the Fund has  purchased it, the Fund is not required to sell
     or otherwise dispose of the security, but may consider doing so.


          The principal rating services, commonly used by the Fund and investors
     generally, are Moody's, Fitch and S&P. Rating systems are similar among the
     different services.  As an example,  the chart below compares basic ratings
     for long-term  bonds. The "Credit Quality" terms in the chart are for quick
     reference  only.  Following  the chart are the  specific  definitions  each
     service provides for its ratings.


                             OMPARISON OF LONG-TERM BOND RATINGS
<TABLE>
<CAPTION>

     ================== ================ =============== =================================================
     <S>                <C>              <C>             <C>

     MOODY'S            S&P              FITCH           Credit Quality
     ================== ================ =============== =================================================
     ------------------ ---------------- --------------- -------------------------------------------------

     Aaa                AAA              AAA             Excellent Quality (lowest risk)
     ------------------ ---------------- --------------- -------------------------------------------------
     ------------------ ---------------- --------------- -------------------------------------------------

     Aa                 AA               AA              Almost Excellent Quality (very low risk)
     ------------------ ---------------- --------------- -------------------------------------------------
     ------------------ ---------------- --------------- -------------------------------------------------

     A                  A                A               Good Quality (low risk)
     ------------------ ---------------- --------------- -------------------------------------------------
     ------------------ ---------------- --------------- -------------------------------------------------

     Baa                BBB              BBB             Satisfactory Quality (some risk)
     ------------------ ---------------- --------------- -------------------------------------------------
     ------------------ ---------------- --------------- -------------------------------------------------

     Ba                 BB               BB              Questionable Quality (definite risk)
     ------------------ ---------------- --------------- -------------------------------------------------
     ------------------ ---------------- --------------- -------------------------------------------------

     B                  B                B               Low Quality (high risk)
     ------------------ ---------------- --------------- -------------------------------------------------
     ------------------ ---------------- --------------- -------------------------------------------------

     Caa/Ca/C           CCC/CC/C         CCC/CC/C        In or Near Default
     ------------------ ---------------- --------------- -------------------------------------------------
     ------------------ ---------------- --------------- -------------------------------------------------

                        D                DDD/DD/D        In Default
     ================== ================ =============== =================================================

</TABLE>


<PAGE>




                                           CORPORATE BONDS

                                          LONG-TERM RATINGS

Moody's Corporate Long-Term 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  edged."  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 which make the long-term  risk appear  somewhat
     larger than the 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 which suggest a  susceptibility  to impairment  some time 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 the 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.

     Note:  Moody's  applies  numerical  modifiers,  1, 2 and 3 in each  generic
     rating  classification  from Aa to Caa. The  modifier 1 indicates  that the
     company  ranks  in the  higher  end of its  generic  rating  category;  the
     modifier 2 indicates a mid-range  raking and the modifier 3 indicates  that
     the company ranks in the lower end of its generic rating category.

S&P  Corporate Long-Term Bond Ratings

     AAA An  obligation  rated AAA has the highest  rating  assigned by S&P. 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.

     BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC,
     and C are regarded as having significant  speculative  characteristics.  BB
     indicates  the least degree of  speculation  and C the highest.  While such
     obligations  will likely have some quality and protective  characteristics,
     these  may be  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
     it financial commitment on the obligation.

     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 The C rating may be used to cover a situation where a bankruptcy petition
     has been  filed or similar  action has been  taken,  but  payments  on this
     obligation are being continued.

     D The D rating,  unlike other ratings,  is not prospective;  rather,  it is
     used only where a default has actually occurred--and not where a default is
     only expected. S&P changes ratings to D either:

     On the day an interest and/or principal  payment is due and is not paid. An
     exception  is made if  there  is a grace  period  and S&P  believes  that a
     payment will be made, in which case the rating can be maintained; or

     Upon voluntary bankruptcy filing or similar action. An exception is made if
     S&P  expects  that debt  service  payments  will  continue  to be made on a
     specific issue. In the absence of a payment default or bankruptcy filing, a
     technical  default  (i.e.,   covenant  violation)  is  not  sufficient  for
     assigning a D rating.

     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.

Fitch Corporate Long-Term Bond Ratings

Investment Grade

     AAA Highest credit  quality.  AAA ratings denote the lowest  expectation of
     credit  risk.  They  are  assigned  only in case  of  exceptionally  strong
     capacity for timely  payment of  financial  commitments.  This  capacity is
     highly unlikely to be adversely affected by foreseeable events.

     AA Very high credit  quality.  AA ratings denote a very low  expectation of
     credit risk.  They  indicate  very strong  capacity  for timely  payment of
     financial  commitments.  This capacity is not  significantly  vulnerable to
     foreseeable events.

     A High credit quality. A ratings denote a lower expectation of credit risk.
     The capacity  for timely  payment of financial  commitments  is  considered
     strong. This capacity may,  nevertheless,  be more vulnerable to changes in
     circumstances  or in  economic  conditions  than  is the  case  for  higher
     ratings.

     BBB Good credit quality. BBB ratings indicate that there is currently a low
     expectation  of credit risk.  The capacity for timely  payment of financial
     commitments is considered  adequate,  but adverse changes in  circumstances
     and in economic conditions are more likely to impair this capacity. This is
     the lowest investment-grade category.

Speculative Grade

     BB Speculative.  BB ratings  indicate that there is a possibility of credit
     risk developing, particularly as the result of adverse economic change over
     time; however, business or financial alternatives may be available to allow
     financial  commitments to be met. Securities rated in this category are not
     investment grade.

     B Highly  speculative.  B ratings indicate that significant  credit risk is
     present, but a limited margin of safety remains.  Financial commitments are
     currently being met; however,  capacity for continued payment is contingent
     upon a sustained, favorable business and economic environment.

     CCC, CC, C High default risk.  Default is a real possibility.  Capacity for
     meeting  financial  commitment is solely reliant upon sustained,  favorable
     business or economic  developments.  A CC rating  indicates that default of
     some kind appears probable. C ratings signal imminent default.

     DDD, DD, D Default.  Securities are not meeting current obligations and are
     extremely speculative. DDD designates the highest potential for recovery of
     amounts outstanding on any securities involved.  For U.S.  corporates,  for
     example,  DD indicates  expected recovery of 50%-90% of such  outstandings,
     and D the lowest recovery potential, i.e. below 50%.

     + or - may be appended to a rating to denote  relative  status within major
     rating  categories.  Such suffixes are not added to the AAA rating category
     or to categories below CCC.


CORPORATE SHORT-TERM RATINGS

Moody's Corporate Short-Term Issuer Ratings

     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  changes and high
     internal cash generation.

     --  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.

     S&P Corporate Short-Term Obligation Ratings

     A-1 A short-term  obligation  rated A-1 is rated in the highest category by
     S&P.  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.

     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 The D rating,  unlike other ratings,  is not prospective;  rather,  it is
     used only where a default has actually occurred--and not where a default is
     only expected. S&P changes ratings to D either:

     -- On the day an interest and/or principal  payment is due and is not paid.
     An exception  is made if there is a grace  period and S&P  believes  that a
     payment will be made, in which case the rating can be maintained; or

     -- Upon voluntary bankruptcy filing or similar action, An exception is made
     if S&P expects that debt  service  payments  will  continue to be made on a
     specific issue. In the absence of a payment default or bankruptcy filing, a
     technical  default  (i.e.,   covenant  violation)  is  not  sufficient  for
     assigning a D rating.

Fitch Corporate Short-Term Obligation Ratings

     F1 Highest  credit  quality.  Indicates the  strongest  capacity for timely
     payment  of  financial  commitments;  may have an added "+" to  denote  any
     exceptionally strong credit feature.

     F2 Good credit  quality.  A  satisfactory  capacity  for timely  payment of
     financial  commitments,  but the margin of safety is not as great as in the
     case of the higher ratings.

     F3 Fair  credit  quality.  The  capacity  for timely  payment of  financial
     commitments is adequate; however, near-term adverse changes could result in
     a reduction to non-investment grade.

     B   Speculative.   Minimal   capacity  for  timely   payment  of  financial
     commitments,  plus  vulnerability to near-term adverse changes in financial
     and economic conditions.

     C High default risk.  Default is a real  possibility.  Capacity for meeting
     financial  commitments  is  solely  reliant  upon  a  sustained,  favorable
     business and economic environment.

D  Default. Denotes actual or imminent payment default.


                                         MUNICIPAL BONDS

                                        LONG-TERM RATINGS

Moody's Municipal Long-Term Bond Ratings

     Aaa Bonds  rated Aaa are judged to be of the best  quality.  They carry the
     smallest degree of investment  risk and are generally  referred to as "gilt
     edge."  Interest  payments are protected by a large or by an  exceptionally
     stable  margin  and  principal  is  secure.  While the  various  protective
     elements are likely to change,  such changes as can be visualized  are most
     unlikely to impair the fundamentally strong position of such issues.

     Aa Bonds  rated  Aa are  judged  to be of high  quality  by all  standards.
     Together with the Aaa group they comprise what are generally  known as high
     grade bonds.  They are rated lower than the best bonds  because  margins of
     protection  may not be as  large as in Aaa  securities  or  fluctuation  of
     protective  elements  may be of  greater  amplitude  or there  may be other
     elements  present which make the long-term risk appear somewhat larger than
     the Aaa securities.

     A Bonds rated A possess many favorable investment  attributes and are to be
     considered as upper-medium  grade  obligations.  Factors giving security to
     principal and interest are considered adequate, but elements may be present
     which suggest a susceptibility to impairment some time in the future.

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

     Ba Bonds rated Ba are judged to have  speculative  elements;  their  future
     cannot be considered as well-assured.  Often the protection of interest and
     principal  payments may be very moderate,  and thereby not well safeguarded
     during  both good and bad times over the  future.  Uncertainty  of position
     characterizes bonds in this class.

     B Bonds rated B generally lack characteristics of the 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 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 rated Ca represent  obligations  which are  speculative  in a high
     degree. Such issues are often in default or have other marked shortcomings.

     C Bonds 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.

     Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
     classification  from Aa to B. The  modifier 1  indicates  that the  company
     ranks in the higher end of its  generic  rating  category;  the  modifier 2
     indicates a mid-range  raking and the modifier 3 indicates that the company
     ranks in the lower end of its generic rating category.

S&P Municipal Long-Term Bond Ratings

     AAA An  obligation  rated AAA has the highest  rating  assigned by S&P. 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.

     BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC,
     and C are regarded as having significant  speculative  characteristics.  BB
     indicates  the least degree of  speculation  and C the highest.  While such
     obligations  will likely have some quality and protective  characteristics,
     these  may be  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
     it financial commitment on the obligation.

     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 The C rating may be used to cover a situation where a bankruptcy petition
     has been  filed or similar  action has been  taken,  but  payments  on this
     obligation are being continued.

     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 S&P 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.

Fitch Municipal Long-Term Bond Ratings

Investment Grade

     AAA Highest credit  quality.  AAA ratings denote the lowest  expectation of
     credit  risk.  They  are  assigned  only in case  of  exceptionally  strong
     capacity for timely  payment of  financial  commitments.  This  capacity is
     highly unlikely to be adversely affected by foreseeable events.

     AA Very high credit  quality.  AA ratings denote a very low  expectation of
     credit risk.  They  indicate  very strong  capacity  for timely  payment of
     financial  commitments.  This capacity is not  significantly  vulnerable to
     foreseeable events.

     A High credit quality. A ratings denote a lower expectation of credit risk.
     The capacity  for timely  payment of financial  commitments  is  considered
     strong. This capacity may,  nevertheless,  be more vulnerable to changes in
     circumstances  or in  economic  conditions  than  is the  case  for  higher
     ratings.

     BBB Good credit quality. BBB ratings indicate that there is currently a low
     expectation  of credit risk.  The capacity for timely  payment of financial
     commitments is considered  adequate,  but adverse changes in  circumstances
     and in economic conditions are more likely to impair this capacity. This is
     the lowest investment-grade category.

Speculative Grade

     BB Speculative.  BB ratings  indicate that there is a possibility of credit
     risk developing, particularly as the result of adverse economic change over
     time; however, business or financial alternatives may be available to allow
     financial  commitments to be met. Securities rated in this category are not
     investment grade.

     B Highly  speculative.  B ratings indicate that significant  credit risk is
     present, but a limited margin of safety remains.  Financial commitments are
     currently being met; however,  capacity for continued payment is contingent
     upon a sustained, favorable business and economic environment.

     CCC, CC, C High default risk.  Default is a real possibility.  Capacity for
     meeting financial  commitments is solely reliant upon sustained,  favorable
     business or economic  developments.  A CC rating  indicates that default of
     some kind appears probable. C ratings signal imminent default.


     DDD, DD, D Default.  The ratings of  obligations in this category are based
     on  their   prospects  for   achieving   partial  or  full  recovery  in  a
     reorganization  or  liquidation  of the obligor.  While  expected  recovery
     values are highly  speculative  and cannot be estimated with any precision,
     the  following  serve as general  guidelines.  'DDD'  obligations  have the
     highest  potential for recovery,  around 90% - 100% of outstanding  amounts
     and accrued interest.  "DD' indicates potential  recoveries in the range of
     50% - 90% and 'D' the lowest recovery potential, i.e., below 50%.

     Entities  rated in this  category  have  defaulted  on some or all of their
     obligations.  Entities rated 'DDD' have the highest prospect for resumption
     of   performance   or  continued   operation   with  or  without  a  formal
     reorganization   process.   Entities  rated  'DD'  and  'D'  are  generally
     undergoing a formal reorganization or liquidation process; those rated 'DD'
     are likely to satisfy a higher  portion of their  outstanding  obligations,
     while entities rated 'D' have a poor prospect of repaying all obligations.

     + or - may be appended to a rating to denote  relative  status within major
     rating  categories.  Such suffixes are not added to the AAA rating category
     or to categories  below CCC or to short-term  ratings (as discussed  below)
     other than F1.


SHORT-TERM MUNICIPAL RATINGS

Moody's Municipal Short-Term Issuer Ratings

     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  evidence  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  changes and high
     internal cash generation.

     --  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.

Moody's Municipal Short-Term Loan Ratings

     MIG 1 This designation denotes best quality.  There is strong protection by
     established  cash  flows,   superior  liquidity  support,  or  demonstrated
     broad-based access to the market for refinancing.

     MIG 2 This  designation  denotes high quality.  Margins of  protection  are
     ample although not so large as in the preceding group.

     MIG 3 This designation  denotes favorable quality.  Liquidity and cash-flow
     protection may be narrow and market access for  refinancing is likely to be
     less well established.

     SG This designation denotes speculative  quality.  Debt instruments in this
     category may lack margins of protection.

S&P Commercial Paper Ratings

     A-1 This  designation  indicates that the degree of safety regarding timely
     payment is strong.  Those issues  determined  to possess  extremely  strong
     safety characteristics are denoted with a plus sign (+) designation.

     A-2  Capacity  for  timely  payment  on  issues  with this  designation  is
     satisfactory.  However, the relative degree of safety is not as high as for
     issues designated A-1.

     A-3 Issues carrying this designation  have an adequate  capacity for timely
     payment.  They are,  however,  more  vulnerable  to the adverse  effects of
     changes in circumstances than obligations carrying the higher designations.

     B Issues  rated B are  regarded as having  only  speculative  capacity  for
     timely payment.

     C This rating is assigned to short-term  debt  obligations  with a doubtful
     capacity for payment.

     D Debt rated D is in payment  default.  The D rating  category is used when
     interest payments or principal  payments are not made on the date due, even
     if the  applicable  grace period has not expired,  unless S&P believes such
     payments will be made during such grace period.

S&P Municipal Short-Term Obligation Ratings

     SP-1 Strong capacity to pay principal and interest.  An issue determined to
     possess a very  strong  capacity  to pay debt  service  is given a plus (+)
     designation.

     SP-2  Satisfactory  capacity  to pay  principal  and  interest,  with  some
     vulnerability  to adverse  financial and economic  changes over the term of
     the notes.

SP-3  Speculative capacity to pay principal and interest.

Fitch Municipal Short-Term Obligation Ratings

     F1 Highest  credit  quality.  Indicates the  strongest  capacity for timely
     payment  of  financial  commitments;  may have an added "+" to  denote  any
     exceptionally strong credit feature.

     F2 Good credit  quality.  A  satisfactory  capacity  for timely  payment of
     financial  commitments,  but the margin of safety is not as great as in the
     case of the higher ratings.

     F3 Fair  credit  quality.  The  capacity  for timely  payment of  financial
     commitments is adequate; however, near-term adverse changes could result in
     a reduction to non-investment grade.

     B   Speculative.   Minimal   capacity  for  timely   payment  of  financial
     commitments,  plus  vulnerability to near-term adverse changes in financial
     and economic conditions.

     C High default risk.  Default is a real  possibility.  Capacity for meeting
     financial  commitments  is  solely  reliant  upon  a  sustained,  favorable
     business and economic environment.

D  Default. Denotes actual or imminent payment default.

<PAGE>

                           PART C -- OTHER INFORMATION

ITEM 24.   FINANCIAL STATEMENTS AND EXHIBITS


     (1)  FINANCIAL  STATEMENTS - The  following  financial  statement  has been
          incorporated by reference into the Registration Statement as described
          on page 65 of the Statement of Additional Information:

         (i)      Statement of Assets and Liabilities as of May 16, 2003; and


         (ii)    Notes to Financial Statements May 16, 2003.


     Statements,  schedules and historical  information  other than these listed
above have been omitted since they are either not applicable, or not required or
the required information is shown in the financial statements or notes thereto.
<TABLE>
<S>                              <C>

(2)      EXHIBITS


---------------------------- ------------------------------------------------------------------------
Exhibit No.                  Description of Exhibits
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------

(a)(1)                       Second Amended and Restated Certificate of Trust of Evergreen Income
                             Opportunity Fund dated April 24, 2003 is filed herein.

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

(a)(2)                       Second Amended and Restated Agreement and Declaration of Trust of
                             Evergreen Managed Income Fund is filed herein.

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

(b)                          By-laws are incorporated by reference to the Registrant's
                             Registration Statement on Form N-2 as filed with the Commission on
                             April 16, 2003, Files Nos. 333-104569 and 811-21331 (the "Registration
                             Statement").

---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(c)                          Not applicable.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(d)                          To be filed by Amendment.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------

(e)                          Terms and Conditions of Automatic Dividend Reinvestment Plan is filed
                             herein.

---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(f)                          Not applicable.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------

(g)(1)                       Form of Investment Advisory and Management Agreement between
                             Registrant and Evergreen Investment Management Company, LLC is filed
                             herein.

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

(g)(2)                       Sub-Advisory Agreement by and between Evergreen Investment Management
                             Company, LLC and First International Advisors, LLC is filed herein.

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

(h)                          Form of Purchase Agreement is filed herein.

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

(i)                          Deferred Compensation Plan is filed herein.

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

(j)                          Form of Custodian Agreement by and between Registrant and State Street
                             Bank and Trust Company is filed herein.

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

(k)(1)                       Form of Administrative Services Agreement between Registrant and
                             Evergreen Investment Services, Inc. is filed herein.

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

(k)(2)                       Form of Transfer Agency and Service Agreement among Registrant,
                             EquiServe Trust Company, N.A. and EquiServe, Inc. is filed herein.

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

(l)                          Opinion and consent of counsel to be filed by Amendment.

---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(m)                          Not applicable.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------

(n)                          Consent of KPMG is filed herein.

---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(o)                          Not applicable.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------

(p)                          Initial Stock Purchase Agreement is filed herein.

---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------
(q)                          Not applicable.
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------

(r)(1)                       Code of Ethics for Evergreen Managed Income Fund to be filed by
                             Amendment.

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

(r)(2)                       Code of Ethics for Evergreen Investment Management Company, LLC is
                             filed herein.

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

(r)(3)                       Code of Ethics for First International Advisors, LLC is filed herein.

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

(s)                          Powers of Attorney are filed herein.

---------------------------- ------------------------------------------------------------------------
</TABLE>


ITEM 25.   MARKETING ARRANGEMENTS




         See Exhibit (h) of Item 24(2) of this Registration Statement.


ITEM 26.   OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

     The  following  table sets forth the expenses to be incurred in  connection
with the issuance and distribution of securities  described in this Registration
Statement:


Registration fees                                            $24,270
                                                              ======
National Association of Securities Dealers, Inc. fee         $30,500
                                                              ======
American Stock Exchange listing fee                          $65,000
                                                              ======
Printing (other than stock certificates)                     $50,000
                                                              ======
Accounting fees and expenses                                     $--
                                                                   =
Legal fees and expenses                                     $115,000
                                                             =======
Underwriter expense reimbursement                            $75,000
                                                              ======
Miscellaneous                                                 $5,000
                                                               =====
Engraving and printing certificates                            $4,900
===================================                            ======
Marketing                                                    $230,330
=========                                                    ========
Total                                                       $600,000
                                                             =======



ITEM 27.   PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

         None.


ITEM 28.   NUMBER OF HOLDERS OF SECURITIES (as of May 19, 2003)
                                                  ========



TITLE OF CLASS                               NUMBER OF RECORD HOLDERS
--------------                               -------------

Common Shares                                     1
                                              =====



ITEM 29.  INDEMNIFICATION

     Prior to its commencement of operations, Registrant will have obtained from
a major  insurance  carrier a trustees and officers  liability  policy  covering
certain types of errors and ommissions.


     Provisions  for  the  indemnification  of  the  Registrant's  Trustees  and
officers are also  contained  in the  Registrant's  Second  Amended and Restated
Agreement and Declaration of Trust.


     Provisions  for  the  indemnification  of  the  Registrant's  Trustees  and
officers are also contained in the Registrant's  Amended and Restated  Agreement
and Declaration of Trust.




     Provisions  for  the  indemnification  of  the  Registrant's   Advisor  are
contained in the Investment Advisory and Management Agreement.

     Provisions for the  indemnification  of the  Registrant's  Sub-Advisor  are
contained in the Sub-Advisory Agreement.

     The  Purchase  Agreement  filed  in  response  to Item 24  (2)(h)  contains
provisions  requiring  indemnification  of the Registrant's  underwriters by the
Registrant.

     Provisions for the indemnification of Evergreen Investment Services,  Inc.,
the Registrant's  Administrator,  are contained in the  Administrative  Services
Agreement between Registrant and Evergreen Investment Services, Inc.

     Provisions for the  indemnification  of EquiServe,  Inc., the  Registrant's
transfer agent, are contained in the Transfer Agency and Service Agreement among
Registrant, EquiServe Trust Company, N.A. and EquiServe, Inc.




ITEM 30.   BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR

         The Directors and principal executive officers of Wachovia Bank,
           N.A. are:

         G. Kennedy Thompson        Chairman, Wachovia Corporation and
                                      Wachovia Bank, N.A., Chief Executive
                                      Officer, President and Director, Wachovia
                                      Corporation and Wachovia Bank, N.A.

         Mark C. Treanor            Executive Vice President, Secretary &
                                       General Counsel, Wachovia Corporation;
                                       Secretary and Executive Vice President,
                                       Wachovia Bank, N.A.

         Robert T. Atwood           Executive Vice President and Chief Financial
                                       Officer, Wachovia Corporation; Chief
                                       Financial Officer and Executive Vice
                                       President, Wachovia Bank, N.A.

     All of the above  persons are located at the  following  address:  Wachovia
Bank, N.A., One Wachovia Center, Charlotte, NC 28288.

     The information  required by this item with respect to Evergreen Investment
Management  Company,  LLC is incorporated by reference to the Form ADV (File No.
801-8327) of Evergreen Investment Management Company, LLC.

     The information  required by this item with respect to First  International
Advisors,  LLC is incorporated by reference to the Form ADV (File No. 801-42427)
of First International Advisors, LLC.

ITEM 31.  LOCATION OF ACCOUNTS AND RECORDS

     All accounts and records  required to be maintained by Section 31(a) of the
Investment  Company Act of 1940 and the Rules 31a-1  through  31a-3  promulgated
thereunder are maintained at one of the following locations:

     Evergreen  Investment Services,  Inc. and Evergreen  Investment  Management
Company, LLC, all located at 200 Berkeley Street, Boston, Massachusetts 02116.

     Wachovia Bank, N.A., One Wachovia Center, 301 S. College Street, Charlotte,
     North Carolina 28288.

     State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
     Massachusetts 02171.


     EquiServe  Trust Company,  N.A., P.O. Box 43010,  Providence,  Rhode Island
02940-3010.




ITEM 32.   MANAGEMENT SERVICES

Not applicable.

ITEM 33.   UNDERTAKINGS

     (1) The  Registrant  undertakes to suspend the offering of its shares until
it amends  its  Prospectus  if: (1)  subsequent  to the  effective  date of this
Registration  Statement,  the net asset value per share  declines  more than 10%
from its net asset value per share 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)      Registrant hereby undertakes:

     (a) that 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 a form
of  prospectus  filed  by the  Registrant  pursuant  to Rule  497(h)  under  the
Securities Act shall be deemed to be part of this  Registration  Statement as of
the time it was declared effective.

     (b) that 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 such  securities  at that time shall be
deemed to be the initial bona fide offering thereof.

     (6) The  Registrant  hereby  undertakes  to send by first  class mail or by
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.


<PAGE>



                                   SIGNATURES


     Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment  Company Act of 1940, as amended,  the Registrant has duly caused
this Pre-Effective Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boston,
the Commonwealth of Massachusetts on the 20th day of May, 2003.

                                        EVERGREEN MANAGED INCOME FUND
                                                  ========

                                        By:  /s/ William M. Ennis
                                               William M. Ennis
                                              President
                                              (Chief Executive Officer)

     Pursuant to the  requirements  of the  Securities  Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following  persons in the  capacities  indicated on the 20th day of
May, 2003.
<TABLE>
<S>                                           <C>                                  <C>

         /s/ Michael H. Koonce                              /s/ Carol A. Kosel
         -----------------------------               ---------------------------
          Michael H. Koonce                             Carol A. Kosel
          Secretary                                     Treasurer
                                                        (Principal Financial and
                                                          Accounting Officer)

         /s/ Charles A. Austin, III         /s/ K. Dun Gifford                /s/ William Walt Pettit
         ------------------------------     ------------------------          -----------------------------------
            Charles A. Austin III*             K. Dun Gifford*                William Walt Pettit*
         Trustee                           Trustee                             Trustee

         /s/ Gerald M. McDonnell                     /s/ Russell A. Salton, III MD
         -------------------------------        -------------------------------------
         Gerald M. McDonnell*                        Russell A. Salton, III MD*
         Trustee                                                            Trustee

         /s/ Michael S. Scofield             /s/ David M. Richardson          /s/ Richard K. Wagoner
         ------------------------------     --------------------------------  -------------------------------
          Michael S. Scofield*               David M. Richardson*             Richard K. Wagoner*
         Chairman of the Board               Trustee                               Trustee
         and Trustee

          /s/ Leroy Keith, Jr.              /s/ Richard J. Shima
         ------------------------------     ------------------------------
         Leroy Keith, Jr.*                  Richard J. Shima*
         Trustee                            Trustee



         *By: /s/ Maureen E. Towle
                  ------------------------------
                  Maureen E. Towle
                  Attorney-in-Fact
</TABLE>

     *Maureen  E.  Towle,  by signing  her name  hereto,  does  hereby sign this
document on behalf of each of the above-named  individuals pursuant to powers of
attorney duly executed by such persons.




<PAGE>


<TABLE>
<S>                             <C>

                                                   EXHIBIT INDEX

---------------------------- ------------------------------------------------------------------------
Exhibit No.                  Description of Exhibits
---------------------------- ------------------------------------------------------------------------
---------------------------- ------------------------------------------------------------------------

(a)(1)                       Second Amended and Restated Certificate of Trust of Evergreen Income
                             Opportunity Fund dated April 24, 2003.

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

(a)(2)                       Second Amended and Restated Agreement and Declaration of Trust of
                             Evergreen Managed Income Fund.

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

(e)                         Terms and Conditions of Automatic Dividend Reinvestment Plan.

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

(g)(1)                       Form of Investment Advisory and Management Agreement between
                             Registrant and Evergreen Investment Management Company, LLC.

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

(g)(2)                       Sub-Advisory Agreement by and between Evergreen Investment Management
                             Company, LLC and First International Advisors, LLC.

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

(h)                          Form of Purchase Agreement.

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

(i)                          Deferred Compensation Plan.

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

(j)                          Form of Custodian Agreement by and between Registrant and State Street
                             Bank and Trust Company.

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

(k)(1)                       Form of Administrative Services Agreement between Registrant and
                             Evergreen Investment Services, Inc.

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

(k)(2)                       Form of Transfer Agency and Service Agreement among Registrant,
                             EquiServe Trust Company, N.A. and EquiServe, Inc.

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

(n)                          Consent of KPMG.

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

(p)                          Initial Stock Purchase Agreement.

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

(r)(2)                       Code of Ethics for Evergreen Investment Management Company, LLC.

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

(r)(3)                       Code of Ethics for First International Advisors, LLC is filed herein.

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

(s)                          Powers of Attorney.

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








</TABLE>

</TEXT>
</DOCUMENT>
