Edgar Filing: EATON VANCE LOW DURATION DIVERSIFIED INCOME FUND

As filed with the Securities and Exchange Commission on April 19, 2004
1933 Act File No. 333-
1940 Act File No. 811-21563

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-2

and/or

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. | |
(CHECK APPROPRIATE BOX OR BOXES)

EATON VANCE LOW DURATION DIVERSIFIED INCOME FUND
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 482-8260
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ALAN R. DYNNER
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
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NAME AND ADDRESS (OF AGENT FOR SERVICE)

COPIES OF COMMUNICATIONS TO:

MARK P. GOSHKO, ESQ.
KIRKPATRICK & LOCKHART LLP
75 STATE STREET
BOSTON, MASSACHUSETTS 02109

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

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

It is proposed that this filing will become effective (check appropriate
box):
|X| when declared effective pursuant to Section 8(c)

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT BEING OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEES
BEING REGISTERED (1) (1) (1) (1)(2)
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Common Shares of Beneficial 50,000 $20.00 $1,000,000 $126.70
Interest, $0.01 par value

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(1) Estimated solely for purposes of calculating the registration fee, pursuant to Rule 457(o)
under the Securities Act of 1933.

(2) Includes Shares that may be offered to the Underwriters pursuant to an option to cover
over-allotments.

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

The information in this Prospectus is incomplete 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 we are not soliciting offers to buy these securities, in
any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION May ____, 2004
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[EATON VANCE LOGO] [ ] Shares
EATON VANCE LOW DURATION DIVERSIFIED
INCOME FUND

COMMON SHARES

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INVESTMENT OBJECTIVES AND POLICIES. Eaton Vance Low Duration Diversified Income
Fund (the "Fund") is a newly organized, diversified, closed-end management
investment company. The Fund's investment objective is to provide a high level
of current income. The Fund may, as a secondary objective, also seek capital
appreciation to the extent consistent with its primary goal of high current
income.

Under normal market conditions, Eaton Vance Management, the Fund's investment
adviser, expects the Fund to maintain a duration of no more than three years
(including the effect of anticipated leverage). Initially, the Fund is expected
to have a duration of approximately two years (including the effect of
anticipated leverage). Under normal market conditions, the Fund expects to
maintain a weighted average portfolio credit quality of investment grade (which
is at least BBB- as determined by Standard & Poor's Ratings Group ("S&P") or
Fitch Ratings ("Fitch"), or Baa3 as determined by Moody's Investors Service,
Inc. ("Moody's") or, if unrated, determined to be of comparable quality by Eaton
Vance Management).

INVESTMENT ADVISER. The Fund's investment adviser is Eaton Vance Management
("Eaton Vance" or the "Adviser"). As of April 30, 2004, Eaton Vance and its
subsidiaries managed approximately $[ ] billion on behalf of funds,
institutional clients and individuals.

PORTFOLIO CONTENTS. The Fund pursues its objectives by investing its assets
primarily in four distinct investment categories: 1) senior, secured floating
rate loans made to corporate and other business entities ("Senior Loans"); 2)
deposits of banks in foreign denominated currencies, short term debt obligations
of foreign governmental issuers, as well as positions in foreign currencies and
bonds and other debt obligations of foreign government, government agency and
corporate issuers, including emerging market issuers, which are denominated in
U.S. dollars or foreign currencies ("Foreign Obligations"); 3) mortgage-backed
securities that are issued, backed or otherwise guaranteed by the U.S.
Government or its agencies or instrumentalities or that are issued by private
issuers ("MBS"); and 4) corporate bonds and other debt obligations of domestic
issuers that are of below "investment grade" quality ("Non-Investment Grade
Bonds"). Non-Investment Grade Bonds, commonly referred to as "junk bonds," are
bonds and other debt obligations that are rated below investment grade by each
of the national rating agencies who cover the security, or, if unrated, are
determined to be of comparable quality by the Adviser. S&P and Fitch consider
securities rated below BBB- to be below investment grade and Moody's considers
securities rated below Baa3 to be below investment grade. Senior Loans and in
which the Fund invests are also typically of below investment grade quality, as
are certain Foreign Obligations in which the Fund invests. The Fund may also
obtain investment exposure to each of these four categories through the use of
derivative instruments. The Adviser has broad discretion to allocate the Fund's
assets among these investment categories. Under normal market circumstances, the
Fund will invest in at least three of these investment categories and at least
80% of the Fund's total managed assets will be invested in these categories
collectively, including through the use of derivatives. No more than 50% of the
Fund' total managed assets will be invested in any single one of these
categories. Subject to the Fund's policies on portfolio duration and average
weighted portfolio quality discussed above, there is no minimum percentage of
the Fund's assets that must be allocated to each of these investment categories.
(continued on inside cover page)

INVESTING IN SHARES INVOLVES CERTAIN RISKS, INCLUDING THAT THE FUND MAY INVEST
SUBSTANTIAL PORTIONS OF ITS ASSETS IN BELOW INVESTMENT GRADE QUALITY SECURITIES
WITH SPECULATIVE CHARACTERISTICS. SEE "INVESTMENT OBJECTIVES, POLICIES AND
RISKS" BEGINNING AT PAGE [ ].

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Price to public Sales load Proceeds to Fund
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Per share $ $
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Total $ $
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In addition to the sales load, the Fund will pay offering expenses of up to
$[ ] per share, estimated to total $[ ], which will reduce the
"Proceeds to Fund" (above). Eaton Vance or an affiliate has agreed to pay the
amount by which the aggregate of all of the Fund's offering costs (other than
the sales load) exceeds $[ ] per share. Eaton Vance or an affiliate has
agreed to reimburse all Fund organizational costs.

The underwriters are offering the shares subject to various conditions and
expect to deliver the shares to purchasers on or about [ ], 2004.

(continued from previous page)

EXCHANGE LISTING. The Fund will apply for the listing of its common shares on
the [New York Stock Exchange] under the symbol "[ ]."

Because the Fund is newly organized, its common shares have no history of public
trading. The shares of closed-end management investment companies frequently
trade at a discount from their net asset value. This risk may be greater for
investors expecting to sell their shares in a relatively short period after
completion of the public offering. The returns earned by holders of the Fund's
common shares who sell their shares below new asset value will be reduced.

The Fund's net asset value and distribution rate will vary and may be affected
by several factors, including changes in the credit quality of issuers and
interest rates and other market factors. Fluctuations in net asset value may be
magnified as a result of the Fund's use of leverage, which is a speculative
investment technique. An investment in the Fund may not be appropriate for all
investors. There is no assurance that the Fund will achieve its investment
objectives.

The Fund expects to use financial leverage, through derivative instruments
(primarily foreign currency forward contracts), through the reinvestment of
securities lending collateral, and through borrowings and/or through the
establishment of a commercial paper program, initially equal to between
approximately 30%-40% of its total managed assets. The Adviser anticipates that
the use of leverage will result in higher income to common shareholders over
time. Use of financial leverage creates an opportunity for increased income but,
at the same time, creates special risks. There can be no assurance that a
leveraging strategy will be utilized or will be successful. SEE "INVESTMENT
OBJECTIVES, POLICIES AND RISKS--USE OF LEVERAGE AND RELATED RISKS" AT PAGE [ ]
AND "DESCRIPTION OF CAPITAL STRUCTURE" AT PAGE [ ].

This Prospectus sets forth concisely information you should know before
investing in the shares of the Fund. Please read and retain this Prospectus for
future reference. A Statement of Additional Information dated [ ], 2004, has
been filed with the Securities and Exchange Commission ("SEC") and can be
obtained without charge by calling 1-800-225-6265 or by writing to the Fund. A
table of contents to the Statement of Additional Information is located at page
40 of this Prospectus. This Prospectus incorporates by reference the entire
Statement of Additional Information. The Statement of Additional Information is
available along with other Fund-related materials: at the SEC's public reference
room in Washington, DC (call 1-202-942-8090 for information on the operation of
the reference room); the EDGAR database on the SEC's internet site
(http://www.sec.gov); upon payment of copying fees by writing to the SEC's
public reference section, Washington, DC 20549-0102; or by electronic mail at
publicinfo@sec.gov. The Fund's address is The Eaton Vance Building, 255 State
Street, Boston, Massachusetts 02109 and its telephone number is 1-800-225-6265.

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

The underwriters named in the Prospectus may purchase up to [ ] additional
shares from the Fund under certain circumstances.

You should rely only on the information contained or incorporated by reference
in this Prospectus. The Fund has not authorized anyone to provide you with
different information. The Fund is not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information contained in this Prospectus is accurate as of any date other than
the date on the front of this Prospectus.

Until [ ], 2004 (25 days after the date of this Prospectus), all dealers that
buy, sell or trade the shares, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.

TABLE OF CONTENTS
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Prospectus summary.............................................................
Summary of Fund expenses.......................................................
The Fund.......................................................................
Use of proceeds................................................................
Investment objectives, policies and risks Management of the Fund...............
Distributions..................................................................
Dividend reinvestment plan.....................................................
Description of capital structure..........
Underwriting...................................................................
Shareholder Servicing Agent, custodian and transfer agent......................
Legal opinions.................................................................
Reports to stockholders........................................................
Independent auditors...........................................................
Additional information.........................................................
Table of contents for the Statement of Additional Information..................
The Fund's privacy policy......................................................

PROSPECTUS SUMMARY

This is only a summary. You should review the more detailed information
contained in this Prospectus and in the Statement of Additional Information.

THE FUND

Eaton Vance Low Duration Diversified Income Fund (the "Fund") is a newly
organized, diversified, closed-end management investment company. The Fund
offers investors the opportunity to receive a high level of current income,
through a professionally managed portfolio investing in a blend of four
principal asset classes: senior, secured floating rate loans; foreign debt
obligations and currency investments; mortgage-backed securities; and below
investment grade corporate obligations. To the extent consistent with this
objective, the Fund may also offer an opportunity for capital appreciation.
Under normal market conditions, the Adviser expects to maintain a duration of no
more than three years (including the effect of anticipated leverage). Initially,
the Fund is expected to have a duration of approximately two years (including
the effect of anticipated leverage). Investments are based on Eaton Vance
Management's ("Eaton Vance" or the "Adviser") internal research and ongoing
credit analysis, which is generally not available to individual investors. An
investment in the Fund may not be appropriate for all investors. There is no
assurance that the Fund will achieve its investment objectives.

THE OFFERING

The Fund is offering [ ] common shares of beneficial interest, par value $0.01
per share (the "Common Shares"), through a group of underwriters (the
"Underwriters") led by [ ], [ ] and [ ]. The Underwriters have been granted an
option to purchase up to [ ] additional Common Shares solely to cover
over-allotments, if any. The initial public offering price is $20.00 per share.
The minimum purchase in this offering is 100 Common Shares ($2,000). See
"Underwriting." Eaton Vance or an affiliate has agreed to (i) reimburse all
organizational costs and (ii) pay all offering costs (other than sales loads)
that exceed $[ ] per Share.

INVESTMENT OBJECTIVES AND POLICIES

The Fund's investment objective is to provide a high level of current income.
The Fund may, as a secondary objective, also seek capital appreciation to the
extent consistent with its primary goal of high current income. The Fund pursues
its objectives by investing its assets primarily in four distinct investment
categories: 1) senior, secured floating rate loans made to corporate and other
business entities ("Senior Loans"); 2) deposits of banks in foreign denominated
currencies, short term debt obligations of foreign governmental issuers, as well
as positions in foreign currencies and bonds and other debt obligations of
foreign government, government agency and corporate issuers, including emerging
market issuers, which are denominated in U.S. dollars or foreign currencies
("Foreign Obligations"); 3) mortgage-backed securities that are issued, backed
or otherwise guaranteed by the U.S. Government or its agencies or
instrumentalities or that are issued by private issuers ("MBS"); and 4)
corporate bonds and other debt obligations of domestic issuers that are of below
"investment grade" quality ("Non-Investment Grade Bonds"). Non-Investment Grade
Bonds, commonly referred to as "junk bonds," are bonds and other debt
obligations that are rated below investment grade by each of the national rating
agencies who cover the security, or, if unrated, are determined to be of
comparable quality by the Adviser. Standard & Poor's Ratings Group ("S&P") and
Fitch Ratings ("Fitch") consider securities rated below BBB- to be below
investment grade and by Moody's Investors Service, Inc. ("Moody's") considers
securities rated below Baa3 to be below investment grade. Senior Loans and in
which the Fund invests are also typically of below investment grade quality, as
are certain Foreign Obligations in which the Fund invests. Securities of below
investment grade quality are considered to be predominantly speculative.
Securities of the lowest investment grade quality (BBB- or Baa3) may have
certain speculative characteristics. The Fund may also obtain investment
exposure to each of these four categories through the use of derivative
instruments. The Adviser has broad discretion to allocate the Fund's assets
among these investment categories. Under normal market circumstances, the Fund
will invest in at least three of these investment categories and at least 80% of
the Fund's total managed assets will be invested in these categories
collectively, including through the use of derivatives. No more than 50% of the
Fund' total managed assets will be invested in a single one of these categories,
including through the use of derivatives. Subject to the Fund's policies on
portfolio duration and average weighted portfolio quality discussed below, there
is no minimum percentage of the Fund's assets that must be allocated to each of
these investment categories.

("Common Shareholders"). In comparison to maturity (which is the date on which a
debt instrument ceases and the issuer is obligated to repay the principal
amount), duration is a measure of the price volatility of a debt instrument as a
result of changes in market rates of interest, based on the weighted average
timing of the instrument's expected principal and interest payments. Duration
differs from maturity in that it considers a security's yield, coupon payments,
principal payments and call features in addition to the amount of time until the
security finally matures. As the value of a security changes over time, so will
its duration. Prices of securities with longer durations tend to be more
sensitive to interest rate changes than securities with shorter durations. In
general, a portfolio of securities with a longer duration can be expected to be
more sensitive to interest rate changes than a portfolio with a shorter
duration.

A team of Eaton Vance investment professionals is responsible for the overall
management of the Fund's investments as well as allocations between the Fund's
four principal investment categories. Individual members of this team with
specialized experience are responsible for the day-to-day portfolio management
within each of the Fund's four main investment categories. The Fund's
investments are actively managed, and securities may be bought or sold on a
daily basis.

The Adviser's staff monitors the credit quality and price of securities held by
the Fund, as well as other securities that are available to the Fund. Under
normal market conditions, the Fund expects to maintain a weighted average
portfolio credit quality of investment grade (which is at least BBB- as
determined by S&P or Fitch, or Baa3 as determined by Moody's or, if unrated,
determined to be of comparable quality by the Adviser). For this purpose, when a
security is rated by more than one of these rating agencies, the Adviser
generally will use the highest rating. Within this general guideline, the Fund
may invest in individual securities of any credit quality. Although the Adviser
considers ratings when making investment decisions, it performs its own credit
and investment analysis and does not rely primarily on the ratings assigned by
the rating services. In evaluating the quality of a particular security, whether
rated or unrated, the Adviser will normally take into consideration, among other
things, the issuer's financial resources and operating history, its sensitivity
to economic conditions and trends, the ability of its management, its debt
maturity schedules and borrowing requirements, and relative values based on
anticipated cash flow, interest and asset coverage, and earnings prospects. The
Adviser will attempt to reduce the risks of investing in lower rated or unrated
debt instruments through active portfolio management, credit analysis and
attention to current developments and trends in the economy and the financial
markets. When purchasing and selling MBS, the Adviser focuses on the expected
principal payments on an MBS as well as current and anticipated market
conditions.

As stated above, the Fund may invest substantially in Foreign Obligations. The
Adviser believes that in certain market circumstances Foreign Obligations may
earn attractive rates of return relative to prevailing returns on similar
securities tied to U.S. interest rates and U.S. dollar exchange rates. In
current market circumstances, the Adviser believes that desired exposures to
prevailing interest rates in certain foreign countries may best be obtained
through forward foreign currency contracts with respect to such countries'
currencies. The Adviser believes that this approach reduces the credit risk
associated with investment in the debt of foreign sovereign and corporate
issuers. In addition, utilizing forward foreign currency contracts reduces the
transaction costs of obtaining this exposure as compared to investment in
foreign debt obligations. Accordingly, the Fund may have substantial exposure to
fluctuations in the values of foreign currencies. The Adviser intends to select
currencies for both long and short investment based upon such factors as a
country's (i) economic and political structure, (ii) long run economic and
productivity gain, (iii) fiscal and monetary policies, (iv) inflation and
interest rates, (v) balance of payments and terms of trade, and (vi) other
factors such as flow of funds.

The Fund's investments may have significant exposure to certain sectors of the
economy and thus may react differently to political or economic developments
than the market as a whole.

The Fund may purchase or sell derivative instruments (which derive their value
from another instrument, security or index) for investment purposes, such as
obtaining investment exposure to foreign currencies; risk management purposes,
such as hedging against fluctuations in securities prices or interest rates;
diversification purposes; or changing the duration of the Fund. Transactions in
derivative instruments may include the purchase or sale of foreign currency
forward contracts, futures contracts on securities, currencies, indices and
other financial instruments, credit-linked notes, tranches of collateralized
loan obligations, options on futures contracts, and exchange-traded and
over-the-counter options on securities, currencies or indices, and interest
rate, total return and credit default swaps.

LISTING

The Fund will apply for the listing of its common shares on the [New York Stock
Exchange] under the symbol "[ ]."

LEVERAGE

The Fund expects to use financial leverage. The Fund expects initially to obtain
financial leverage as soon as practicable after the completion of the offering
of the Common Shares through derivative instruments (primarily foreign currency
forward contracts), the reinvestment of securities lending collateral and
through borrowings and/or the establishment of a commercial paper program. The
Fund reserves the right in the future to adjust the amount leverage used through
these methods and/or to leverage exclusively through a single method. The Fund
expects for the Fund initially to have financial leverage of between
approximately 30%-40% of its total managed assets. In the future, the Adviser,
in its sole discretion, may also employ other forms of financial leverage,
including the issuance of debt securities or preferred shares. The Adviser
anticipates that the use of leverage should result in higher income to Common
Shareholders over time. The Fund generally will not use leverage, however, if
the Adviser anticipates that it would result in a lower return to Common
Shareholders over time. Use of financial leverage creates an opportunity for
increased return for Common Shareholders, but, at the same time, creates special
risks (including the likelihood of greater volatility of net asset value and
market price of the Common Shares), and there can be no assurance that a
leveraging strategy will be successful during any period in which it is
employed. During periods in which the Fund is using leverage, the fees paid to
Eaton Vance for investment advisory services will be higher than if the Fund did
not use leverage because the fees paid will be calculated on the basis of the
Fund's gross assets, including assets purchased with investment leverage and the
notional value of net long and short foreign currency exposures created by
forward foreign currency contracts (but excluding from liabilities the payment
obligations of the Fund with respect to principal repayment on borrowings, the
rebate of collateral rebate under securities loans and the settlement of foreign
currency forward contracts). See "Investment objectives, policies and risks--Use
of leverage and related risks" and "Management of the Fund--The Adviser."

INVESTMENT ADVISER AND ADMINISTRATOR

Eaton Vance, an indirect wholly-owned subsidiary of Eaton Vance Corp., is the
Fund's investment adviser and administrator. The Adviser and its subsidiaries
manage approximately $[ ] billion on behalf of funds, institutional clients and
individuals as of April 30, 2004. [Twenty-six] of the funds are closed-end. See
"Management of the Fund."

DISTRIBUTIONS

Commencing with the Fund's first dividend, the Fund intends to make regular
monthly cash distributions to Common Shareholders of substantially all net
investment income of the Fund. The amount of each monthly distribution will vary
depending on a number of factors, including interest payable on debt or other
costs of financial leverage. As portfolio and market conditions change, the rate
of dividends on the Common Shares and the Fund's dividend policy could change.
The Fund intends to include in certain distributions amounts attributable to
investments in foreign currency forward contracts equivalent to the interest
that would have been generated by investments in deposits denominated in the
underlying currencies. In certain circumstances, this practice may result in a
return of capital to Common Shareholders for federal income tax purposes. Over
time, the Fund will distribute all of its net investment income (after it pays
accrued interest on any outstanding debt) or other costs of financial leverage.
In addition, at least annually, the Fund intends to distribute any net
short-term capital gain and any net capital gain (which is the excess of net
long-term capital gain over short-term capital loss). The initial distribution
is expected to be declared approximately 45 days and paid approximately 60 to 90
days after the completion of this offering, depending on market conditions.
Common Shareholders may elect to automatically reinvest some or all of their
distributions in additional Common Shares under the Fund's dividend reinvestment
plan. See "Distributions and taxes" and "Dividend reinvestment plan."

DIVIDEND REINVESTMENT PLAN

The Fund has established a dividend reinvestment plan (the "Plan"). Under the
Plan, a Shareholder may elect to have all dividend and capital gain
distributions automatically reinvested in additional Common Shares either
purchased in the open market, or newly issued by the Fund if the Common Shares
are trading at or above their net asset value. Common Shareholders may elect to
participate in the Plan by completing the dividend reinvestment plan application
form. Common Shareholders who do not elect to participate in the Plan will
receive all distributions in cash paid by check mailed directly to them by PFPC
Inc., as dividend paying agent. Common Shareholders who intend to hold their
Common Shares through a broker or nominee should contact such broker or nominee
to determine whether or how they may participate in the Plan. See "Dividend
reinvestment plan."

CLOSED-END STRUCTURE

Closed-end funds differ from open-end management investment companies (commonly
referred to as mutual funds) in that closed-end funds generally list their
shares for trading on a securities exchange and do not redeem their shares at
the option of the shareholder. By comparison, mutual funds issue securities
redeemable at net asset value at the option of the shareholder and typically
engage in a continuous offering of their shares. Mutual funds are subject to

continuous asset in-flows and out-flows that can complicate portfolio
management, whereas closed-end funds generally can stay more fully invested in
securities consistent with the closed-end fund's investment objectives and
policies. In addition, in comparison to open-end funds, closed-end funds have
greater flexibility in the employment of financial leverage and in the ability
to make certain types of investments, including investments in illiquid
securities. However, shares of closed-end funds frequently trade at a discount
from their net asset value. In recognition of the possibility that the Common
Shares might trade at a discount to net asset value and that any such discount
may not be in the interest of Common Shareholders, the Fund's Board of Trustees
(the "Board"), in consultation with Eaton Vance, from time to time may review
possible actions to reduce any such discount. The Board might consider open
market repurchases or tender offers for Common Shares at net asset value. There
can be no assurance that the Board will decide to undertake any of these actions
or that, if undertaken, such actions would result in the Common Shares trading
at a price equal to or close to net asset value per Common Share. The Board
might also consider the conversion of the Fund to an open-end mutual fund. The
Board believes, however, that the closed-end structure is desirable, given the
Fund's investment objectives and policies. Investors should assume, therefore,
that it is highly unlikely that the Board would vote to convert the Fund to an
open-end investment company. Investors should note that the anticipated
incurrence of debt to provide investment leverage could make a conversion to
open-end form more difficult because of the costs of retiring debt and other
factors. See "Description of capital structure."

SPECIAL RISK CONSIDERATIONS

NO OPERATING HISTORY
The Fund is a closed-end investment company with no history of operations and is
designed for long-term investors and not as a trading vehicle.

INCOME RISK
The income investors receive from the Fund is based primarily on the interest it
earns from its investments, which can vary widely over the short and long-term.
If prevailing market interest rates drop, investors' income from the Fund over
time could drop as well. The Fund's income could also be affected adversely when
prevailing short-term interest rates increase and the Fund is utilizing
leverage, although this risk is mitigated by the Fund's investment in Senior
Loans.

CREDIT RISK
Credit risk is the risk that one or more debt obligations in the Fund's
portfolio will decline in price, or fail to pay interest or principal when due,
because the issuer of the obligation experiences a decline in its financial
status. For MBS, credit risk involves two types: delinquency and default.
Delinquency refers to interruptions in the payment of interest and principal.
Default refers to the potential for unrecoverable principal loss from the sale
of foreclosed collateral or the Fund's inherent right to forgive principal or
modify a debt instrument. For MBS, factors contributing to these risks include
the effects of general and local economic conditions on home values, the
financial conditions of homeowners, and other market factors. This risk is
mitigated by a U.S. government agency's or instrumentality's guarantee of the
underlying debt obligation. For corporate debt securities and Senior Loans,
credit risk refers to default risk , which typically means the nonpayment of
interest and/or principal when it is due.

PREPAYMENT RISK
During periods of declining interest rates or for other purposes, the borrowers
may exercise their option to prepay principal earlier than scheduled, forcing
the Fund to reinvest in lower yielding securities. This is known as call or
prepayment risk. Non-Investment Grade Bonds frequently have call features that
allow the issuer to redeem the security at dates prior to its stated maturity at
a specified price only if certain prescribed conditions are met ("call
protection"). An issuer may redeem a Non-Investment Grade Bond if, for example,
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. Senior Loans and
MBS typically have no such call protection. Senior Loans' prepayment risk is
mitigated by the floating-rate characteristic of Senior Loans. For premium bonds
and loans (bonds or loans acquired at prices that exceed their par or principal
value) purchased by the Fund, prepayment risk may be enhanced.

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.

SENIOR LOANS RISK
The risks associated with Senior Loans are similar to the risks of
Non-Investment Grade Bonds described below, although Senior Loans are typically
senior and secured in contrast to Non-Investment Grade Bonds, which are often
subordinated and unsecured. Senior Loans' higher standing has historically
resulted in generally higher recoveries relative to those on unsecured,
subordinate debt in the event of a corporate reorganization. In addition,

because their interest rates are adjusted for changes in short-term interest
rates, Senior Loans generally have less interest rate risk than Non-Investment
Grade Bonds and certain Foreign Obligations, which are typically fixed rate. The
Fund's investments in Senior Loans are typically below investment grade and are
considered speculative because of the credit risk of their issuers. Such
companies are more likely to default on their payments of interest and principal
owed to the Fund, and such defaults could reduce the Fund's net asset value and
income distributions. An economic downturn generally leads to a higher
non-payment rate, and a debt obligation may lose significant value before a
default occurs. Moreover, any specific collateral used to secure a loan may lose
a portion or all of its value or become illiquid, which would adversely affect
the loan's value.

Economic and other events (whether real or perceived) can reduce the demand for
certain Senior Loans or Senior Loans generally, which may reduce market prices
and cause the Fund's net asset value per share to fall. The frequency and
magnitude of such changes cannot be predicted.

Loans and other debt securities are also subject to the risk of price declines
and to increases in prevailing interest rates, although floating-rate debt
instruments are substantially less exposed to this risk than fixed-rate debt
instruments. Interest rate changes may also increase prepayments of debt
obligations and require the Fund to invest assets at lower yields. No active
trading market may exist for certain loans, which may impair the ability of the
Fund to realize full value in the event of the need to liquidate such assets.
Adverse market conditions may impair the liquidity of some actively traded
loans.

CURRENCY RISK
Common Shares are denominated and sold on the [New York] Stock Exchange in U.S.
dollars. Since the Fund may seek substantial exposure to foreign currencies, the
Fund will be affected by changes in foreign currency exchange rates (and
exchange control regulations), which affect the value of investments in the Fund
and the accrued income and appreciation or depreciation of the investments in
U.S. dollars. Accordingly, the value of such assets in U. S. dollars may be
affected favorably or unfavorably by fluctuations in currency rates and
therefore the Fund is necessarily subject to foreign exchange risks.

Foreign currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors. Currency exchange rates also can be affected unpredictably by
intervention (or the failure to intervene) by U.S. or foreign governments or
central banks, or by currency controls or political developments in the U.S. or
abroad. Currencies in which the Fund invests or in which its portfolio assets
are denominated may be devalued against the U.S. dollar, resulting in a loss to
the Fund. In certain countries, the central bank manages the currency rate
against a basket of one or more index currencies of other major countries. In
some of these countries, the Fund may employ a strategy seeking to limit
exposure to the index currencies while retaining exposure to the local currency.
In such a situation, the Fund's strategy could fail if a country changes the
announced or implied components of the index currencies against which the Fund
has hedged its exposure.

The Fund may buy or sell foreign currencies or may deal in forward foreign
currency contracts, that is, agree to buy or sell a specified currency at a
specified price and future date. The Fund may use forward contracts 1) for
obtaining long or short investment exposures to foreign currencies, 2) for
hedging, or 3) for currency risk management. Currency risk management may
include taking active currency positions relative to the Fund's securities
portfolio.

Other risks involved in currency investments include the dependence on the
Adviser's ability to forecast movements in exchange rates and imperfect
correlations between movements in exchange rates. Currency investments could be
adversely affected by delays in, or a refusal to grant, repatriation of funds or
conversions of certain currencies. The currencies of emerging market countries
may experience significant declines against the U.S. dollar, and significant
devaluation may occur subsequent to investments in these currencies by the Fund.

Certain currency investments, including forward currency contracts, may be
highly volatile, and relatively small price movement in these instruments may
result in substantial loss to the Fund.

Certain currency related investments may be acquired in the "over-the-counter"
or "interdealer" markets, where participants typically are not subject to credit
evaluation and regulatory oversight as are members of "exchange based" markets.
In the absence of a regulated market to facilitate settlement, the Fund is
subject to the risk that a counterpary will not settle a transaction (such as a
forward currency contract) in accordance with its terms and conditions because
of a dispute over the terms of contract or because of a credit or liquidity
problem.

A portion of the Fund's currency investments may be or become illiquid. This is
a result of the small quantities in which some of these securities are issued
and lower trading volumes in the securities markets and/or currencies of certain
countries. If currency investments need to be liquidated quickly, the Fund could
sustain significant transaction costs.

FOREIGN SECURITY RISK
The Fund may have substantial exposure to foreign securities.

Foreign government securities include securities issued or guaranteed by foreign
governments (including political subdivisions) or their authorities, agencies or
instrumentalities or by supra-national agencies. Foreign government securities
have different kinds of government support. For example, some foreign government
securities are supported by the full faith and credit of a foreign national
government or political subdivision and some are not. In the case of certain
countries, foreign government securities may involve varying degrees of credit
risk as a result of financial or political instability in such countries and the
possible inability of the Fund to enforce its rights against the foreign
government issuer. Like other fixed income securities, foreign government
securities are subject to market risk and their market values fluctuate as
interest rates change. Thus, for example, the value of an investment in the Fund
which holds foreign government securities may fall during times of rising
interest rates. Yields on foreign government securities tend to be lower than
those of corporate securities of comparable maturities.

Investment in foreign issuers or securities principally traded overseas may
involve certain special risks due to foreign economic, political and legal
developments, including favorable or unfavorable changes in currency exchange
rates, exchange control regulations (including currency blockage), expropriation
or nationalization of assets, imposition of withholding taxes on dividend or
interest payments, and possible difficulty in obtaining and enforcing judgments
against foreign entities. Furthermore, issuers of foreign securities are subject
to different, often less comprehensive, accounting, reporting and disclosure
requirements than domestic issuers. The securities of some foreign governments
and companies and foreign securities markets are less liquid and at times more
volatile than comparable U.S. securities and securities markets. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. The laws of some foreign countries may limit the Fund's ability
to invest in securities of certain issuers located in these foreign countries.
There are also special tax considerations which apply to securities of foreign
issuers and securities principally traded overseas. Investors should also be
aware that under certain circumstances, markets which are perceived to have
similar characteristics to troubled markets may be adversely affected whether or
not similarities actually exist.

The risks described above apply to an even greater extent to investments in
emerging markets. The securities markets of emerging countries are generally
smaller, less developed, less liquid, and more volatile than the securities
markets of the U.S. and developed foreign markets. Disclosure and regulatory
standards in many respects are less stringent than in the U.S. and developed
foreign markets. There also may be a lower level of monitoring and regulation of
securities markets in emerging market countries and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited. Many emerging countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain emerging countries.
Economies in emerging markets generally are heavily dependent upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values, and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
adversely affected by economic conditions in the countries in which they trade.
The economies of countries with emerging markets may also be predominantly based
on only a few industries or dependent on revenues from particular commodities.
In addition, custodial services and other costs relating to investment in
foreign markets may be more expensive in emerging markets than in many developed
foreign markets, which could reduce the Fund's income from such securities.
Finally, because publicly traded debt instruments of emerging markets represent
a relatively recent innovation in the world debt markets, there is little
historical data or related market experience concerning the attributes of such
instruments under all economic, market and political conditions.

In many cases, governments of emerging countries continue to exercise
significant control over their economies, and government actions relative to the
economy, as well as economic developments generally, may affect the capacity of
issuers of emerging country debt instruments to make payments on their debt
obligations, regardless of their financial condition. In addition, there is a
heightened possibility of expropriation or confiscatory taxation, imposition of
withholding taxes on interest payments, or other similar developments that could
affect investments in those countries. There can be no assurance that adverse
political changes will not cause the Fund to suffer a loss of any or all of its
investments in such countries, or, in the case of fixed-income securities,
interest thereon.

MORTGAGE-BACKED SECURITIES RISK
The value of Fund shares may be adversely affected by fluctuations in interest
rates and the prepayment of the mortgage loans underlying the MBS held by the
Fund. Mortgage loans are most likely to be prepaid in a declining interest rate
environment and when MBS are trading at a substantial premium. Prepayment may

reduce the Fund's coupon distributions because the proceeds of a prepayment may
be invested in lower-yielding securities. The Adviser has historically attempted
to minimize prepayment risk by acquiring MBS with seasoned underlying mortgage
loans that have had a history of refinancing opportunities. In a rising interest
rate environment, a declining prepayment rate will extend the average life of
many MBS which in turn would lengthen the duration of the Fund's portfolio. This
possibility is often referred to as extension risk. Extending the average life
of an MBS increases the risk of depreciation due to future increases in market
interest rates. The value of Fund Common Shares can also be adversely affected
by the existence of premiums on the price of MBS it acquires.

Certain government agencies or instrumentalities, such as the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"),
provide a guarantee as to timely payment of principal and interest for MBS each
entity issues, backs or otherwise guarantees. Guarantees may not be backed by
the full faith and credit of the U.S. government.

NON-INVESTMENT GRADE BONDS RISK
The Fund's investments in Non-Investment Grade Bonds are predominantly
speculative because of the credit risk of their issuers. While offering a
greater potential opportunity for capital appreciation and higher yields,
Non-Investment Grade Bonds typically entail greater potential price volatility
and may be less liquid than higher-rated securities. Issuers of Non-Investment
Grade Bonds are more likely to default on their payments of interest and
principal owed to the Fund, and such defaults will reduce the Fund's net asset
value and income distributions. The prices of these lower rated obligations are
more sensitive to negative developments than higher rated securities. Adverse
business conditions, such as a decline in the issuer's revenues or an economic
downturn, generally lead to a higher non-payment rate. In addition, a security
may lose significant value before a default occurs as the market adjusts to
expected higher non-payment rates.

DERIVATIVES RISK
Derivative transactions (such as forward contracts, futures contracts and
options thereon, options, swaps and short sales) subject the Fund to increased
risk of principal loss due to imperfect correlation or unexpected price or
interest rate movements. The Fund also 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.

EFFECTS OF LEVERAGE
There can be no assurance that a leveraging strategy will be utilized by the
Fund or that, if utilized, it will be successful during any period in which it
is employed. Leverage creates risks for Common Shareholders, including the
likelihood of greater volatility of net asset value and market price of the
Common Shares and the risk that fluctuations in borrowing costs may affect the
return to Common Shareholders. To the extent the income derived from securities
purchased with financial leverage exceeds the cost of leverage, the Fund's
distributions will be greater than if leverage had not been used. Conversely, if
the income from the securities purchased with such proceeds is not sufficient to
cover the cost of leverage, the amount available for distribution to Common
Shareholders as dividends and other distributions will be less than if leverage
had not been used. If the value of the assets purchased or investment exposures
created with leverage decline and are less than the repayment value of
securities lending collateral at the time such collateral must be returned, the
principal owed on borrowings or under a commercial paper program at the time
principal payment is due and/or the settlement obligation under a derivative
investment at the time of settlement, financial leverage will result in a
reduction of the value of the Fund's net assets. Eaton Vance in its best
judgment may nevertheless determine to maintain the Fund's leveraged position if
it deems such action to be appropriate. The costs of any borrowing/commercial
paper program will be borne by Common Shareholders and consequently will result
in a reduction of the net asset value of Common Shares.

As discussed in detail under "Management of the Fund," the fee paid to Eaton
Vance will be calculated on the basis of the Fund's average daily gross assets,
including assets purchased with financial leverage and the notional value of the
Fund's net long or short foreign currency exposure created by foreign currency
forward contracts (but excluding from liabilities the payment obligations of the
Fund with respect to principal repayment on borrowings, the rebate of collateral
under securities loans and the settlement of foreign currency forward
contracts), so the fees will be higher when leverage is utilized. See
"Investment objectives, policies and risks--Use of Leverage and Related Risks."

The Fund intends to manage its use of financial leverage through derivatives and
the reinvestment of securities lending collateral so that these arrangements
will not be considered to create a "senior security" within the meaning of the
Investment Company Act. In this regard, in accordance with guidelines
established by the SEC, the Fund's custodian on a daily basis will segregate in
the Fund's custody account liquid portfolio assets equal to the then current 1)

settlement value of the Fund's obligations under derivative instruments used to
create leverage; 2) rebate value of any securities lending collateral that has
been reinvested to create financial leverage. In addition, the SEC has
established guidelines that restrict a registered investment company from
loaning portfolio securities in excess of one third of its total assets.
Accordingly, this restriction places a practical limit on the amount of
financial leverage that may be obtained through reinvestment of securities
lending collateral.

To the extent that the Fund in the future engages in borrowing, establishes a
commercial paper program and/or issues debt securities to create financial
leverage, under the Investment Company Act its obligations in respect thereof
would be subject to a 3 to 1 asset coverage requirement. To the extent that the
Fund in the future issues preferred shares to create financial leverage, under
the Investment Company Act its obligations in respect thereof would be subject
to a 2 to 1 asset coverage requirement. In addition, borrowing/commercial paper
program covenants and/or the terms of debt securities or preferred shares issued
may impose asset coverage or portfolio composition requirements that are more
stringent than those imposed on the Fund by the Investment Company Act. The Fund
would only utilize such additional methods of financial leverage if it
anticipated that these asset coverage requirement, covenants or guidelines would
not significantly impede Eaton Vance in managing the Fund's portfolio in
accordance with its investment objectives and policies. See "Description of
capital structure."

Financial leverage achieved through the purchase of derivative instruments such
forward foreign currency contracts and reverse repurchase agreements exposes the
Fund to special risks. See "Investment objectives, policies and
risks--Additional Investment Practices" and "Investment objectives, policies and
risks--Additional Risk Considerations."

INTEREST RATE RISK
The value of Fund shares will usually change in response to interest rate
fluctuations. When interest rates decline, the value of fixed-rate securities
already held by the Fund can be expected to rise. Conversely, when interest
rates rise, the value of existing fixed-rate portfolio securities can be
expected to decline. Because market interest rates are currently near their
lowest levels in many years, there is a greater than normal risk that the Fund's
portfolio will decline in value due to rising interest rates. Fluctuations in
the value of fixed-rate securities will not affect interest income on existing
securities but will be reflected in the Fund's net asset value. Fixed-rate
securities with longer durations tend to be more sensitive to changes in
interest rates than securities with shorter durations, usually making them more
volatile. Because the Fund will normally have a dollar-weighted average duration
of between one and two years (including the effects of anticipated leverage),
the Common Shares' net asset value and market price per Share will tend to
fluctuate more in response to changes in market interest rates than if the Fund
invested mainly in short-term debt securities and less than if the Fund invested
mainly in longer-term debt securities. The Fund may utilize certain strategies,
including taking positions in futures or interest rate swaps, for the purpose of
reducing the interest rate sensitivity of the portfolio and decreasing the
Fund's exposure to interest rate risk, although there is no assurance that it
will do so or that such strategies will be successful. The Fund is intended to
have a relatively low level of interest rate risk.

LIQUIDITY RISK
THE FUND MAY INVEST without limitation in securities for which there is no
readily available trading market or which are otherwise illiquid, including many
Senior Loans. The Fund may not be able to readily dispose of such securities at
prices that approximate those at which the Fund could sell such securities if
they were more widely traded and, as a result of such illiquidity, the Fund may
have to sell other investments or engage in borrowing transactions if necessary
to raise cash to meet its obligations. In addition, the limited liquidity could
affect the market price of the debt securities, thereby adversely affecting the
Fund's net asset value and ability to make dividend distributions.

REINVESTMENT RISK
Income from the Fund's portfolio will decline if and when the Fund invests the
proceeds from matured, traded or called debt obligations into lower yielding
instruments. A decline in income could affect the Common Shares' distribution
rate and their overall return.

INFLATION RISK
Inflation risk is the risk that the value of assets or income from investment
will be worth less in the future as inflation decreases the value of money. As
inflation increases, the real value of the Common Shares and distributions
thereon can decline. In addition, during any periods of rising inflation, rebate
rates on securities loans and interest rates in a borrowing program would likely
increase, which would tend to further reduce returns to Common Shareholders.
This risk is mitigated to some degree by the Fund's investments in Senior Loans.

MARKET PRICE OF SHARES
The shares of closed-end management investment companies often trade at a
discount from their net asset value, and the Fund's Common Shares may likewise
trade at a discount from net asset value. The trading price of the Fund's Common
Shares may be less than the public offering price. This risk may be greater for
investors who sell their Common Shares in a relatively short period after
completion of the public offering.

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

MARKET DISRUPTION
The terrorist attacks in the United States on September 11, 2001 had a
disruptive effect on the securities markets. The Fund cannot predict the effects
of similar events in the future on the U.S. economy. These terrorist attacks and
related events, including the war in Iraq, its aftermath, and continuing
occupation of Iraq by coalition forces, have led to increased short-term market
volatility and may have long-term effects on U.S. and world economies and
markets. A similar disruption of the financial markets could impact interest
rates, auctions, secondary trading, ratings, credit risk, inflation and other
factors relating to the Common Shares. In particular, Non-Investment Grade Bonds
and Senior Loans tend to be more volatile than higher rated fixed income
securities so that these events and any actions resulting from them may have a
greater impact on the prices and volatility on Non-Investment Grade Bonds and
Senior Loans than on higher rated fixed income securities.

Anti-takeover provisions
The Fund's Agreement and Declaration of Trust includes provisions that could
have the effect of limiting the ability of other persons or entities to acquire
control of the Fund or to change the composition of its Board. See "Description
of capital structure--Anti-takeover provisions in the Declaration of Trust."

SUMMARY OF FUND EXPENSES

The purpose of the table below is to help you understand all fees and expenses
that you, as a Common Shareholder, would bear directly or indirectly. The
following table assumes the leveraging of the Fund in an amount equal to 40% of
the Fund's total assets (i.e., the maximum amount of leverage initially
contemplated, with [ ]% attributable to derivative instruments, [ ]%
attributable to the reinvestment of securities lending collateral, [ ]%
attributable to borrowings and/or a commercial paper program), and shows Fund
expenses as a percentage of net assets attributable to Common Shares.

Shareholder transaction expenses
Sales load paid by you (as a percentage of
offering price)............................ %
Expenses borne by the Fund................. (1)(2)
Dividend reinvestment plan fees............ None(3)

Percentage of net assets
attributable
to Common Shares
(assuming leveraging)
(4)
Annual expenses
Investment advisory fee..................... %
Interest Payments on Borrowed funds(2)......
Other expenses.............................. %(5)
Total annual expenses....................... %
Fee and expense reimbursements
(years 1-5)................................ ( )%(6)
Net annual expenses (years 1-5)............. %(6)

----------

(1) Eaton Vance or an affiliate has agreed to reimburse all organizational
costs and pay all offering costs (other than sales load) that exceed $0.04
per Common Share ( % of the offering price).

(2) Assumes leverage in an amount equal to approximately % of the Fund's total
assets (including all amounts obtained by leverage) at an interest rate of
%.

(3) You will be charged a $5.00 service charge and pay brokerage charges if you
direct the plan agent to sell your Common Shares held in a dividend
reinvestment account.

(4) Stated as percentages of net assets attributable to Common Shares assuming
no leverage, the Fund's expenses would be estimated to be as follows:

Percentage of net assets
attributable
to Common Shares
(assuming no leverage)
)

Annual expenses
Investment advisory fee..................... %
Other expenses.............................. %(5)
Total annual expenses....................... %
Fee and expense reimbursements
(years 1-5)................................ (___)%(6)
Net annual expenses (years 1-5)............. ====%(6)

(5) Estimated expenses based on the current fiscal year.

(6) Eaton Vance has contractually agreed to reimburse the Fund for fees and
other expenses in the amount of % of average daily total assets of the Fund
for the first 5 full years of the Fund's operations, % of average daily
total assets of the Fund in year 6, % in year 7 and % in year 8. For this
purpose, total assets (and gross assets in "Management of the Fund--The
Adviser") shall be calculated by deducting accrued liabilities of the Fund

not including the principal amount of any indebtedness for money borrowed
or the value of securities lending collateral received by the Fund. Without
the reimbursement, net annual expenses would be estimated to be % of
average daily net assets (or, assuming borrowings, % of average daily net
assets) attributable to Common Shares. Eaton Vance may voluntarily
reimburse additional fees and expenses but is under no obligation to do so.
Any such voluntary reimbursements may be terminated at any time.

The expenses shown in the table are based on estimated amounts for the Fund's
first year of operations and assume that the Fund issues approximately _________
Common Shares. See "Management of the Fund" and "Dividend reinvestment plan."

EXAMPLE

The following Example illustrates the expenses that you would pay on a $1,000
investment in Common Shares (including the sales load of $ , estimated offering
expenses of this offering of $ ), assuming (1) total net annual expenses of % of
net assets attributable to Common Shares in years 1 through 5 increasing to % in
years 9 and 10 and (2) a 5% annual return(1):

1 Year 3 Years 5 Years 10 Years (2)

$ $ $ $

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE HIGHER OR LOWER.

----------

(1) The example assumes that the estimated Other expenses set forth in the
Annual expenses table are accurate, that fees and expenses increase as
described in note 2 below 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.

(2) Assumes reimbursement of fees and expenses of % of average daily total
assets of the Fund in year 6, % in year 7 and % in year 8 and no
reimbursement of fees or expenses in years 9 and 10. Eaton Vance has not
agreed to reimburse the Fund for any portion of its fees and expenses
beyond 2014.

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

THE FUND

The Fund is a newly organized, diversified, closed-end management investment
company registered under the 1940 Act. The Fund was organized as a Massachusetts
business trust on April [ ], 2004 pursuant to a Declaration of Trust governed by
the laws of The Commonwealth of Massachusetts and has no operating history. The
Fund's principal office is located at The Eaton Vance Building, 255 State
Street, Boston, Massachusetts 02109 and its telephone number is 1-800-225-6265.

This Prospectus relates to the initial public offering of the Fund's common
shares of beneficial interest, $0.01 par value (the "Common Shares"). See
"Underwriting."

USE OF PROCEEDS

The net proceeds of this offering of Common Shares will be approximately $[ ]
(or $[ ] assuming exercise of the Underwriters' over-allotment option in full),
which, after payment of the estimated offering expenses, will be invested in
accordance with the Fund's investment objectives and policies as soon as
practicable, but, in no event, under normal market conditions, later than three
months after the receipt thereof. Pending such investment, the proceeds may be
invested in high-quality, short-term debt securities. Eaton Vance or an
affiliate has agreed to (i) reimburse all organizational costs and (ii) pay all
offering costs of the Fund (other than sales loads) that exceed $[ ] per Share.

INVESTMENT OBJECTIVES, POLICIES AND RISKS

INVESTMENT OBJECTIVES

The Fund's investment objective is to provide a high level of current income.
The Fund may, as a secondary objective, also seek capital appreciation to the
extent consistent with its primary goal of high current income. The Fund pursues
its objectives by investing its assets primarily in four distinct investment
categories: 1) senior, secured floating rate loans made to corporate and other
business entities ("Senior Loans"); 2) deposits of banks in foreign denominated
currencies, short term debt obligations of foreign governmental issuers, as well
as positions in foreign currencies and bonds and other debt obligations of
foreign government, government agency and corporate issuers, including emerging
market issuers, which are denominated in U.S. dollars or foreign currencies
("Foreign Obligations"); 3) mortgage-backed securities that are issued, backed
or otherwise guaranteed by the U.S. Government or its agencies or
instrumentalities or that are issued by private issuers ("MBS"); and 4)
corporate bonds and other debt obligations of domestic issuers that are of below
"investment grade" quality ("Non-Investment Grade Bonds"). Non-Investment Grade
Bonds, commonly referred to as "junk bonds," are bonds and other debt
obligations that are rated below investment grade by each of the national rating
agencies who cover the security, or, if unrated, are determined to be of
comparable quality by the Adviser. Standard & Poor's Ratings Group ("S&P") and
Fitch Ratings ("Fitch") consider securities rated below BBB- to be below
investment grade and by Moody's Investors Service, Inc. ("Moody's") considers
securities rated below Baa3 to be below investment grade. Senior Loans in which
the Fund invests are also typically of below investment grade quality, as are
certain Foreign Obligations in which the Fund invests. Securities of below
investment grade quality are considered to be predominantly speculative.
Securities of the lowest investment grade quality (BBB- or Baa3) may have
certain speculative characteristics. The Fund may also obtain investment
exposure to each of these four categories through the use of derivative
instruments. The Adviser has broad discretion to allocate the Fund's assets
among these investment categories. Under normal market circumstances, the Fund
will invest in at least three of these investment categories and at least 80% of
the Fund's total managed assets will be invested in these categories
collectively, including through the use of derivatives. No more than 50% of the
Fund' total managed assets will be invested in a single one of these categories,
including through the use of derivatives. Subject to the Fund's policies on
portfolio duration and average weighted portfolio quality discussed below, there
is no minimum percentage of the Fund's assets that must be allocated to each of
these investment categories.

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

PRIMARY INVESTMENT POLICIES

GENERAL COMPOSITION OF THE FUND

A team of Eaton Vance investment professionals is responsible for the overall
management of the Fund's investments as well as allocations between the Fund's
four principal investment categories. Individual members of this team with
specialized expertise are responsible for the day-to-day portfolio management
within each of the Fund's four main investment categories. The Fund's
investments are actively managed, and securities may be bought or sold on a
daily basis. The Adviser attempts to manage yield through timely trading.

Under normal market conditions, the Adviser expects to maintain a duration of no
more than three years (including the effect of anticipated leverage). Initially,
the Fund is expected to have a duration of approximately two years (including
the effect of anticipated leverage). This duration policy may only be changed
following provision of 60 days' prior written notice to Common Shareholders. In
comparison to maturity (which is the date on which a debt instrument ceases and
the issuer is obligated to repay the principal amount), duration is a measure of
the price volatility of a debt instrument as a result in changes in market rates
of interest, based on the weighted average timing of the instrument's expected
principal and interest payments. Duration differs from maturity in that it
considers a security's yield, coupon payments, principal payments and call
features in addition to the amount of time until the security finally matures.
As the value of a security changes over time, so will its duration. Prices of
securities with longer durations tend to be more sensitive to interest rate
changes than securities with shorter durations. In general, a portfolio of
securities with a longer duration can be expected to be more sensitive to
interest rate changes than a portfolio with a shorter duration.

The Adviser's staff monitors the credit quality and the price of securities held
by the Fund, as well as other securities that are available to the Fund. Under
normal market conditions, the Fund will invest significantly in MBS that are
expected to be of the highest quality (generally AAA as determined by S&P or
Fitch, Aaa as determined by Moody's, or, if unrated determined to be of
comparable quality by the Adviser) and significantly in Non-Investment Grade
Bonds, Senior Loans (which are typically below investment grade quality) and
certain Foreign Obligations that may be of below investment grade quality. Under
normal market conditions, the Fund will structure and seek to maintain its
portfolio of high quality MBS and certain high quality foreign debt obligations
and lower quality Senior Loans and Non-Investment Grade Bonds (and any
lower-quality foreign debt obligations) in such a manner so that the Fund has an
average dollar weighted portfolio quality of investment grade (which is BBB- as
determined by S&P or Fitch, or Baa as determined by Moody's, or, if unrated
determined to be of comparable quality by the Adviser). Within this general
guideline, the Fund may invest in securities of any credit quality. In order to
maintain compliance with this policy, the Fund's holdings of Non-Investment
Grade Bonds and Senior Loans and Foreign Obligations of below investment grade
quality generally will be offset by investments in MBS of the highest quality
and certain high quality Foreign Obligations. The extremely high credit quality
of the MBS (and potentially certain Foreign Obligations) will substantially
raise the average portfolio credit quality on a dollar-weighted basis. For
purposes of the Fund's policy on credit quality, when a security is rated by
more than one of these rating agencies, the Adviser generally will use the
highest rating. The Fund will monitor and adjust its portfolio on an ongoing
basis in order to remain in compliance with this credit quality policy.

A "barbell" portfolio, such as the Fund, that achieves a weighted average
investment grade credit quality by investing substantially in below investment
grade securities and very high quality securities involves certain risk
characteristics that differ from fixed income securities with credit ratings
equivalent to the portfolio average or from a portfolio of similar average
quality consisting mostly of securities of a quality near this average. Most
notably, the Fund's portfolio will contain a higher percentage of assets of
lower quality that each individually involve a higher degree of credit risk and
may be considered to be speculative in nature. For a description of these risk
characteristics, see "Investment objectives, policies and risks -- "Primary
Investment Policies -- Non-investment Grade Bonds.

Although the Adviser considers ratings when making investment decisions, it
performs its own credit and investment analysis and does not rely primarily on
the ratings assigned by the rating services. In evaluating the quality of a
particular security, whether rated or unrated, the Adviser will normally take
into consideration, among other things, the issuer's financial resources and
operating history, its sensitivity to economic conditions and trends, the
ability of its management, its debt maturity schedules and borrowing
requirements, and relative values based on anticipated cash flow, interest and
asset coverage, and earnings prospects. The Adviser will attempt to reduce the
risks of investing in lower rated or unrated debt instruments through active
portfolio management, credit analysis and attention to current developments and
trends in the economy and the financial markets. When purchasing and selling
MBS, the Adviser focuses on the expected principal payments on an MBS as well as
current and anticipated market conditions.

Subject to its obligation on a portfolio wide basis to remain in ongoing
compliance with the weighted average portfolio credit policy discussed above,
the Fund is not required to dispose of a security in the event that a Rating
Agency downgrades its assessment of the credit characteristics of a particular
issue or withdraws its assessment, including in the event of a default. In
determining whether to retain or sell such a security, Eaton Vance may consider
such factors as Eaton Vance's assessment of the credit quality of the issuers of
such security, the price at which such security could be sold and the rating, if
any, assigned to such security by other Rating Agencies.

As stated above, the Fund may invest substantially in Foreign Obligations. The
Adviser believes that in certain market circumstances Foreign Obligations may
earn attractive rates of return relative to prevailing returns on similar
securities tied to U.S. interest rates and U.S. dollar exchange rates. In
current market circumstances, the Adviser believes that desired exposures to
prevailing interest rates in certain foreign countries' may best be obtained
through forward foreign currency contracts with respect to such countries
currencies. The Adviser believes that this approach reduces the credit risk
associated with investment in the debt of foreign sovereign and corporate
issuers. In addition, utilizing forward foreign currency contracts reduces the
transaction costs of obtaining this exposure as compared to investment in
foreign debt obligations. Accordingly, the Fund may have substantial exposure to
fluctuations in the values of foreign currencies. The Adviser intends to select
currencies for both long and short investment based upon such factors as a
country's (i) economic and political structure, (ii) long run economic and
productivity gain, (iii) fiscal and monetary policies, (iv) inflation and
interest rates, (v) balance of payments and terms of trade, and (vi) other
factors such as flow funds. Such currency selection is subject only to the
limitation that the Fund will invest less than 25% of its total managed assets
in any one currency and less than 25% of its total managed assets in issuers in
any one country.

The Fund's investments may have significant exposure to certain sectors of the
economy and thus may react differently to political or economic developments
than the market as a whole.

SENIOR LOANS

Senior Loans hold the most senior position in the capital structure of a
business entity (the "Borrower"), are typically secured with specific collateral
and have a claim on the assets and/or stock of the Borrower that is senior to
that held by subordinated debt holders and stockholders of the Borrower. The
proceeds of Senior Loans primarily are used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, refinancings,
dividends and to finance internal growth and for other corporate purposes.
Senior Loans typically have rates of interest which are redetermined either
daily, monthly, quarterly or semi-annually by reference to a base lending rate,
plus a premium or credit spread. These base lending rates are primarily the
London-Interbank Offered Rate ("LIBOR"), and secondarily the prime rate offered
by one or more major United States banks (the "Prime Rate") and the certificate
of deposit ("CD") rate or other base lending rates used by commercial lenders.
The Senior Loans held by the Fund will have a dollar-weighted average period
until the next interest rate adjustment of approximately 90 days or less. In the
experience of the Adviser over the last decade, because of prepayments the
average life of Senior Loans has been two to four years.

The Fund may also purchase unsecured loans, other floating rate debt securities
such as notes, bonds and asset-backed securities (such as special purpose trusts
investing in bank loans), credit-linked notes, synthetic lease financings,
tranches of collateralized loan obligations, investment grade fixed income debt
obligations and money market instruments, such as commercial paper.

Senior Loans and other floating-rate debt instruments are subject to the risk of
non-payment of scheduled interest or principal. Such non-payment would result in
a reduction of income to the Fund, a reduction in the value of the investment
and a potential decrease in the net asset value of the Fund. There can be no
assurance that the liquidation of any collateral securing a loan would satisfy
the Borrower's obligation in the event of non-payment of scheduled interest or
principal payments, or that such collateral could be readily liquidated. In the
event of bankruptcy of a Borrower, the Fund could experience delays or
limitations with respect to its ability to realize the benefits of the
collateral securing a Senior Loan. The collateral securing a Senior Loan may
lose all or substantially all of its value in the event of bankruptcy of a
Borrower. Some Senior Loans are subject to the risk that a court, pursuant to
fraudulent conveyance or other similar laws, could subordinate such Senior Loans
to presently existing or future indebtedness of the Borrower or take other
action detrimental to the holders of Senior Loans including, in certain
circumstances, invalidating such Senior Loans or causing interest previously
paid to be refunded to the Borrower. If interest were required to be refunded,
it could negatively affect the Fund's performance.

Many Senior Loans in which the Fund will invest may not be rated by a Rating
Agency, will not be registered with the Securities and Exchange Commission or
any state securities commission and will not be listed on any national
securities exchange. The amount of public information available with respect to
Senior Loans will generally be less extensive than that available for registered
or exchange listed securities. In evaluating the creditworthiness of Borrowers,
the Adviser will consider, and may rely in part, on analyses performed by
others. Borrowers may have outstanding debt obligations that are rated below
investment grade by a Rating Agency. Many of the Senior Loans in the Fund will
have been assigned ratings typically below investment grade by independent
rating agencies. In the event Senior Loans are not rated, they are likely to be
the equivalent of below investment grade quality. Because of the protective
features of Senior Loans, the Adviser believes that Senior Loans tend to have
more favorable loss recovery rates as compared to more junior types of below
investment grade debt obligations. The Adviser does not view ratings as the
determinative factor in its investment decisions and relies more upon its credit
analysis abilities than upon ratings.

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

No active trading market may exist for some loans and some loans may be subject
to restrictions on resale. A secondary market may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods,
which may impair the ability to realize full value and thus cause a material
decline in the Fund's net asset value. During periods of limited supply and
liquidity of Senior Loans, the Fund's yield may be lower.

When interest rates decline, the value of a fund invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a fund invested in fixed-rate obligations can be expected to decline.
Although changes in prevailing interest rates can be expected to cause some
fluctuations in the value of Senior Loans (due to the fact that floating rates
on Senior Loans only reset periodically), the value of Senior Loans is
substantially less sensitive to changes in market interest rates than fixed-rate
instruments. As a result, the Adviser expects the Fund's policy of investing a
portion of its assets in floating-rate Senior Loans will make the Fund less
volatile and less sensitive to changes in market interest rates than if the Fund
invested exclusively in fixed-rate obligations. Similarly, a sudden and
significant increase in market interest rates may cause a decline in the value
of these investments and in the Fund's net asset value. Other factors
(including, but not limited to, rating downgrades, credit deterioration, a large
downward movement in stock prices, a disparity in supply and demand of certain
securities or market conditions that reduce liquidity) can reduce the value of
Senior Loans and other debt obligations, impairing the Fund's net asset value.

The Fund may purchase and retain in its portfolio a Senior Loan where the
Borrower has experienced, or may be perceived to be likely to experience, credit
problems, including involvement in or recent emergence from bankruptcy
reorganization proceedings or other forms of debt restructuring. Such
investments may provide opportunities for enhanced income as well as capital
appreciation. At times, in connection with the restructuring of a Senior Loan
either outside of bankruptcy court or in the context of bankruptcy court
proceedings, the Fund may determine or be required to accept equity securities
or junior debt securities in exchange for all or a portion of a Senior Loan.

SENIOR LOAN ASSIGNMENTS AND PARTICIPATIONS. The Fund expects to primarily
purchase Senior Loans by assignment from a participant in the original syndicate
of lenders or from subsequent assignees of such interests. The Fund may also
purchase participations in the original syndicate making Senior Loans. Loan
participations typically represent direct participations in a loan to a
corporate borrower, and generally are offered by banks or other financial
institutions or lending syndicates. The Fund may participate in such
syndications, or can buy part of a loan, becoming a part lender. When purchasing
loan participations, the Fund assumes the credit risk associated with the
corporate borrower and may assume the credit risk associated with an interposed
bank or other financial intermediary. The participation interests in which the
Fund intends to invest may not be rated by any nationally recognized rating
service. Given the current structure of the markets for loan participations and
assignments, the Fund expects to treat these securities as illiquid.

SENIOR LOAN VALUATION. The Adviser uses an independent pricing service to value
most loans and other debt securities at their market value. The Adviser may use
the fair value method to value loans or other securities if market quotations
for them are not readily available or are deemed unreliable, or if events
occurring after the close of a securities market and before the Fund values its
assets would materially affect net asset value. Because foreign securities trade
on days when the Common Shares are not priced, net asset value can change at a
time when Common Shares cannot be redeemed.

SAMIs AND OTHER SENIOR LOAN BASED DERIVATIVES. As discussed above, the Fund may
obtain exposure to senior of loans and baskets of senior loans through the use
of derivative instruments. Such derivative instruments have recently become
increasingly available. The Adviser reserves the right to utilize these
instruments and similar instruments that may be available in the future. The
Fund currently intends to invest in a derivative instrument known as the Select
Aggregate Market Index ("SAMI") which provides investors with exposure to a
reference basket of Senior Loans. SAMIs are structured as floating rate
instruments. SAMIs consists of a basket of credit default swaps whose underlying
reference securities are baskets of senior secured loans. While investing in
SAMIs will increase the universe of floating rate debt securities to which the
Fund is exposed, such investments entail risks that are not typically associated
with investments in other floating rate debt securities. The liquidity of the
market for SAMIs will be subject to liquidity in the secured loan and credit
derivatives markets. Investment in SAMIs involves many of the risks associated
with investments in derivative instruments discussed generally below. The Fund
may also be subject to the risk that the counterparty in a derivative
transaction will default on its obligations. Derivative transactions, generally
involve the risk of loss due to unanticipated adverse changes in securities
prices, interest rates, the inability to close out a position, imperfect
correlation between a position and the desired hedge, tax constraints on closing
out positions; and portfolio management constraints on securities subject to
such transactions. The potential loss on derivative instruments may be
substantial relative to the initial investment therein.

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

FOREIGN OBLIGATIONS

The Adviser believes that in certain market circumstances Foreign Obligations
may earn attractive rates of return relative to prevailing returns on similar
securities tied to U.S. interest rates and U.S. dollar exchange rates. In
current market circumstances, the Adviser believes that desired exposures to
prevailing interest rates in certain foreign countries may best be obtained
through forward foreign currency contracts with respect to such countries'
currencies. The Adviser believes that this approach reduces the credit risk
associated with investment in the debt of foreign sovereign and corporate
issuers. In addition, utilizing forward foreign currency contracts reduces the
transaction costs of obtaining this exposure as compared to investment in
foreign debt obligations. Accordingly, the Fund may have substantial exposure to
fluctuations in the values of foreign currencies. The Adviser intends to select
currencies for both long and short investment based upon such factors as a
country's (i) economic and political structure, (ii) long run economic and
productivity gain, (iii) fiscal and monetary policies, (iv) inflation and
interest rates, (v) balance of payments and terms of trade, and (vi) other
factors such as flow funds. Such currency selection is subject only to the
limitation that the Fund will invest less than 25% of its total managed assets
in any one currency and less than 25% of its total managed assets in issuers in
any one country.

FOREIGN CURRENCIES. As stated above, the Fund may invest substantially in debt
securities denominated in foreign currencies and in foreign currency forward
contracts and other currency related instruments. Accordingly, the Fund may have
substantial exposure to fluctuations in the values of foreign currencies. The
Adviser intends to select currencies for both long and short investment based
upon such factors as a country's (i) economic and political structure, (ii) long
run economic and productivity gain, (iii) fiscal and monetary policies, (iv)
inflation and interest rates, (v) balance of payments and terms of trade, and
(vi) other factors such as flow funds. Such currency selection is subject only
to the limitation that the Fund will invest less than 25% of its total managed
assets in any one currency and less than 25% of its total managed assets in
issuers in any one country.

In making long or short currency investments, the Fund may buy or sell foreign
currencies or may deal in forward foreign currency contracts, that is, agree to
buy or sell a specified currency at a specified price and future date. In
addition, to obtaining long or short investment exposure to foreign currencies,
the Fund may use forward contracts and other currency related investments for
hedging, or for currency risk management. Currency risk management may include
taking active currency positions relative to the Fund's securities portfolio.

Common Shares are denominated and sold on the [New York] Stock Exchange in U.S.
dollars. Since the Fund may seek substantial exposure to foreign currencies, the
Fund will be affected by changes in foreign currency exchange rates (and
exchange control regulations), which affect the value of investments in the Fund
and the accrued income and appreciation or depreciation of the investments in
U.S. dollars. Accordingly, the value of such assets in U. S. dollars may be
affected favorably or unfavorably by fluctuations in currency rates and
therefore the Fund is necessarily subject to foreign exchange risks.

The value of foreign assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency rates and exchange
control regulations. Foreign currency exchange rates may fluctuate significantly
over short periods of time. They generally are determined by the forces of
supply and demand in the foreign exchange markets and the relative merits of
investments in different countries, actual or perceived changes in interest
rates and other complex factors. Currency exchange rates also can be affected
unpredictably by intervention (or the failure to intervene) by U.S. or foreign
governments or central banks, or by currency controls or political developments
in the U.S. or abroad. Currencies in which the Fund invests or in which its
portfolio assets are denominated may be devalued against the U.S. dollar,
resulting in a loss to the Fund. In certain countries, the central bank manages
the currency rate against a basket of one or more index currencies of other
major countries. In some of these countries, the Fund may employ a strategy
seeking to limit exposure to the index currencies while retaining exposure to
the local currency. In such a situation, the Fund's strategy could fail if a
country changes the announced or implied components of the index currencies
against which the Fund has hedged its exposure.

Other risks involved in currency investments include the dependence on the
Adviser's ability to predict movements in exchange rates and imperfect
correlations between movements in exchange rates. Currency investments could be
adversely affected by delays in, or a refusal to grant, repatriation of funds or
conversions of certain currencies. The currencies of emerging market countries
may experience significant declines against the U.S. dollar, and significant
devaluation may occur subsequent to investments in these currencies by the Fund.

Forward foreign currency exchange contracts are individually negotiated and
privately traded so they are dependent upon the creditworthiness of the
counterparty. Certain currency related investments may be acquired in the
"over-the-counter" or "interdealer" markets, where participants typically are
not subject to credit evaluation and regulatory oversight as are members of
"exchange based" markets. In the absence of a regulated market to facilitate
settlement, the Fund is subject to the risk that a counterpary will not settle a

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

transaction (such as a forward currency contract) in accordance with its terms
and conditions because of a dispute over the terms of contract or because of a
credit or liquidity problem. Moreover, certain Currency investments, including
forward currency contracts, may be highly volatile, and relatively small price
movement in these instruments may result in substantial loss to the Fund.

A portion of the Fund's currency related investments may be or become illiquid.
This is a result of the small quantities in which some of these securities are
issued and lower trading volumes in the securities markets and/or currencies of
certain countries. If currency investments need to be liquidated quickly, the
Fund could sustain significant transaction costs.

Currency transactions are subject to the risk of a number of complex political
and economic factors applicable to the countries issuing the underlying
currencies. Furthermore, unlike trading in most other types of instruments,
there is no systematic reporting of last sale information with respect to the
foreign currencies underlying the derivative currency transactions. As a result,
available information may not be complete. In an over-the-counter trading
environment, there are no daily price fluctuation limits. There may be no liquid
secondary market to close out options purchased or written, or forward contracts
entered into, until their exercise, expiration or maturity. There is also the
risk of default by, or the bankruptcy of, the financial institution serving as a
counterparty.

The Fund may but is not obligated to engage in transactions to hedge against
changes in foreign currencies, and will use such hedging techniques when the
Adviser deems appropriate. The Fund may enter into forward contracts or other
currency related investments for hedging in several circumstances. First, when
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of dollars, of the amount of foreign currency involved
in the underlying security transaction, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received.

Second, when the Investment Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of dollars, the amount
of foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. Maintaining a match
between the forward contract amounts and the value of the 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 date the forward contract is entered into and
the date it matures.

Third, the Fund may engage in currency "cross hedging" when, in the opinion of,
the historical relationship among foreign currencies suggests that the Fund may
achieve the same protection for a foreign security at reduced cost through the
use of a forward foreign currency contract relating to a currency other than the
U.S. dollar or the foreign currency in which the security is denominated. By
engaging in cross hedging transactions, the Fund assumes the risk of imperfect
correlation between the subject currencies. These practices may present risks
different from or in addition to the risks associated with investments in
foreign currencies.

The Fund is not required to enter into such transactions with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Adviser. By entering into the above hedging transactions, the
Fund may be required to forego the benefits of advantageous changes in the
exchange rates.

The Fund may also enter into foreign currency forward contracts to give fixed
income securities denominated in one currency (generally the U.S. dollar) the
risk characteristics of similar securities denominated in another currency or
for risk management or investment in a manner similar to the Fund's use of
futures contracts and related options.

When the Fund uses currency instruments for investment and currency risk
management, the foreign currency exposure of the Fund may differ substantially
from the currencies in which the Fund's investment securities are denominated.
The Fund may therefore be subject to the risk of adverse currency movements.

FOREIGN GOVERNMENT SECURITIES. Foreign government securities include securities
issued or guaranteed by foreign governments (including political subdivisions)
or their authorities, agencies or instrumentalities or by supra-national
agencies. Foreign government securities have different kinds of government
support. For example, some foreign government securities are supported by the
full faith and credit of a foreign national government or political subdivision
and some are not. In the case of certain countries, foreign government
securities may involve varying degrees of credit risk as a result of financial
or political instability in such countries and the possible inability of the
Fund to enforce its rights against the foreign government issuer.

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

Supra-national agencies are agencies whose member nations make capital
contributions to support the agencies' activities, and include such entities as
the International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Coal and Steel Community and the
Inter-American Development Bank.

Like other fixed income securities, foreign government securities are subject to
market risk and their market values fluctuate as interest rates change. Thus,
for example, the value of an investment in the Fund which holds foreign
government securities may fall during times of rising interest rates. Yields on
foreign government securities tend to be lower than those of corporate
securities of comparable maturities.

In addition to investing directly in foreign government securities, the Fund may
purchase certificates of accrual or similar instruments evidencing undivided
ownership interests in interest payments or principal payments, or both, in
foreign government securities. These certificates of accrual and similar
instruments may be more volatile than other government securities.

FOREIGN SECURITIES GENERALLY. The Fund may have substantial exposure to foreign
securities. Investment in foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political
and legal developments, including favorable or unfavorable changes in currency
exchange rates, exchange control regulations (including currency blockage),
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments, and possible difficulty in obtaining and
enforcing judgments against foreign entities. Furthermore, issuers of foreign
securities are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The securities of
some foreign governments and companies and foreign securities markets are less
liquid and at times more volatile than comparable U.S. securities and securities
markets. Foreign brokerage commissions and other fees are also generally higher
than in the United States. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers located in these
foreign countries. There are also special tax considerations which apply to
securities of foreign issuers and securities principally traded overseas.
Investors should also be aware that under certain circumstances, markets which
are perceived to have similar characteristics to troubled markets may be
adversely affected whether or not similarities actually exist.

EMERGING MARKETS. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging countries
are generally smaller, less developed, less liquid, and more volatile than the
securities markets of the U.S. and developed foreign markets. Disclosure and
regulatory standards in many respects are less stringent than in the U.S. and
developed foreign markets. There also may be a lower level of monitoring and
regulation of securities markets in emerging market countries and the activities
of investors in such markets, and enforcement of existing regulations has been
extremely limited. Many emerging countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have very
negative effects on the economies and securities markets of certain emerging
countries. Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values, and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be adversely affected by economic conditions in the countries in which they
trade. The economies of countries with emerging markets may also be
predominantly based on only a few industries or dependent on revenues from
particular commodities. In addition, custodial services and other costs relating
to investment in foreign markets may be more expensive in emerging markets than
in many developed foreign markets, which could reduce the Fund's income from
such securities. Finally, because publicly traded debt instruments of emerging
markets represent a relatively recent innovation in the world debt markets,
there is little historical data or related market experience concerning the
attributes of such instruments under all economic, market and political
conditions.

MORTGAGE-BACKED SECURITIES

The Fund typically invests in MBS that are backed by a guarantee of the U.S.
Government (or one of its agencies or instrumentalities), although certain of
these instruments may be privately issued. MBS represent participation interests
in pools of fixed-rate, hybrid and adjustable-rate mortgage loans. Unlike
conventional debt obligations, MBS provide monthly payments derived from the
monthly interest and principal payments (including any prepayments) made by the

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

individual borrowers on the pooled mortgage loans. The Adviser currently expects
to invest primarily in MBS that include mortgage loans that have had a history
of refinancing opportunities (so called "seasoned MBS"). Seasoned MBS tend to
have a higher collateral to debt ratio than other MBS because a greater
percentage of the underlying debt has been repaid and the collateral property
may have appreciated in value. The Adviser may discontinue the practice of
focusing on seasoned MBS at any time. The Adviser expects that under current
market conditions many of the MBS held by the Fund will be premium bonds
acquired at prices that exceed their par or principal value.

The mortgage loans underlying MBS are generally 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,
although the Fund's investment in seasoned MBS seeks to mitigate this risk.
Under certain interest and prepayment rate scenarios, the Fund will fail to
recover the full amount of investment in MBS purchased at a premium,
notwithstanding any direct or indirect governmental or agency guarantee. Because
faster than expected prepayments must usually be invested in lower yielding
securities, MBS are less effective than conventional bonds in "locking in" a
specified interest rate. Additionally, the value of Fund Common Shares may be
adversely affected by fluctuations in interest rates underlying the MBS held by
the Fund. In a rising interest rate environment, a declining prepayment rate
will extend the average life of many MBS, which in turn would lengthen the
duration of the Fund's portfolio. This possibility is often referred to as
extension risk. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market interest
rates, although investing in seasoned MBS helps mitigate this extension risk.
MBS that are purchased at a premium generate current income that exceeds market
rates for comparable investments but tend to decrease in value as they mature,
which may cause a resulting decrease in the Fund's net asset value.

The Fund may also invest in classes of collateralized mortgage obligations
("CMOs") and various other MBS. In choosing among CMO classes, the Adviser will
evaluate the total income potential of each class and other factors. See
"Additional investment practices--Securitized interests."

Certain government agencies or instrumentalities, such as GNMA, FNMA and FHLMC
provide a guarantee as to timely payment of principal and interest for MBS each
entity issues but may or may not be backed by the full faith and credit of the
U.S. Government.

NON-INVESTMENT GRADE BONDS

As indicated above, Non-Investment Grade Bonds are those rated lower than
investment grade (i.e., bonds rated lower than Baa3 by Moody's and lower than
BBB-- by S&P and Fitch) or are unrated and of comparable quality as determined
by the Adviser. Non-Investment Grade Bonds rated BB and Ba have speculative
characteristics, while lower rated Non-Investment Grade Bonds are predominantly
speculative.

The Fund may hold securities that are unrated or in the lowest rating categories
(rated C by Moody's or D by S&P or Fitch). Bonds rated C by Moody's are regarded
as having extremely poor prospects of ever attaining any real investment
standing. Bonds rated D by S&P or Fitch are in payment default or a bankruptcy
petition has been filed and debt service payments are jeopardized. In order to
enforce its rights with defaulted securities, the Fund may be required to retain
legal counsel and/or a financial adviser. This may increase the Fund's operating
expenses and adversely affect net asset value.

The credit quality of most securities held by the Fund reflects a greater than
average possibility that adverse changes in the financial condition of an
issuer, or in general economic conditions, or both, may impair the ability of
the issuer to make payments of interest and principal. The inability (or
perceived inability) of issuers to make timely payment of interest and principal
would likely make the values of securities held by the Fund more volatile and
could limit the Fund's ability to sell its securities at favorable prices. In
the absence of a liquid trading market for securities held by it, the Fund may
have difficulties determining the fair market value of such securities.

Although the Adviser considers security ratings when making investment
decisions, it performs its own credit and investment analysis and does not rely
primarily on the ratings assigned by the rating services. In evaluating the
quality of a particular security, whether rated or unrated, the Adviser will
normally take into consideration, among other things, the issuer's financial
resources and operating history, its sensitivity to economic conditions and
trends, the ability of its management, its debt maturity schedules and borrowing
requirements, and relative values based on anticipated cash flow, interest and
asset coverage, and earnings prospects. Because of the greater number of
investment considerations involved in investing in high yield, high risk bonds,
the achievement of the Fund's objectives depends more on the Adviser's judgment
and analytical abilities than would be the case if the Fund invested primarily
in securities in the higher rating categories. While the Adviser will attempt to
reduce the risks of investing in lower rated or unrated securities through
active Fund management, diversification, credit analysis and attention to
current developments and trends in the economy and the financial markets, there

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can be no assurance that a broadly diversified Fund of such securities would
substantially lessen the risks of defaults brought about by an economic downturn
or recession. In recent years, issuances of Non-Investment Grade Bonds by
companies in various sectors has increased. Accordingly, the Fund's investments
may have significant exposure to certain sectors of the economy and thus may
react differently to political or economic developments than the market as a
whole.

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, and payment in
kind features.

SECURITIES LENDING

As discussed above, the Fund expects to utilize the reinvestment of securities
lending collateral as an initial source of financial leverage. In this regard,
the Fund may seek to earn income on securities loans by reinvesting cash
collateral in any investments consistent with its investment objectives and
policies, seeking to invest at rates that are higher than the "rebate" rate that
it normally will pay to the borrower with respect to such cash collateral.
Securities loans may result in delays in recovering, or a failure of the
borrower to return, the loaned securities. The defaulting borrower ordinarily
would be liable to the Fund for any losses resulting from such delays or
failures, and the collateral provided in connection with the loan normally would
also be available for that purpose. Securities loans normally may be terminated
by either the Fund or the borrower at any time. Upon termination and the return
of the loaned securities, the Fund would be required to return the related cash
or securities collateral to the borrower and it may be required to liquidate
longer term portfolio securities in order to do so. To the extent that such
securities have decreased in value, this may result in the Fund realizing a loss
at a time when it would not otherwise do so. The Fund also may incur losses if
it is unable to reinvest cash collateral at rates higher than applicable rebate
rates paid to borrowers and related administrative costs. These risks are
substantially the same as those incurred through other forms of financial
leverage, and will be subject to the investment policies, restrictions and risk
considerations described in the Prospectus and in this Statement of Additional
Information.

The Fund intends to manage its use of financial leverage through the
reinvestment of securities lending collateral so that this arrangement will not
be considered to create a "senior security" within the meaning of the Investment
Company Act. In this regard, in accordance with guidelines established by the
SEC, the Fund's custodian on a daily basis will segregate in the Fund's custody
account liquid portfolio assets equal to the rebate value of any securities
lending collateral that has been reinvested to create financial leverage. In
addition, the SEC has established guidelines that restrict a registered
investment company from loaning portfolio securities in excess of one third of
its total assets. Accordingly, this restriction places a practical limit on the
amount of financial leverage that may be obtained through reinvestment of
securities lending collateral.

In addition to providing a source of financial leverage, the Fund may seek to
earn income by lending portfolio securities to broker-dealers or other
institutional borrowers. As with other extensions of credit, there are risks of
delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. In the judgment of the Adviser,
the loans will be made only to organizations whose credit quality or claims
paying ability is considered to be at least investment grade and when the
expected returns, net of administrative expenses and any finders' fees,
justifies the attendant risk. Loans will made only to organizations whose credit
quality or claims paying ability is considered by the Adviser to be at least
investment grade. All securities loans will be collateralized on a continuous
basis by cash or U.S. government securities having a value, marked to market
daily, of at least 100% of the market value of the loaned securities. The Fund
may receive loan fees in connection with loans that are collateralized by
securities or on loans of securities for which there is special demand.

The Fund will receive amounts equivalent to any interest or other distributions
paid on securities while they are on loan, and the Fund will not be entitled to
exercise any voting or other beneficial rights on loaned securities. The Fund
will exercise its right to terminate loans and thereby regain these rights
whenever the Adviser considers it to be in the Fund' s interest to do so, taking
into account the related loss of reinvestment income and other factors.

ADDITIONAL INVESTMENT PRACTICES

OTHER GOVERNMENT SECURITIES
U.S. Government securities include (1) U.S. Treasury obligations, which differ
in their interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less), U.S. Treasury notes (maturities of one year to
ten years) and U.S. Treasury bonds (generally maturities of greater than ten
years) and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow an
amount limited to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality or (d) the credit of the agency
or instrumentality. The Fund may also invest in any other security or agreement

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collateralized or otherwise secured by U.S. Government securities. Agencies and
instrumentalities of the U.S. Government include but are not limited to: Federal
Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal
Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, FHLMC,
FNMA, GNMA, Student Loan Marketing Association, United States Postal Service,
Small Business Administration, Tennessee Valley Authority and any other
enterprise established or sponsored by the U.S. Government. Because the U.S.
Government generally is not obligated to provide support to its
instrumentalities, the Fund will invest in obligations issued by these
instrumentalities only if the Adviser determines that the credit risk with
respect to such obligations is minimal.

The principal of and/or interest on certain U.S. Government securities which may
be purchased by the Fund could be (a) payable in foreign currencies rather than
U.S. dollars or (b) increased or diminished as a result of changes in the value
of the U.S. dollar relative to the value of foreign currencies. The value of
such portfolio securities denominated in foreign currencies may be affected
favorably by changes in the exchange rate between foreign currencies and the
U.S. dollar.

SECURITIZED INTERESTS
The Fund may invest in certain asset-backed securities as discussed below.
Asset-backed securities are payment claims that are securitized in the form of
negotiable paper that is issued by a financing company (generically called a
Special Purpose Vehicle or "SPV"). These securitized payment claims are, as a
rule, corporate financial assets brought into a pool according to specific
diversification rules. The SPV is a company founded solely for the purpose of
securitizing these claims and its only asset is the risk arising out of this
diversified asset pool. On this basis, marketable securities are issued which,
due to the diversification of the underlying risk, generally represent a lower
level of risk than the original assets. The redemption of the securities issued
by the SPV takes place at maturity out of the cash flow generated by the
collected claims. Asset-backed securities may be issued by the U.S. government,
its agencies or instrumentalities, or by non-governmental issuers.

CMOs. The CMO classes in which the Fund may invest include sequential and
parallel pay CMOs, including planned amortization class and target amortization
class securities. CMOs are debt securities issued by either the U.S. government
(or one of its agencies or instrumentalities) or private issuers. The key
feature of the CMO structure is the prioritization of the cash flows from a pool
of mortgages among the several classes of CMO holders, thereby creating a series
of obligations with varying rates and maturities appealing to a wide range of
investors. CMOs generally are secured by an assignment to a trustee under the
indenture pursuant to which the bonds are issued of collateral consisting of a
pool of mortgages. Payments with respect to the underlying mortgages generally
are made to the trustee under the indenture. CMOs are issued in two or more
classes or series with varying maturities and stated rates of interest
determined by the issuer. Senior CMO classes will typically have priority over
residual CMO classes as to the receipt of principal and/or interest payments on
the underlying mortgages. Because the interest and principal payments on the
underlying mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on which
are used to pay interest to each class and to retire successive maturities in
sequence. CMOs are designed to be retired as the underlying mortgages are
repaid. In the event of sufficient early prepayments on such mortgages, the
class or series of CMO first to mature generally will be retired prior to
maturity. Therefore, although in most cases the issuer of CMOs will not supply
additional collateral in the event of such prepayments, there will be sufficient
collateral to secure CMOs that remain outstanding. Currently, the Adviser will
consider privately issued CMOs or other mortgage-backed securities as possible
investments for the Fund only when the mortgage collateral is insured,
guaranteed or otherwise backed by the U.S. Government or one or more of its
agencies or instrumentalities (e.g., insured by the Federal Housing
Administration or Farmers Home Administration or guaranteed by the Administrator
of Veterans Affairs or consisting in whole or in part of U.S. Government
securities).

COLLATERALIZED DEBT OBLIGATIONS ("CDOs"). The Fund may invest in CDOs. A CDO is
a structured credit security issued by a special purpose entity that was created
to reapportion the risk and return characteristics of a pool of assets. The
assets, typically non-investment grade bonds, leveraged loans, and other
asset-backed obligations, are used as collateral supporting the various debt and
equity tranches issued by the special purpose entity. CDOs operate similarly to
CMOs and CLOs and are subject to the same inherent risks.

COLLATERALIZED LOAN OBLIGATIONS ("CLOs"). A CLO is a type of CDO that invests
primarily in leveraged loans as collateral underlying the obligations of the
special purpose entity. CLOs operate similarly to CMOs and are subject to the
same inherent risks.

SUB-PRIME MORTGAGES
Sub-prime mortgages are mortgages rated below "A" by S&P, Moody's or Fitch.
Historically, sub-prime loans have been made to borrowers with blemished (or
non-existent) credit records, and the borrower is charged a higher interest rate
to compensate for the greater risk of delinquency and the higher costs of loan
servicing and collection. Sub-prime mortgages are subject to both state and
federal anti-predatory lending statutes that carry potential liability to
secondary market purchasers such as the Fund. A partial list of certain

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characteristics of sub-prime mortgages addressed by certain of these laws are:
(1) late fees assessed for late mortgage payments; (2) loan flipping - typically
a lender-solicited refinancing of a relatively new mortgage that yields no
"tangible" benefit for the borrower; (3) balloon payments that occur when a
repayment schedule does not fully amortize the outstanding principal balance,
leaving an unpaid principal amount when the loan reaches maturity; (4) repayment
ability that requires the lender to document that the borrower's monthly loan
payments will not exceed a stated percentage of gross monthly income; and (5)
negative amortization (i.e., an increase in the amount of principal owed on a
loan as payments are made). Individually, most of the above features are not
necessarily predatory. Used appropriately and fairly disclosed by responsible
lenders, these features can easily work in the borrower's favor. They become
predatory when used to generate unnecessary fees or borrowers are misled about
the implications they present. Sub-prime mortgages have certain characteristics
and associated risks similar Non-Investment Grade Bonds, including a higher
degree of credit risk, and MBS, including prepayment risk. See Investment
objective, policies and risks--Additional Risk Considerations."

SECOND LIEN LOANS AND DEBT SECURITIES
The Fund may invest in loans and other debt securities that rank below Senior
Loans and other non-securitized bank debt in liquidation and interest rate
preferences within an issuer's debt structure but that are generally senior in
such respects to Non-Investment Grade Bonds and other forms of subordinated
debt. Such "second tier" loans and securities like senior loans like many Senior
Loans typically have adjustable floating rate interest payments. Because such
investments are subordinate to Senior Loans and other forms of senior debt they
present a greater degree of investment risk but often pay interest at higher
rates reflecting this additional risk. Such investments [generally] are of below
investment grade quality. Other than their subordinated status, such investments
have many characteristics and risks similar to senior loans discussed above. In
addition, because they are generally of below investment grade quality they also
possess many of the risk characteristics of Non-Investment Grade Bonds discussed
above.

MORTGAGE ROLLS
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
mortgage-backed securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Fund forgoes
principal and interest paid on the mortgage-backed securities. The Fund is
compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as by the interest earned on the cash proceeds of the initial sales. A "covered
roll" is a specific type of dollar roll for which there is an offsetting cash
position or a cash equivalent security position which matures on or before the
forward settlement date of the dollar roll transaction. The Fund will only enter
into covered rolls. Covered rolls are not treated as a borrowing or other senior
security and will be excluded from the calculation of the Fund's borrowings and
other senior securities.

INDEXED SECURITIES AND DERIVATIVES
The Fund may also invest in indexed securities, also known as structured notes
or derivatives based on indices or financial indicators. Indexed Securities are
securities the redemption values and/or the coupons of which are indexed to the
prices of a specific instrument or statistic. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to inflation, other securities, securities
indices, currencies, or other financial indicators such as economic statistics
and pre-payment rates, provided however each of these indices or financial
indicators may also be used to invest through the use of derivative instruments.
Inflation-indexed securities, for example, typically provide for a maturity
value that depends on the rate of inflation, resulting in a security whose price
tends to rise and fall together with the rate of inflation. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
Dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on the rate of
inflation or the performance of the security, currency, or other instrument to
which they are indexed, and may also be influenced by interest rate changes in
the U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline if the issuer's creditworthiness deteriorates. Recent issuers of indexed
securities have included banks, corporations, and certain U.S. government
agencies.

INFLATION-INDEXED SECURITIES: The Fund may invest in inflation indexed
securities issued by the U.S. Treasury, by foreign governments or by corporate
entities, which are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation in the U.S. or another
reference country. The interest rate on these bonds is fixed at issuance, but
over the life of the bond this interest may be paid on an increasing or

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decreasing principal value which has been adjusted for inflation. Repayment of
the original bond principal upon maturity (as adjusted for inflation) is
guaranteed in the case of U.S. Treasury inflation indexed bonds, even during a
period of deflation. However, the current market value of the bonds is not
guaranteed, and will fluctuate. The Fund may also invest in other bonds which
may or may not provide a similar guarantee. If a guarantee of principal is not
provided, the adjusted principal value of the bond repaid at maturity may be
less than the original principal.

The value of inflation indexed bonds is expected to fluctuate in response to
changes in real interest rates, which are in turn tied to the relationship
between nominal interest rates and the rate of inflation. Therefore, if
inflation were to rise at a faster rate than nominal interest rates, real
interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation indexed bonds.

The periodic adjustment of U.S. inflation indexed bonds is tied to the Consumer
Price Index for Urban Consumers ("CPI-U"), which is calculated monthly by the
U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the
cost of living, made up of components such as housing, food, transportation and
energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index, calculated by that government.
No assurance can be given that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. In addition, no assurance can be given that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.

Coupon payments received by the Fund from inflation indexed bonds will be
includable in the Fund's gross income in the period in which they accrue. In
addition, any increase in the principal amount of an inflation indexed bond will
be considered taxable ordinary income, even though investors do not receive
their principal until maturity.

The Fund's investments in indexed securities, including inflation indexed
securities, may create taxable income in excess of the cash they generate. In
such cases, the Fund may be required to sell assets to generate the cash
necessary to distribute as dividends to its Shareholders all of its income and
gains and therefore to eliminate any tax liability at the Fund level.

CREDIT-LINKED NOTES
The Fund may invest in credit-linked notes ("CLN"). A CLN is a derivative
instrument. It is a synthetic obligation between two or more parties where the
payment of principal and/or interest is based on the performance of some
obligation (a reference obligation). In addition to credit risk of the reference
obligation and interest rate risk, the buyer/seller of the CLN is subject to
counterparty risk.

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

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Securities may be purchased on a "forward commitment" or "when-issued" basis
(meaning securities are purchased or sold with payment and delivery taking place
in the future) in order to secure what is considered to be an advantageous price
and yield at the time of entering into the transaction. However, the yield on a
comparable security when the transaction is consummated may vary from the yield
on the security at the time that the forward commitment or when-issued
transaction was made. From the time of entering into the transaction until
delivery and payment is made at a later date, the securities that are the
subject of the transaction are subject to market fluctuations. In forward
commitment or when-issued transactions, if the seller or buyer, as the case may
be, fails to consummate the transaction the counterparty may miss the
opportunity of obtaining a price or yield considered to be advantageous. Forward
commitment or when-issued transactions may be expected to occur a month or more
before delivery is due. However, no payment or delivery is made until payment is
received or delivery is made from the other party to the transaction. Forward
commitment or when-issued transactions are not entered into for the purpose of
investment leverage.

ILLIQUID SECURITIES
The Fund may invest without limitation in securities for which there is no
readily available trading market or are otherwise illiquid. Illiquid securities
include securities legally restricted as to resale, such as commercial paper
issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, and
securities eligible for resale pursuant to Rule 144A thereunder. Section 4(2)
and Rule 144A securities may, however, be treated as liquid by the Adviser
pursuant to procedures adopted by the Board, which require consideration of
factors such as trading activity, availability of market quotations and number
of dealers willing to purchase the security. If the Fund invests in Rule 144A

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securities, the level of portfolio illiquidity may be increased to the extent
that eligible buyers become uninterested in purchasing such securities.

It may be difficult to sell such securities at a price representing the fair
value until such time as such securities may be sold publicly. Where
registration is required, a considerable period may elapse between a decision to
sell the securities and the time when it would be permitted to sell. Thus, the
Fund may not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. The Fund may also acquire securities through
private placements under which it may agree to contractual restrictions on the
resale of such securities. Such restrictions might prevent their sale at a time
when such sale would otherwise be desirable.

SWAPS
Swap contracts may be purchased or sold to obtain investment exposure and/or to
hedge against fluctuations in securities prices, currencies, interest rates or
market conditions, to change the duration of the overall portfolio, or to
mitigate default risk. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) to be exchanged or
"swapped" between the parties, which returns are calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate or in a "basket" of
securities representing a particular index.

INTEREST RATE SWAPS. The Fund will enter into interest rate and total return
swaps only 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. Interest rate swaps involve the exchange by the Fund with another
party of their respective commitments to pay or receive interest (e.g., an
exchange of fixed rate payments for floating rate payments). The Fund will only
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). If the other party to an interest rate swap
defaults, the Fund's risk of loss consists of the net amount of payments that
the Fund is contractually entitled to receive. The net amount of the excess, if
any, of the Fund's obligations over its entitlements will be maintained in a
segregated account by the Fund's custodian. The Fund will not enter into any
interest rate swap unless the claims-paying ability of the other party thereto
is considered to be investment grade by the Adviser. 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. These instruments are
traded in the over-the-counter market.

The Fund may use interest rate swaps for risk management purposes and as a
speculative investment. The Fund would typically use interest rate swaps to
shorten the average interest rate reset time of the Fund's holdings. Interest
rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interests (e.g., an exchange of fixed
rate payments for floating rate payments). The use of interest rate swaps is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
If the Adviser is incorrect in its forecasts of market values, interest rates
and other applicable factors, the investment performance of the Fund would be
unfavorably affected.

TOTAL RETURN SWAPS. As stated above, the Fund will enter into total return swaps
only on a net basis. Total return swaps are contracts in which one party agrees
to make payments of the total return from the underlying asset(s) which may
include securities, baskets of securities, or securities indices during the
specified period, in return for payments equal to a fixed or floating rate of
interest or the total return from other underlying asset(s).

CREDIT DEFAULT SWAPS. The Fund may enter into credit default swap contracts and
baskets thereof for investment and risk management purposes, including
diversification. When the Fund is the buyer of a credit default swap contract,
the Fund is entitled to receive the par (or other agreed-upon) value of a
referenced debt obligation from the counterparty to the contract in the event of
a default by a third party, such as a U.S. or foreign corporate issuer, on the
debt obligation. In return, the Fund would pay the counterparty a periodic
stream of payments over the term of the contract provided that no event of
default has occurred. If no default occurs, the Fund would have spent the stream
of payments and received no benefit from the contract. When the Fund is the
seller of a credit default swap contract, it receives the stream of payments but
is obligated to pay upon default of the referenced debt obligation. As the
seller, the Fund would effectively add leverage to its portfolio because, in
addition to its total net assets, the Fund would be subject to investment
exposure on the notional amount of the swap. The Fund will segregate assets in
the form of cash and cash equivalents in an amount equal to the aggregate market
value of the credit default swaps of which it is the seller, marked to market on
a daily basis. These transactions involve certain risks, including the risk that
the seller may be unable to fulfill the transaction.

FUTURES AND OPTIONS ON FUTURES
The fund may purchase and sell various kinds of financial futures contracts and
options thereon to obtain investment exposure and/or to seek to hedge against
changes in interest rates or for other risk management purposes. Futures
contracts may be based on various debt securities and securities indices (such
as the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse

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changes in securities prices, which may exceed the fund's initial investment in
these contracts. The Fund will only purchase or sell futures contracts or
related options in compliance with the rules of the Commodity Futures Trading
Commission. These transactions involve transaction costs. There can be no
assurance that Eaton Vance's use of futures will be advantageous to the Fund.
Financial covenants related to borrowings may limit use of these transactions.

BORROWINGS
The Fund may borrow money to the extent permitted under the 1940 Act as
interpreted, modified or otherwise permitted by the regulatory authority having
jurisdiction. The Fund may from time to time borrow money to add financial
leverage to the portfolio, although it has no current intention to use
borrowings for this purpose. The Fund may also borrow money for temporary
administrative purposes.

The Fund currently expects that it will enter into definitive agreements with
respect to a credit facility and/or a commercial paper program after the closing
of the offer and sale of the Common Shares offered hereby. The Fund intends to
arrange a senior revolving credit facility/commercial paper program pursuant to
which the Fund expects to be entitled to borrow an amount up to between
approximately % and % of the Fund's total assets as of the closing of the offer
and sale of the Common Shares offered hereby. Any such borrowings would
constitute financial leverage. The terms of any agreements relating to such a
credit facility/commercial paper program have not been determined and are
subject to definitive agreement and other conditions but the Fund anticipates
that such a credit facility/commercial paper program would have terms
substantially similar to the following: (i) a final maturity not expected to
exceed three years subject to possible extension by the Fund; (ii) with respect
to each draw under the facility/program, an interest rate equal to the lesser of
LIBOR plus a stated premium or an alternate rate on the outstanding amount of
each such draw, reset over periods ranging from one to six months; and (iii)
payment by the Fund of certain fees and expenses including an underwriting fee,
a commitment fee on the average undrawn amount of the facility/program, an
ongoing administration fee and the expenses of the lenders under the
facility/program incurred in connection therewith; subject to the market
conditions which may cause the cost to be more or less, the Fund currently
expects that the aggregate annualized cost to the Fund over the life of the
facility/program of the interest rate and fees referred to in clauses (ii) and
(iii) will not exceed an amount equal to the stated principal amount of the
facility/program times an amount equal to . Individual draws on the
facility/program may have maturities ranging from seven days to one year. The
facility/program is not expected to be convertible into any other securities of
the Fund, outstanding amounts are expected to be prepayable by the Fund prior to
final maturity without significant penalty and there are not expected to be any
sinking Fund or mandatory retirement provisions. Outstanding amounts would be
payable at maturity or such earlier times as required by the agreement. The Fund
may be required to prepay outstanding amounts under the facility/program or
incur a penalty rate of interest in the event of the occurrence of certain
events of default. The Fund expects to indemnify the lenders under the
facility/program against liabilities they may incur in connection with the
facility/program. In addition the Fund expects that such a credit
facility/commercial paper program would contain covenants which, among other
things, likely will limit the Fund's ability to pay dividends in certain
circumstances, incur additional debt, change its fundamental investment policies
and engage in certain transactions including mergers and consolidations, and may
require asset coverage ratios in addition to those required by the 1940 Act. The
Fund may be required to maintain a portion of its assets in cash or high-grade
securities as a reserve against interest or principal payments and expenses. The
Fund expects that any credit facility/commercial paper program would have
customary covenant, negative covenant and default provisions. There can be no
assurance that the Fund will enter into an agreement for a credit
facility/commercial paper program on terms and conditions representative of the
foregoing, or that additional material terms will not apply. In addition, if
entered into, any such credit facility/paper program may in the future be
replaced or refinanced by one or more credit facilities/commercial paper
programs having substantially different terms or by the issuance of preferred
shares or debt securities.

REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. Under a reverse
repurchase agreement, the Fund temporarily transfers possession of a portfolio
instrument to another party, such as a bank or broker-dealer, in return for
cash. At the same time, the Fund agrees to repurchase the instrument at an
agreed upon time (normally within seven days) and price, which reflects an
interest payment. The Fund may enter into such agreements when it is able to
invest the cash acquired at a rate higher than the cost of the agreement, which
would increase earned income.

When the Fund enters into a reverse repurchase agreement, any fluctuations in
the market value of either the securities transferred to another party or the
securities in which the proceeds may be invested would affect the market value
of the Fund's assets. As a result, such transactions may increase fluctuations
in the market value of the Fund's assets. While there is a risk that large
fluctuations in the market value of the Fund's assets could affect net asset
value, this risk is not significantly increased by entering into reverse
repurchase agreements, in the opinion of the Adviser. Because reverse repurchase
agreements may be considered to be the practical equivalent of borrowing funds,

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

they constitute a form of leverage. Such agreements will be treated as subject
to investment restrictions regarding "borrowings." If the Fund reinvests the
proceeds of a reverse repurchase agreement at a rate lower than the cost of the
agreement, entering into the agreement will lower the Fund's yield.

PORTFOLIO TURNOVER
The Fund cannot accurately predict its portfolio turnover rate, but the annual
turnover rate may exceed 100% (excluding turnover of securities having a
maturity of one year or less). A high turnover rate (100% or more) necessarily
involves greater expenses to the Fund and may result in a realization of net
short-term capital gains. The Fund may engage in active short-term trading to
benefit from yield disparities among different issues of securities or among the
markets for fixed income securities of different countries, to seek short-term
profits during periods of fluctuating interest rates, or for other reasons. Such
trading will increase the Fund's rate of turnover and may increase the incidence
of net short-term capital gains which, upon distribution by the Fund, are
taxable to Fund Common Shareholders as ordinary income.

USE OF LEVERAGE AND RELATED RISKS

The Fund expects to use financial leverage. The Fund expects initially to obtain
financial leverage immediately after the completion of the offering of the
Common Shares through derivative instruments (primarily foreign currency forward
contracts), through the reinvestment of securities lending collateral, and
through borrowings and/or through the establishment of a commercial paper
program. The Fund reserves the right in the future to adjust its use of these
methods of leverage and/or to leverage exclusively through only one of the these
methods. The Fund expects initially to have financial leverage of between
approximately 30%-40% of its total managed assets. In the future, the Adviser,
in its sole discretion, may employ other forms of financial leverage, including
the issuance of debt securities or preferred shares. 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 Fund securities. The Adviser
anticipates that the use of leverage should result in higher income to Common
Shareholders over time. The Fund generally will not use leverage, however, if
the Adviser anticipates that it would result in a lower return to Common
Shareholders over time.

Use of financial leverage creates an opportunity for increased return for Common
Shareholders, but, at the same time, creates special risks (including the
likelihood of greater volatility of net asset value and market price of the
Common Shares), and there can be no assurance that a leveraging strategy will be
successful during any period in which it is employed. There is a risk that
fluctuations in interest rates on borrowings may adversely affect the return to
the holders of Common Shares. If the income from the securities purchased with
such funds is not sufficient to cover the cost of leverage, the return on the
Fund will be less than if leverage had not been used, and therefore the amount
available for distribution to Common Shareholders as dividends and other
distributions will be reduced. The Adviser in its best judgment nevertheless may
determine to maintain the Fund's leveraged position if it deems such action to
be appropriate in the circumstances.

Changes in the value of the Fund's portfolio (including investments bought with
financial leverage) will be borne entirely by the Common Shareholders. If there
is a net decrease (or increase) in the value of the Fund's investment portfolio,
the leverage will decrease (or increase) the net asset value per share to a
greater extent than if the Fund were not leveraged. During periods in which the
Fund is using leverage, the fees paid to Eaton Vance for investment advisory
services will be higher than if the Fund did not use leverage because the fees
paid will be calculated on the basis of the Fund's average daily gross assets,
including assets purchased with financial leverage and the notional value of the
Fund's net long or short foreign currency exposure created by foreign currency
forward contracts (but excluding from liabilities the payment obligations of the
Fund with respect to principal repayment on borrowings, the rebate of collateral
rebate under securities loans and the settlement of foreign currency forward
contracts), so the fees will be higher when leverage is utilized. See
"Management of the Fund" for a detailed description of the calculation of the
advisory fee.

In initially utilizing financial leverage, the Fund will seek to earn income on
securities loans by reinvesting cash collateral in securities consistent with
its investment objectives and policies, seeking to invest at rates that are
higher than the "rebate" rate that it normally will pay to the borrower with
respect to such cash collateral. Securities loans may result in delays in
recovering, or a failure of the borrower to return, the loaned securities. The
defaulting borrower ordinarily would be liable to the Fund for any losses
resulting from such delays or failures, and the collateral provided in
connection with the loan normally would also be available for that purpose.
Securities loans normally may be terminated by either the Fund or the borrower
at any time. Upon termination and the return of the loaned securities, the Fund
would be required to return the related cash or securities collateral to the
borrower and it may be required to liquidate longer term portfolio securities in
order to do so. To the extent that such securities have decreased in value, this
may result in the Fund realizing a loss at a time when it would not otherwise do
so. The Fund also may incur losses if it is unable to reinvest cash collateral

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

at rates higher than applicable rebate rates paid to borrowers and related
administrative costs. These risks are substantially the same as those incurred
through other forms of financial leverage.

The Fund intends to manage its use of financial leverage through the
reinvestment of securities lending collateral and through derivatives so that
these arrangements will not be considered to create a "senior security" within
the meaning of the Investment Company Act. In this regard, in accordance with
guidelines established by the SEC, the Fund's custodian on a daily basis will
segregate in the Fund's custody account liquid portfolio assets equal to the
then current 1) settlement value of the Fund's obligations under derivative
instruments used to create leverage; and 2) rebate value of any securities
lending collateral that has been reinvested to create financial leverage. In
addition, the SEC has established guidelines that restrict a registered
investment company from loaning portfolio securities in excess of one third of
its total assets. Accordingly, this restriction places a practical limit on the
amount of financial leverage that may be obtained through reinvestment of
securities lending collateral.

Capital raised through forms of financial leverage other than the reinvestment
of securities lending collateral will be subject to dividend or interest
payments, which may exceed the income and appreciation on the assets purchased.
The commencement of a borrowing or commercial paper program involves expenses
and other costs and may limit the Fund's freedom to pay dividends on Common
Shares or to engage in other activities. The incurrence of borrowings having
priority over the Fund's Common Shares creates an opportunity for greater return
per Common Share, but at the same time such leveraging is a speculative
technique in that it will increase the Fund's exposure to capital risk. Unless
the income and appreciation, if any, on assets acquired with leverage proceeds
exceed the associated costs of borrowings and/or reinvestment of securities
lending collateral (and other Fund expenses), the use of leverage will diminish
the investment performance of the Fund's Common Shares compared with what it
would have been without leverage.

Under the Investment Company Act, the Fund is not permitted to incur debt
obligations, including borrowings, unless immediately after such issuance the
total asset value of the Fund's portfolio is at least 300% of the liquidation
value of the outstanding debt (i.e., such liquidation value may not exceed 33
1/3% of the Fund's total assets). In addition, the Fund is not permitted to
declare any cash dividend or other distribution on 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 other distribution)
is at least 300% of such liquidation value. When debt obligations are incurred,
the Fund intends, to the extent possible, to retire such obligations, as
necessary, to maintain coverage of any debt obligations of at least 300%.

In addition, borrowing/commercial paper program covenants and/or the terms of
debt securities or preferred shares issued may impose asset coverage or
portfolio composition requirements that are more stringent than those imposed on
the Fund by the Investment Company Act. The Fund would only utilize such
additional methods of financial leverage if it anticipated that these asset
coverage requirement, covenants or guidelines would not significantly impede
Eaton Vance in managing the Fund's portfolio in accordance with its investment
objectives and policies. See "Description of capital structure."

To qualify for federal income taxation as a "regulated investment company," the
Fund must distribute in each taxable year at least 90% of its net investment
income (including net interest income and net short-term gain). The Fund also
will be required to distribute annually substantially all of its income and
capital gain, if any, to avoid imposition of a nondeductible 4% federal excise
tax. If the Fund is precluded from making distributions on the Common Shares
because of any applicable asset coverage requirements, the terms of a borrowing
facility may provide that any amounts so precluded from being distributed, but
required to be distributed for the Fund to meet the distribution requirements
for qualification as a regulated investment company, will be paid to the
lenders. Such a payment can be expected to decrease the principal amount of debt
owed to such lenders.

The Fund's willingness to utilize financial leverage for investment purposes,
and the amount the Fund will use, will depend on many factors, the most
important of which are market conditions and interest rates. Successful use of a
leveraging strategy may depend on the Adviser's ability to predict correctly
interest rates and market movements, and there is no assurance that a leveraging
strategy will be successful during any period in which it is employed.

Assuming the utilization of financial leverage in the amount of [ ]% of the
Fund's gross assets and a blended interest/collateral rebate rate of [ ]%
payable on such financial leverage based on market rates as of the date of this
Prospectus, the additional income that the Fund must earn (net of expenses) in
order to cover such rebate payments is %. The Fund's actual cost of leverage
will be based on market rates at the time the Fund undertakes a leveraging
strategy, and such actual cost of leverage may be higher or lower than that
assumed in the previous example.

INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------------

The following table is designed to illustrate the effect on the return to a
holder of the Fund's Common Shares of leverage in the amount of approximately [
]% of the Fund's gross 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 Common 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.

Assumed portfolio return
(net of expenses).................... (10)% (5)% 0% 5% 10%
Corresponding Common Share return
assuming 35% leverage................ ( )% ( )% ( )% % %

Until the Fund enters into enters into derivative transactions involving
leverage, reinvests securities lending collateral, and/or borrows through a
credit facility and/or a commercial paper program, the 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 achieved until the securities lending collateral and borrowings
have been invested in accordance with the Fund's investment objectives and
policies and/or the Fund has entered into Currency Commitments.

Financial leverage achieved through the purchase of derivative instruments such
as forward foreign currency contracts and reverse repurchase agreements exposes
the Fund to special risks. See "Investment objectives, policies and
risks--Additional Investment Practices" and "Investment objectives, policies and
risks--Additional Risk Considerations."

ADDITIONAL RISK CONSIDERATIONS
NO OPERATING HISTORY
The Fund is a closed-end management investment company with no history of
operations and is designed for long-term investors and not as a trading vehicle.

INCOME RISK
The income investors receive from the Fund is based primarily on the interest it
earns from its investments, which can vary widely over the short and long-term.
If prevailing market interest rates drop, investors' income from the Fund over
time could drop as well. The Fund's income could also be affected already when
prevailing short-term interest rates increase and the Fund is utilizing
leverage, although this risk is mitigated by the Fund's investment in Senior
Loans.

PREPAYMENT RISK
During periods of declining interest rates or for other purposes, the borrowers
may exercise their option to prepay principal earlier than scheduled, forcing
the Fund to reinvest in lower yielding securities. This is known as call or
prepayment risk. Non-Investment Grade Bonds frequently have call features that
allow the issuer to redeem the security at dates prior to its stated maturity at
a specified price only if certain prescribed conditions are met ("call
protection"). An issuer may redeem a high yield obligation if, for example, 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. Senior Loans and MBS
typically have no such call protection. For premium bonds and loans (bonds or
loans acquired at prices that exceed their par or principal value) purchased by
the Fund, prepayment risk may be enhanced.

SENIOR LOANS RISK
The risks associated with Senior Loans are similar to the risks of
Non-Investment Grade Bonds, although Senior Loans are typically senior and
secured in contrast to Non-Investment Grade Bonds, which are often subordinated
and unsecured. Senior Loans' higher standing has historically resulted in

generally higher recoveries relative to those on unsecured, subordinate debt in
the event of a corporate reorganization. In addition, because their interest
rates are adjusted for changes in short-term interest rates, Senior Loans
generally have less interest rate risk than Non-Investment Grade Bonds and
foreign debt obligations, which are typically fixed rate. The Fund's investments
in Senior Loans are typically below investment grade and are considered
speculative because of the credit risk of their issuers. Such companies are more
likely to default on their payments of interest and principal owed to the Fund,
and such defaults could reduce the Fund's net asset value and income
distributions. An economic downturn generally leads to a higher non-payment
rate, and a debt obligation may lose significant value before a default occurs.
Moreover, any specific collateral used to secure a loan may lose a portion or
all of its value or become illiquid, which would adversely affect the loan's
value.

Certain currency related investments, including forward currency contracts, may
be highly volatile, and relatively small price movement in these instruments may
result in substantial loss to the Fund.

Currency related investments may be acquired in the "over-the-counter" or
"interdealer" markets, where participants typically are not subject to credit
evaluation and regulatory oversight as are members of "exchange based" markets.
In the absence of a regulated market to facilitate settlement, the Fund is
subject to the risk that a counterpary will not settle a transaction (such as a
forward currency contract) in accordance with its terms and conditions because
of a dispute over the terms of contract or because of a credit or liquidity
problem.

FOREIGN SECURITY RISK
The Fund may have substantial exposure to foreign securities.

MORTGAGE-BACKED SECURITIES RISK
The value of Fund shares may be adversely affected by fluctuations in interest
rates and the prepayment of the mortgage loans underlying the MBS held by the
Fund. Mortgage loans are most likely to be prepaid in a declining interest rate
environment. Prepayment may reduce the Fund's coupon distributions because the

proceeds of a prepayment may be invested in lower-yielding securities. The
Adviser has historically attempted to minimize prepayment risk by acquiring MBS
with seasoned underlying mortgage loans that have had a history of refinancing
opportunities. In a rising interest rate environment, a declining prepayment
rate will extend the average life of many MBS which in turn would lengthen the
duration of the Fund's portfolio. This possibility is often referred to as
extension risk. Extending the average life of an MBS increases the risk of
depreciation due to future increases in market interest rates. The value of Fund
Common Shares can also be adversely affected by the existence of premiums on the
price of MBS it acquires.

Certain government agencies or instrumentalities, such as GNMA, FNMA, and FHLMC,
provide a guarantee as to timely payment of principal and interest for MBS each
entity issues, backs or otherwise guarantees. Guarantees may not be backed by
the full faith and credit of the U.S. government.

LIQUIDITY RISK
The Fund may invest without limitation in securities for which there is no
readily available trading market or which are otherwise illiquid, including many
Senior Loans. The Fund may not be able to readily dispose of such securities at
prices that approximate those at which the Fund could sell such securities if
they were more widely traded and, as a result of such illiquidity, the Fund may
have to sell other investments or engage in borrowing transactions if necessary
to raise cash to meet its obligations. In addition, the limited liquidity could
affect the market price of the debt securities, thereby adversely affecting the
Fund's net asset value and ability to make dividend distributions.

INFLATION RISK
Inflation risk is the risk that the value of assets or income from investment
will be worth less in the future as inflation decreases the value of money. As
inflation increases, the real value of the Common Shares and distributions
thereon can decline. In addition, during any periods of rising inflation, rebate
rates on securities loans and interest rates on borrowings would likely
increase, which would tend to further reduce returns to Common Shareholders.
This risk is mitigated to some degree by the Fund's investments in Senior Loans.

MARKET DISRUPTION
The terrorist attacks in the United States on September 11, 2001 had a
disruptive effect on the securities markets. The Fund cannot predict the effects
of similar events in the future on the U.S. economy. These terrorist attacks and
related events, including the war in Iraq, its aftermath, and the continuing
occupation of Iraq by coalition forces, have led to increased short-term market
volatility and may have long-term effects on U.S. and world economies and
markets. A similar disruption of the financial markets could impact interest
rates, auctions, secondary trading, ratings, credit risk, inflation and other
factors relating to the Common Shares. In particular, Non-Investment Grade Bonds
and Senior Loans tend to be more volatile than higher rated fixed income
securities so that these events and any actions resulting from them may have a
greater impact on the prices and volatility on Non-Investment Grade Bonds and
Senior Loans than on higher rated fixed income securities.

ANTI-TAKEOVER PROVISIONS
The Fund's Agreement and Declaration of Trust includes provisions that could
have the effect of limiting the ability of other persons or entities to acquire
control of the Fund or to change the composition of its Board. See "Description
of capital structure--Anti-takeover provisions in the Declaration of Trust."

MANAGEMENT OF THE FUND

BOARD OF TRUSTEES

The management of the Fund, including general supervision of the duties
performed by the Adviser under the Advisory Agreement (as defined below), is the
responsibility of the Fund's Board under the laws of The Commonwealth of
Massachusetts and the 1940 Act.

THE ADVISER

Eaton Vance acts as the Fund's investment adviser under an Investment Advisory
Agreement (the "Advisory Agreement"). The Adviser's principal office is located
at The Eaton Vance Building, 255 State Street, Boston, MA 02109. Eaton Vance,
its affiliates and predecessor companies have been managing assets of
individuals and institutions since 1924 and of investment companies since 1931.
Eaton Vance (or its affiliates) currently serves as the investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $[ ] billion as of April 30,
2004. Eaton Vance is an indirect, wholly-owned subsidiary of Eaton Vance Corp.,
a publicly-held holding company, which through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities.

Under the general supervision of the Fund's Board, the Adviser will carry out
the investment and reinvestment of the assets of the Fund, will furnish
continuously an investment program with respect to the Fund, will determine
which securities should be purchased, sold or exchanged, and will implement such

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

determinations. The Adviser will furnish to the Fund investment advice and
office facilities, equipment and personnel for servicing the investments of the
Fund. The Adviser will compensate all Trustees and officers of the Fund who are
members of the Adviser's organization and who render investment services to the
Fund, and will also compensate all other Adviser personnel who provide research
and investment services to the Fund.

In return for these services, facilities and payments, the Fund has agreed to
pay the Adviser as compensation under the Advisory Agreement a fee in the amount
of [ ]% of the average weekly gross assets of the Fund. For this purpose, gross
assets of the Fund are intended to reflect the total leveraged asset value of
the Fund. In order to calculate this amount, certain adjustments are made to the
net asset value of the Fund. First, in the event that the Fund as initially
contemplated is utilizing the reinvestment of securities lending collateral
and/or a borrowing/commercial paper program to obtain a portion of its financial
leverage, the balance sheet liabilities of the Fund attributable to the
following are added back to the net asset value: 1) the rebate value of any
securities lending collateral that has been reinvested to create financial
leverage; and/or 2). the principal amount owed on any borrowing and/or
commercial paper program used to create financial leverage. This first step in
the calculation of gross assets produces a value that reflects the Fund's
leveraged asset value taking account of any leverage achieved through the
reinvestment of securities lending collateral and/or any borrowing/commercial
paper program. If no forward foreign currency contracts creating investment
leverage were outstanding, the sum produced by this first step in the
calculation would reflect the Fund's gross assets. However, if as initially
contemplated by the Fund, forward foreign contracts creating financial leverage
are outstanding, a second step in the calculation of gross assets is needed. In
such case, the notional value of the Fund's net short or long exposure to a
foreign currency achieved by entering into foreign currency forward contracts is
added to the sum arrived at in the first step of the calculation. The sum of
this second step in the calculation reflects the gross assets (i.e., its fully
leveraged asset value) when forward currency contracts are outstanding. In the
event that the Fund at some point does not reinvest securities lending
collateral and/or use a borrowing/commercial paper program to create financial
leverage but does employ forward foreign currency contracts for this purpose,
the first step in the calculation of gross assets based on the Fund's net asset
value would not be relevant. In such case, gross assets (reflecting the Fund's
fully leveraged asset value) would be the sum of the Fund's net asset value and
the notional value of the Fund's net short or long exposure to a foreign
currency achieved by entering into foreign currency forward contracts.

The following is an example of the advisory fee calculation using simple
illustrations. If the Fund had net assets of $1,000 and did not employ financial
leverage of any type, gross assets would be the same as net assets and the
advisory fee would be calculated based upon this amount. However, if as
contemplated, the Fund determines to leverage using the expected combination of
currency forward contracts, reinvestment of securities lending collateral and a
borrowing/commercial paper program it could, as one possible combination, invest
its $1,000 in net assets in accordance with its investment objective and
policies, enter into $250 in currency forward contracts (because the Fund would
not have to pay cash at the time it enters into currency contracts) and purchase
an additional $250 in portfolio investments consistent with its investment
objectives and policies using a combination of securities lending collateral and
borrowed funds. Alternatively, if at some future time, the Fund determines to
leverage exclusively through currency forward contracts, it could invest its
$1,000 in net assets in accordance with its investment objectives and policies
and enter into $500 in forward currency contracts. In either case, the advisory
fee would be calculated based upon $1,500 in gross assets, reflecting the total
leveraged asset value of the Fund regardless of how the leverage is obtained. In
this example, leverage is either in the form of forward currency contracts
creating a notional exposure or investments purchased with securities lending
collateral and/or borrowed funds. The amount of financial leverage outstanding,
and therefore the amount of gross assets on which the advisory fee is based,
fluctuates daily based upon changes in value of the Fund's portfolio holdings,
including changes in value of the currencies involved in the forward currency
contracts.

As illustrated by the description of the calculation of gross assets including
the above example, during periods in which the Fund is using leverage, the fees
paid to Eaton Vance for investment advisory services will be higher than if the
Fund did not use leverage because the fees paid will be calculated on the basis
of the Fund's gross assets which reflects the investment exposures created by
the use of leverage but not the associated liabilities.

Mark Venezia, Susan Schiff, Christine Johnston, Scott H. Page, Payson F.
Swaffield, Michael Weilheimer, and other Eaton Vance investment professionals
comprise the investment team responsible for the overall management of the
Fund's investments as well as allocations between the Fund's four principal
investment categories. The following individual members of this team are
responsible for the day-to-day management with each of the Fund's two main asset
classes:

MBS. Ms. Schiff is responsible for the day-to-day management of the Fund's MBS
strategy. Ms. Schiff, has been an Eaton Vance portfolio manager since 1991, and
is a Vice President of Eaton Vance. Among other portfolios, she currently
manages Eaton Vance Government Obligations Fund, a registered open-end fund,
which employs an investment strategy primarily focused on MBS. In addition, Ms.

MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

Schiff co-manages Eaton Vance Limited Duration Income Fund, a multi-sector
closed-end income fund, which has MBS as one of its three principal investment
categories. As of April 30,, 2004, this fund had assets of $[ ] billion.

SENIOR LOANS. Mr. Page and Mr. Swaffield are responsible for the day-to-day
management of the Fund's Senior Loan strategy. Among other portfolios, Mr. Page
and Mr. Swaffield have each been Eaton Vance portfolio managers since 1996, and
are Vice Presidents of Eaton Vance. They currently co-manage Eaton Vance Prime
Rate Reserves, a registered closed-end interval fund, Eaton Vance Classic Senior
Floating-Rate Fund, a registered closed-end interval fund, Eaton Vance
Floating-Rate Fund, a registered open-end fund, Eaton Vance Floating-Rate High
Income Fund, a registered open-end fund, Eaton Vance Senior Income Trust, a
registered closed-end fund listed on the New York Stock Exchange, and Eaton
Vance Senior Floating-Rate Trust, a registered closed-end fund listed on the New
York Stock Exchange, all of which employ investment strategies primarily focused
on Senior Loans. In addition, Mssrs. Page and Swafield co-manage Eaton Vance
Limited Duration Income Fund, a multi-sector closed-end income fund, which has
Senior Loans as one of its three principal investment categories. .As of April
30, 2004, these funds had combined assets of $[ ] billion. See "Additional
investment information and restrictions -- Litigation involving Eaton Vance" in
the SAI for further information.

NON-INVESTMENT GRADE BONDS. Mr. Weilheimer is responsible for the day-to-day
management of the Fund's Non-Investment Grade Bond Strategy. Mr. Weilheimer has
been an Eaton Vance portfolio manager since 1996, and is a Vice President of
Eaton Vance. Among other portfolios, he currently co-manages Eaton Vance High
Income Fund, a registered open-end fund, Eaton Vance Income Fund of Boston, a
registered open-end fund, both of which employ investment strategies primarily
focused on Non-Investment Grade Bonds. In addition, Mr. Weilheimer co-manages
Eaton Vance Limited Duration Income Fund, a multi-sector closed-end income fund,
which has Non-Investment Grade Bonds has one of its three principal investment
categories. As of April 30, 2004, these funds had combined assets of $[ ]
billion.

FOREIGN OBLIGATIONS. Mr. Venezia is responsible for the day-to-day management of
the Fund's Foreign Obligations strategy. Mr. Venezia has been an Eaton Vance
portfolio manager since 1984, and is a Vice President of Eaton Vance. He
currently manages the Eaton Vance Strategic Income Fund, a registered open-end
fund, which employs a strategy that utilizes currency and foreign debt
securities. In addition, Mr. Venezia is head of Eaton Vance's Global Bond
Department, which uses global economic and political analysis to search for debt
securities and currency investment ideas.

The Fund and the Adviser have adopted a Code of Ethics relating to personal
securities transactions. The Code permits Adviser personnel to invest in
securities (including securities that may be purchased or held by the Fund) for
their own accounts, subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Code.

Eaton Vance serves as administrator of the Fund but currently receives no
compensation for providing administrative services to the Fund. Under an
Administration Agreement with the Fund ("Administration Agreement"), Eaton Vance
is responsible for managing the business affairs of the Fund, subject to the
supervision of the Fund's Board. Eaton Vance will furnish to the Fund all office
facilities, equipment and personnel for administering the affairs of the Fund.
Eaton Vance's administrative services include recordkeeping, preparation and
filing of documents required to comply with federal and state securities laws,
supervising the activities of the Fund's custodian and transfer agent, providing
assistance in connection with the Trustees' and shareholders' meetings,
providing service in connection with any repurchase offers and other
administrative services necessary to conduct the Fund's business.

DISTRIBUTIONS

The Fund intends to make monthly distributions of net investment income, after
payment of interest on any outstanding borrowings. The Fund will distribute
annually any net short-term capital gain and any net capital gain (which is the
excess of net long-term capital gain over short-term capital loss).
Distributions to Common Shareholders cannot be assured, and the amount of each
monthly distribution is likely to vary. Initial distributions to Common
Shareholders are expected to be declared approximately 45 days and paid
approximately 60 to 90 days after the completion of this offering depending on
market conditions. The Fund intends to include in certain distributions amounts
attributable to investments in foreign currency forward contracts equivalent to
the interest that would have been generated by investments in deposits
denominated in the underlying currencies. In certain circumstances, this
practice may result in a return of capital to Common Shareholders for federal
income tax purposes. While there are any borrowings outstanding, the Fund may
not be permitted to declare any cash dividend or other distribution on its
Common Shares in certain circumstances. See "Description of capital structure."

DISTRIBUTIONS
--------------------------------------------------------------------------------

FEDERAL INCOME TAX MATTERS

The following discussion of federal income tax matters is based on the advice of
Kirkpatrick & Lockhart LLP, counsel to the Fund.

The Fund intends to make monthly distributions of net investment income after
payment of interest on any outstanding borrowings. The Fund will distribute
annually any net short-term capital gain (which are taxable as ordinary income)
and any net capital gain. Distributions of the Fund's net capital gains
("capital gain dividends"), if any, are taxable to Common Shareholders as
long-term capital gains, regardless of the length of time Common Shares have
been held by Common Shareholders. Distributions, if any, in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
Common Shares and, after that basis has been reduced to zero, will constitute
capital gains to the Shareholder (assuming the Common Shares are held as a
capital asset). See below for a summary of the maximum tax rates applicable to
capital gains (including capital gain dividends). Dividends will not qualify for
a dividends received deduction generally available to corporate Common
Shareholders.

The Fund will inform Common Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.

Selling Common Shareholders will generally recognize gain or loss in an amount
equal to the difference between the Shareholder's adjusted tax basis in the
Common Shares sold and the amount received. If the Common Shares are held as a
capital asset, the gain or loss will be a capital gain or loss. The maximum tax
rate applicable to net capital gains recognized by individuals and other
non-corporate taxpayers is (i) the same as the maximum ordinary income tax rate
for gains recognized on the sale of capital assets held for one year or less, or
(ii) 15% for gains recognized on the sale of capital assets held for more than
one year (as well as certain capital gain dividends) (5% for individuals in the
10% or 15% tax brackets). Any loss on a disposition of Common Shares held for
six months or less will be treated as a long-term capital loss to the extent of
any capital gain dividends received with respect to those Common Shares. For
purposes of determining whether Common Shares have been held for six months or
less, the holding period is suspended for any periods during which the
Shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property, or through certain
options or short sales. Any loss realized on a sale or exchange of Common Shares
will be disallowed to the extent those Common Shares are replaced by other
Common Shares within a period of 61 days beginning 30 days before and ending 30
days after the date of disposition of the Common Shares (whether through the
reinvestment of distributions, which could occur, for example, if the
Shareholder is a participant in the Plan (as defined below) or otherwise). In
that event, the basis of the replacement Common Shares will be adjusted to
reflect the disallowed loss.

An investor should be aware that, if Common Shares are purchased shortly before
the record date for any taxable dividend (including a capital gain dividend),
the purchase price likely will reflect the value of the dividend and the
investor then would receive a taxable distribution likely to reduce the trading
value of such Common Shares, in effect resulting in a taxable return of some of
the purchase price. Taxable distributions to individuals and certain other
non-corporate Common Shareholders, including those who have not provided their
correct taxpayer identification number and other required certifications, may be
subject to "backup" federal income tax withholding at the fourth lowest rate of
tax applicable to a single individual (in 2004, 30%).

The foregoing briefly summarizes some of the important federal income tax
consequences to Common Shareholders of investing in Common Shares, reflects the
federal tax law as of the date of this Prospectus, and does not address special
tax rules applicable to certain types of investors, such as corporate and
foreign investors. Investors should consult their tax advisors regarding other
federal, state or local tax considerations that may be applicable in their
particular circumstances, as well as any proposed tax law changes.

DIVIDEND REINVESTMENT PLAN

Pursuant to the Fund's dividend reinvestment plan (the "Plan"), a Shareholder
may elect to have all distributions of dividends (including all capital gain
dividends) automatically reinvested in Common Shares. Common Shareholders may
elect to participate in the Plan by completing the dividend reinvestment plan
application form. If Common Shareholders do not participate, such Common
Shareholders will receive all distributions in cash paid by check mailed
directly to them by PFPC Inc., as dividend paying agent.

PFPC Inc. (the "Plan Agent") serves as agent for the Common Shareholders in
administering the Plan. Common Shareholders who elect not to participate in the
Plan will receive all distributions of dividends in cash paid by check mailed
directly to the Shareholder of record (or if the Common Shares are held in
street or other nominee name, then to the nominee) by PFPC Inc., as disbursing
agent. Participation in the Plan is completely voluntary and may be terminated

DIVIDEND REINVESTMENT PLAN
--------------------------------------------------------------------------------

or resumed at any time without penalty by written notice if received by the Plan
Agent prior to any dividend record date.

Common Shares will be acquired by the Plan Agent or an independent broker-dealer
for the participants' accounts, depending upon the circumstances described
below, either (i) through receipt of additional previously authorized but
unissued Common Shares from the Fund ("newly issued Common Shares") or (ii) by
purchase of outstanding Common Shares on the open market ("open-market
purchases") on the [New York Stock Exchange] or elsewhere. If on the payment
date for the dividend, the net asset value per Share is equal to or less than
the market price per Share plus estimated brokerage commissions (such condition
being referred to herein as "market premium"), the Plan Agent will invest the
dividend amount in newly issued Common Shares on behalf of the participants. The
number of newly issued Common Shares to be credited to each 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 Common 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 plus estimated brokerage
commissions (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in Common Shares acquired on behalf
of the participants in open-market purchases.

In the event of a market discount on the dividend payment date, the Plan Agent
will have up to 30 days after the dividend payment date to invest the dividend
amount in Common Shares acquired in open-market purchases. If, before the Plan
Agent has completed its open-market purchases, the market price of a 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 Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend had
been paid in newly issued Common Shares on the dividend payment date. Therefore,
the Plan provides that if the Plan Agent is unable to invest the full dividend
amount in open-market purchases during the purchase period or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
will cease making open-market purchases and will invest the uninvested portion
of the dividend amount in newly issued Common Shares.

The Plan Agent maintains all Common Shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by Common Shareholders for tax records. Common Shares in the
account of each Plan participant will be held by the Plan Agent on behalf of the
Plan participant, and each Shareholder proxy will include those Common Shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for Common Shares
held pursuant to the Plan in accordance with the instructions of the
participants.

In the case of Common Shareholders such as banks, brokers or nominees that hold
Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record Shareholder's name and held for the account of
beneficial owners who participate in the Plan.

There will be no brokerage charges with respect to Common Shares issued directly
by the Fund as a result of dividends payable either in Common 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.

Common Shareholders participating in the Plan may receive benefits not available
to Common Shareholders not participating in the Plan. If the market price (plus
commissions) of the Fund's Common Shares is above their net asset value,
participants in the Plan will receive Common Shares of the Fund at less than
they could otherwise purchase them and will have Common Shares with a cash value
greater than the value of any cash distribution they would have received on
their Common Shares. If the market price plus commissions is below the net asset
value, participants will receive distributions in Common Shares with a net asset
value greater than the per Share value of any cash distribution they would have
received on their Common Shares. However, there may be insufficient Common
Shares available in the market to make distributions in Common Shares at prices
below the net asset value. Also, since the Fund does not redeem its Common
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,
upon 30 days' notice to Plan participants, the Fund reserves the right to amend
or terminate the Plan. Common Shareholders will be charged a $5.00 service
charge and pay brokerage charges if such Shareholder directs the Plan Agent to
sell Common Shares held in a dividend reinvestment account.

All correspondence concerning the Plan should be directed to the Plan Agent at
PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027. Please call 1-800-331-1710
between the hours of 9:00 a.m. and 5:00 p.m. Eastern Standard Time if you have
questions regarding the Plan.

DESCRIPTION OF CAPITAL STRUCTURE

The Fund is an unincorporated business trust established under the laws of The
Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated
April [ ], 2004 and filed with the Secretary of The Commonwealth on June [ ],
2004 (the "Declaration of Trust"). The Declaration of Trust provides that the
Trustees of the Fund may authorize separate classes of shares of beneficial
interest. The Trustees have authorized an unlimited number of Common Shares. The
Fund intends to hold annual meetings of Common Shareholders in compliance with
the requirements of the [New York Stock Exchange].

COMMON SHARES
The Declaration of Trust permits the Fund to issue an unlimited number of full
and fractional Common Shares of beneficial interest, $0.01 par value per Share.
Each Share represents an equal proportionate interest in the assets of the Fund
with each other Share in the Fund. Holders of Common Shares will be entitled to
the payment of dividends when, as and if declared by the Board. The 1940 Act or
the terms of any borrowings or preferred shares may limit the payment of
dividends to the holders of Common Shares. Each whole Common Share shall be
entitled to one vote as to matters on which it is entitled to vote pursuant to
the terms of the Declaration of Trust on file with the SEC. Upon liquidation of
the Fund, after paying or adequately providing for the payment of all
liabilities of the Fund including the all outstanding borrowings and collateral
from securities lending that the Fund is obligated to return to securities
lending counterparties, and the liquidation preference with respect to any
outstanding preferred shares, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection, the Trustees
may distribute the remaining assets of the Fund among the holders of the Common
Shares. The Declaration of Trust provides that Common Shareholders are not
liable for any liabilities of the Fund, requires inclusion of a clause to that
effect in every agreement entered into by the Fund and indemnifies shareholders
against any such liability. Although shareholders of an unincorporated business
trust established under Massachusetts law, in certain limited circumstances, may
be held personally liable for the obligations of the Fund as though they were
general partners, the provisions of the Declaration of Trust described in the
foregoing sentence make the likelihood of such personal liability remote.

While there are any borrowings outstanding, the Fund may not be permitted to
declare any cash dividend or other distribution on its Common Shares, unless at
the time of such declaration, (i) all accrued interest on borrowings have been
paid and (ii) the value of the Fund's total assets (determined after deducting
the amount of such dividend or other distribution), less all liabilities and
indebtedness of the Fund not represented by senior securities, is at least 200%
of the aggregate amount of such securities representing indebtedness. In
addition to the requirements of the 1940 Act, the Fund may be required to comply
with other asset coverage requirements as a condition of the Fund pursuant to
financial covenants associated with a borrowing/commercial paper program. These
requirements may include an asset coverage test more stringent than under the
1940 Act. This limitation on the Fund's ability to make distributions on its
Common Shares could in certain circumstances impair the ability of the Fund to
maintain its qualification for taxation as a regulated investment company for
federal income tax purposes. The Fund intends, however, to the extent possible
to reduce borrowings from time to time to maintain compliance with such asset
coverage requirements. See "Investment objectives, policies and risks" and
"Distributions and taxes." Depending on the timing of any such repayment, the
Fund may be required to pay a premium in addition to the liquidation preference
to lenders under a borrowing/commercial paper program.

The Fund has no present intention of offering additional Common Shares, except
as described herein. Other offerings of its Common Shares, if made, will require
approval of the Board. Any additional offering will not be sold at a price per
Share below the then current net asset value (exclusive of underwriting
discounts and commissions) except in connection with an offering to existing
Common Shareholders or with the consent of a majority of the Fund's outstanding
Common Shares. The Common Shares have no preemptive rights.

The Fund generally will not issue Share certificates. However, upon written
request to the Fund's transfer agent, a share certificate will be issued for any
or all of the full Common Shares credited to an investor's account. Share
certificates that have been issued to an investor may be returned at any time.

CREDIT FACILITY/COMMERCIAL PAPER PROGRAM
In leveraging through borrowings/commercial paper, the Fund expects to enter
into definitive agreements with respect to a credit facility/commercial paper
program or other borrowing program. The Fund may negotiate with commercial banks
to arrange a credit facility/commercial paper program pursuant to which the Fund
would expect to be entitled to borrow an amount up to between approximately % to
% of the Fund's total assets (inclusive of the amount borrowed) as of the
closing of the offer and sale of the Common Shares offered hereby. Any such
borrowings would constitute financial leverage. Such a facility/commercial paper
program is not expected to be convertible into any other securities of the Fund,
outstanding amounts are expected to be prepayable by the Fund prior to final

DESCRIPTION OF CAPITAL STRUCTURE
--------------------------------------------------------------------------------

maturity without significant penalty and there are not expected to be any
sinking fund or mandatory retirement provisions. Outstanding amounts would be
payable at maturity or such earlier times as required by the agreement. The Fund
may be required to prepay outstanding amounts under the facility/program or
incur a penalty rate of interest in the event of the occurrence of certain
events of default. The Fund would be expected to indemnify the lenders under the
facility/program against liabilities they may incur in connection with the
facility/program.

In addition, the Fund expects that such a credit facility/program would contain
covenants that, among other things, likely will limit the Fund's ability to pay
dividends in certain circumstances, incur additional debt, change its
fundamental investment policies and engage in certain transactions, including
mergers and consolidations, and may require asset coverage ratios in addition to
those required by the 1940 Act. The Fund may be required to pledge its assets
and to maintain a portion of its assets in cash or high-grade securities as a
reserve against interest or principal payments and expenses. The Fund expects
that any credit facility/program would have customary covenant, negative
covenant and default provisions. There can be no assurance that the Fund will
enter into an agreement for a credit facility/program on terms and conditions
representative of the foregoing, or that additional material terms will not
apply. In addition, if entered into, any such credit facility/program may in the
future be replaced or refinanced by one or more credit facilities having
substantially different terms or by the issuance of preferred shares or debt
securities.

REPURCHASE OF COMMON SHARES AND OTHER DISCOUNT MEASURES
Because shares of closed-end management investment companies frequently trade at
a discount to their net asset values, the Board has determined that from time to
time it may be in the interest of Common Shareholders for the Fund to take
corrective actions. The Board, in consultation with Eaton Vance, will review at
least annually the possibility of open market repurchases and/or tender offers
for the Common Shares and will consider such factors as the market price of the
Common Shares, the net asset value of the Common Shares, the liquidity of the
assets of the Fund, effect on the Fund's expenses, whether such transactions
would impair the Fund's status as a regulated investment company or result in a
failure to comply with applicable asset coverage requirements, general economic
conditions and such other events or conditions which may have a material effect
on the Fund's ability to consummate such transactions. There are no assurances
that the Board will, in fact, decide to undertake either of these actions or if
undertaken, that such actions will result in the Fund's Common Shares trading at
a price which is equal to or approximates their net asset value. In recognition
of the possibility that the Common Shares might trade at a discount to net asset
value and that any such discount may not be in the interest of Common
Shareholders, the Board, in consultation with Eaton Vance, from time to time may
review possible actions to reduce any such discount.

PREFERRED SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with preference rights, including preferred shares
(the "preferred shares"), having a par value of $0.01 per share, in one or more
series, with rights as determined by the Board, by action of the Board without
the approval of the Common Shareholders. The Fund has no current intention of
issuing preferred shares. However, it is possible that preferred shares could be
issued at some future time as an additional method of obtaining financial
leverage or as a replacement to other forms of financial leverage such as
borrowing and/or the reinvestment of securities lending collateral.

Under the requirements of the 1940 Act, if preferred shares are ever issued, the
Fund must, immediately after the issuance of any such preferred shares, have an
"asset coverage" of at least 200%. Asset coverage means the ratio which the
value of the total assets of the Fund, less all liability and indebtedness not
represented by senior securities (as defined in the 1940 Act), bears to the
aggregate amount of senior securities representing indebtedness of the Fund, if
any, plus the aggregate liquidation preference of the preferred shares. If the
Fund seeks a rating of the preferred shares, asset coverage requirements, in
addition to those set forth in the 1940 Act, may be imposed. The liquidation
value of the preferred shares is expected to equal their aggregate original
purchase price plus redemption premium, if any, together with any accrued and
unpaid dividends thereon (on a cumulative basis), whether or not earned or
declared. The terms of the preferred shares, including their dividend rate,
voting rights, liquidation preference and redemption provisions, will be
determined by the Board (subject to applicable law and the Fund's Declaration of
Trust) if and when it authorizes the preferred shares. The Fund may issue
preferred shares that provide for the periodic redetermination of the dividend
rate at relatively short intervals through an auction or remarketing procedure,
although the terms of the preferred shares may also enable the Fund to lengthen
such intervals. At times, the dividend rate as redetermined on the Fund's
preferred shares may approach or exceed the Fund's return after expenses on the
investment of proceeds from the preferred shares and the Fund's leverage
structure would result in a lower rate of return to Common Shareholders than if
the Fund were not so structured.

In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Fund, the terms of any preferred shares may entitle the holders of
preferred shares to receive a preferential liquidating distribution (expected to
equal the original purchase price per share plus redemption premium, if any,

DESCRIPTION OF CAPITAL STRUCTURE
--------------------------------------------------------------------------------

together with accrued and unpaid dividends, whether or not earned or declared
and on a cumulative basis) 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 preferred shareholders would not be
entitled to any further participation in any distribution of assets by the Fund.

Holders of preferred shares, voting as a class, shall be entitled to elect two
of the Fund's Trustees. Under the 1940 Act, if at any time dividends on the
preferred shares are unpaid in an amount equal to two full years' dividends
thereon, the holders of all outstanding preferred shares, voting as a class,
will be allowed to elect a majority of the Fund's Trustees until all dividends
in default have been paid or declared and set apart for payment. In addition, if
required by the Rating Agency rating the preferred shares or if the Board
determines it to be in the best interests of the Common Shareholders, issuance
of the preferred shares may result in more restrictive provisions than required
by the 1940 Act being imposed. In this regard, holders of the preferred shares
may be entitled to elect a majority of the Fund's Board in other circumstances,
for example, if one payment on the preferred shares is in arrears.

If the Fund were ever to determine to issue preferred shares it likely would
need to seek a AAA credit rating for the preferred shares from one or more
Rating Agencies. In such event, as long as any such preferred shares are
outstanding, the composition of the Fund's portfolio will reflect guidelines
established by such Rating Agency. The Fund anticipates that the guidelines with
respect to any preferred shares will establish a set of tests for portfolio
composition and asset coverage that supplement (and in some cases are more
restrictive than) the applicable requirements under the 1940 Act. The Fund
currently anticipates that such guidelines would include asset coverage
requirements which are more restrictive than those under the 1940 Act,
restrictions on certain portfolio investments and investment practices,
requirements that the Fund maintain a portion of its assets in short-term,
high-quality, fixed-income securities and certain mandatory redemption
requirements relating to the preferred shares. No assurance can be given that
the guidelines actually imposed with respect to the preferred shares by such
Rating Agency will be more or less restrictive than as described in this
Prospectus.

ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST
The 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, and could have the effect of
depriving Common Shareholders of an opportunity to sell their Common Shares at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Fund. These provisions may have the effect of
discouraging attempts to acquire control of the Fund, which attempts could have
the effect of increasing the expenses of the Fund and interfering with the
normal operation of the Fund. The Board is divided into four classes, with the
term of one class expiring at each annual meeting of Common Shareholders. At
each annual meeting, one class of Trustees is elected to a three-year term. This
provision could delay for up to two years the replacement of a majority of the
Board. A Trustee may be removed from office only for cause by a written
instrument signed by the remaining Trustees or by a vote of the holders of at
least two-thirds of the class of shares of the Fund that elected such Trustee
and are entitled to vote on the matter.

In addition, the Declaration of Trust requires the favorable vote of the holders
of at least 75% of the outstanding shares of each class of the Fund, voting as a
class, then entitled to vote to approve, adopt or authorize certain transactions
with 5%-or-greater holders of a class of shares and their associates, unless the
Board shall by resolution have approved a memorandum of understanding with such
holders, in which case normal voting requirements would be in effect. For
purposes of these provisions, a 5%-or-greater holder of a class 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 of
beneficial interest of the Fund. The transactions subject to these special
approval requirements are: (i) the merger or consolidation of the Fund or any
subsidiary of the Fund with or into any Principal Shareholder; (ii) the issuance
of any securities of the Fund to any Principal Shareholder for cash; (iii) 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 twelve-month period); or (iv) the sale, lease or exchange to the Fund
or any subsidiary thereof, 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 the purposes of such computation
all assets sold, leased or exchanged in any series of similar transactions
within a twelve-month period).

The Board has determined that provisions with respect to the Board and the 75%
voting requirements described above, which voting requirements are greater than
the minimum requirements under Massachusetts law or the 1940 Act, are in the
best interest of Common Shareholders generally. Reference should be made to the
Declaration of Trust on file with the SEC for the full text of these provisions.

DESCRIPTION OF CAPITAL STRUCTURE
--------------------------------------------------------------------------------

CONVERSION TO OPEN-END FUND
The Fund may be converted to an open-end management investment company at any
time if approved by the lesser of (i) two-thirds or more of the Fund's then
outstanding Common Shares and preferred shares (if any), each voting separately
as a class, or (ii) more than 50% of the then outstanding Common Shares and
preferred shares (if any), voting separately as a class if such conversion is
recommended by at least 75% of the Trustees then in office. If approved in the
foregoing manner, conversion of the Fund could not occur until 90 days after the
shareholders' meeting at which such conversion was approved and would also
require at least 30 days' prior notice to all shareholders. The composition of
the Fund's portfolio likely would prohibit the Fund from complying with
regulations of the SEC applicable to open-end management investment companies.
Accordingly, conversion likely would require significant changes in the Fund's
investment policies and liquidation of a substantial portion of its relatively
illiquid portfolio. Conversion of the Fund to an open-end management investment
company also would require the redemption of any outstanding preferred shares
and could require the repayment of borrowings, which would eliminate the
leveraged capital structure of the Fund with respect to the Common Shares. In
the event of conversion, the Common Shares would cease to be listed on the [New
York Stock Exchange] or other national securities exchange or market system. The
Board believes, however, that the closed-end structure is desirable, given the
Fund's investment objectives and policies. Investors should assume, therefore,
that it is unlikely that the Board would vote to convert the Fund to an open-end
management investment company. Common Shareholders of an open-end management
investment company may require the company to redeem their shares at any time
(except in certain circumstances as authorized by or under the 1940 Act) at
their net asset value, less such redemption charge, if any, as might be in
effect at the time of a redemption. The Fund expects to pay all such redemption
requests in cash, but intends to reserve the right to pay redemption requests in
a combination of cash or securities. If such partial payment in securities were
made, investors may incur brokerage costs in converting such securities to cash.
If the Fund were converted to an open-end fund, it is likely that new Common
Shares would be sold at net asset value plus a sales load.

--------------------------------------------------------------------------------
UNDERWRITING

UNDERWRITING

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

Underwriters Number of
Common Shares
--------------------------------------------------------------------------------

Total.......................................

The Fund has granted to the Underwriters an option, exercisable for 45 days from
the date of this Prospectus, to purchase up to an additional [ ] Common Shares
to cover over-allotments, if any, at the initial offering price. The
Underwriters may exercise such option solely for the purpose of covering

UNDERWRITING
--------------------------------------------------------------------------------

Underwriting over-allotments incurred in the sale of the Common Shares offered
hereby. To the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase an additional number of Common Shares proportionate to such
Underwriter's initial commitment.

The Fund has agreed to pay a commission to the Underwriters in the amount of $[
] per Share ([ ]% of the public offering price per Share). The Representatives
have advised the Fund that the Underwriters may pay up to $[ ] per Share from
such commission to selected dealers who sell the Common Shares and that such
dealers may reallow a concession of up to $[ ] per Share to certain other
dealers who sell Common Shares. Eaton Vance or an affiliate has agreed to (i)
reimburse all organizational costs and (ii) pay all offering costs of the Fund
that exceed $[ ] per Share. Investors must pay for any Common Shares purchased
on or before [ ], 2004.

Prior to this offering, there has been no public market for the Common Shares or
any other securities of the Fund. Consequently, the offering price for the
Common Shares was determined by negotiation among the Fund and the
Representatives. There can be no assurance, however, that the price at which
Common Shares sell after this offering will not be lower than the price at which
they are sold by the Underwriters or that an active trading market in the Common
Shares will develop and continue after this offering. The minimum investment
requirement is 100 Common Shares ($2,000).

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

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

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

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

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

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

Eaton Vance (and not the Fund) has agreed pursuant to an additional compensation
agreement (the "Additional Compensation Agreement") to pay to certain qualifying
Underwriters who meet specified sales targets ("Qualifying Underwriters"),
quarterly in arrears, an annual fee of up to % of the Fund's average daily gross
assets attributable to Common Shares sold by such Qualifying Underwriters
(including a proportionate share of assets acquired using leverage). Such sales
targets may be waived or lowered with respect to any Underwriter in the sole
discretion of Eaton Vance. These fee payments will remain in effect only so long
as the Advisory Agreement remains in effect between the Fund and Eaton Vance or
any successor in interest or affiliate of Eaton Vance, as and to the extent that
such Advisory Agreement is renewed periodically in accordance with the 1940 Act.
The sum of the additional compensation payable to the Qualifying Underwriters
will not exceed % of the aggregate initial offering price of the Common Shares
offered hereby. will receive additional compensation which will not exceed % of
the aggregate initial offering price of the Common Shares offered hereby, will
receive additional compensation which will not exceed % of the aggregate initial
offering price of the Common Shares offered hereby and will receive additional
compensation which will not exceed % of the aggregate initial offering price of
the Common Shares offered hereby.

UNDERWRITING
--------------------------------------------------------------------------------

As described below under "Shareholder Servicing Agent, custodian and transfer
agent," ]" will provide shareholder services to the Fund pursuant to a
shareholder servicing agreement with Eaton Vance.

Compensation received by , , and pursuant to the Additional Compensation
Agreement and compensation received by pursuant to the Shareholder Servicing
Agreement (as defined below) together will not exceed % of the aggregate initial
offering price of the Common Shares offered hereby, and the total compensation
received by the Underwriters will not exceed 9.0% of the aggregate initial
offering price of the Common Shares offered hereby.

[SHAREHOLDER SERVICING AGENT], CUSTODIAN AND TRANSFER AGENT

[Pursuant to a shareholder servicing agreement ("Shareholder Servicing
Agreement") between [ ] (the "Shareholder Servicing Agent") and Eaton Vance, the
Shareholder Servicing Agent will (i) undertake to make public information
pertaining to the Fund on an ongoing basis and to communicate to investors and
prospective investors the Fund's features and benefits (including periodic
seminars or conference calls, responses to questions from current or prospective
shareholders and specific shareholder contact where appropriate); (ii) make
available to investors and prospective investors market price, net asset value,
yield and other information regarding the Fund, if reasonably obtainable, for
the purpose of maintaining the visibility of the Fund in the investor community;
(iii) at the request of Eaton Vance, provide certain economic research and
statistical information and reports, if reasonably obtainable, on behalf of the
Fund, and consult with representatives and Trustees of the Fund in connection
therewith, which information and reports shall include: (a) statistical and
financial market information with respect to the Fund's market performance and
(b) comparative information regarding the Fund and other closed-end management
investment companies with respect to (1) the net asset value of their respective
shares, (2) the respective market performance of the Fund and such other
companies and (3) other relevant performance indicators; and (iv) at the request
of Eaton Vance, provide information to and consult with the Board with respect
to applicable modifications to dividend policies or capital structure,
repositioning or restructuring of the Fund, conversion of the Fund to an
open-end management investment company, liquidation or merger; provided,
however, that under the terms of the Shareholder Servicing Agreement, the
Shareholder Servicing Agent is not obligated to render any opinions, valuations
or recommendations of any kind or to perform any such similar services. For
these services, Eaton Vance will pay the Shareholder Servicing Agent a fee
computed weekly and payable quarterly equal on an annual basis up to [ ]% of the
Fund's average weekly . Under the terms of the Shareholder Servicing Agreement,
the Shareholder Servicing Agent is relieved from liability to Eaton Vance for
any act or omission in the course of its performances under the Shareholder
Servicing Agreement in the absence of gross negligence or willful misconduct by
the Shareholder Servicing Agent. The Shareholder Servicing Agreement will
continue so long as the Advisory Agreement remains in effect between the Fund
and the Adviser or any successor in interest or affiliate of the Adviser, as and
to the extent that such Advisory Agreement is renewed periodically in accordance
with the 1940 Act.]

Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston, MA 02116
is the custodian of the Fund and will maintain custody of the securities and
cash of the Fund. IBT maintains the Fund's general ledger and computes net asset
value per share at least weekly. IBT also attends to details in connection with
the sale, exchange, substitution, transfer and other dealings with the Fund's
investments and receives and disburses all funds. IBT also assists in
preparation of shareholder reports and the electronic filing of such reports
with the SEC.

PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027 is the transfer agent and
dividend disbursing agent of the Fund.

LEGAL OPINIONS

Certain legal matters in connection with the Common Shares will be passed upon
for the Fund by Kirkpatrick & Lockhart LLP, Boston, Massachusetts, and for the
Underwriters by [ ], [CITY], [STATE].

REPORTS TO SHAREHOLDERS

The Fund will send to Common Shareholders unaudited semi-annual and audited
annual reports, including a list of investments held.

INDEPENDENT AUDITORS

_____________________________________, are the independent auditors for the Fund
and will audit the Fund's financial statements.

ADDITIONAL INFORMATION

The Prospectus and the Statement of Additional Information do not contain all of
the information set forth in the Registration Statement that the Fund has filed
with the SEC. The complete Registration Statement may be obtained from the SEC
upon payment of the fee prescribed by its rules and regulations. The Statement

UNDERWRITING
--------------------------------------------------------------------------------

of Additional Information can be obtained without charge by calling
1-800-225-6265.

Statements contained in this Prospectus as to the contents of any contract or
other documents 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 of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.

UNDERWRITING
--------------------------------------------------------------------------------

TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION

Additional investment information and restrictions..................... 2
Trustees and officers.................................................. 11
Investment advisory and other services................................. 16
Determination of net asset value....................................... 17
Portfolio trading...................................................... 18
Taxes.................................................................. 20
Other information...................................................... 22
Independent auditors................................................... 22
Independent auditors' report........................................... 23
Financial statements................................................... 24
Appendix A: Ratings.................................................... A-1
Appendix B: Performance related and comparative information........... B-1

THE FUND'S PRIVACY POLICY

The Fund is committed to ensuring your financial privacy. This notice is being
sent to comply with privacy regulations of the Securities and Exchange
Commission. The Fund has in effect the following policy with respect to
nonpublic personal information about its customers:

o Only such information received from you, through application forms or
otherwise, and information about your Fund transactions will be collected.

o None of such information about you (or former customers) will be disclosed to
anyone, except as permitted by law (which includes disclosure to employees
necessary to service your account).

o Policies and procedures (including physical, electronic and procedural
safeguards) are in place that are designed to protect the confidentiality of
such information.

For more information about the Fund's privacy policies call 1-800-262-1122.

UNDERWRITING
--------------------------------------------------------------------------------

[EATON VANCE LOGO]

STATEMENT OF ADDITIONAL INFORMATION SUBJECT TO COMPLETION , 2004
--------------------------------------------------------------------------------

STATEMENT OF ADDITIONAL INFORMATION
_____________, 2004

EATON VANCE LOW DURATION DIVERSIFIED INCOME FUND

The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
(800) 225-6265

TABLE OF CONTENTS
--------------------------------------------------------------------------------

PAGE
----

Additional investment information and restrictions......................

Trustees and officers...................................................

Investment advisory and other services..................................

Determination of net asset value........................................

Portfolio trading.......................................................

Taxes...................................................................

Other information.......................................................

Independent auditors....................................................

Independent auditors' report............................................

Financial statements....................................................

Appendix A: Ratings..................................................... A-1

Appendix B: Performance related and comparative information............. B-1

THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EATON VANCE LOW DURATION DIVERSIFIED INCOME
FUND (THE "FUND") DATED __________, 2004, AS SUPPLEMENTED FROM TIME TO TIME,
WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING YOUR FINANCIAL INTERMEDIARY OR CALLING THE FUND AT 1-800-225-6265.

THE INFORMATION IN THIS SAI IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES
MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") IS EFFECTIVE. THIS SAI, WHICH IS NOT A PROSPECTUS,
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------

Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the Fund's Prospectus.

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS

Primary investment strategies are described in the Prospectus. The following is
a description of the various investment policies that may be engaged in, whether
as a primary or secondary strategy, and a summary of certain attendant risks.
Eaton Vance may not buy any of the following instruments or use any of the
following techniques unless it believes that doing so will help to achieve the
Fund's investment objectives.

MORTGAGE-BACKED SECURITIES

GENERAL
The Fund's investments in mortgage-backed securities may include conventional
mortgage pass-through securities, floating rate mortgage-backed securities and
certain classes of multiple class CMOs (as described below). Mortgage-backed
securities differ from bonds in that the principal is paid back by the borrower
over the length of the loan rather than returned in a lump sum at maturity.
Government National Mortgage Association ("GNMA") Certificates and Federal
National Mortgage Association ("FNMA") Mortgage-Backed Certificates are
mortgage-backed securities representing part ownership of a pool of mortgage
loans. GNMA loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations -- are either insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. A "pool" or
group of such mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. Once such pool is approved by
GNMA, the timely payment of interest and principal on the Certificates issued
representing such pool is guaranteed by the full faith and credit of the U.S.
Government. FNMA, a federally chartered corporation owned entirely by private
stockholders, purchases both conventional and federally insured or guaranteed
residential mortgages from various entities, including savings and loan
associations, savings banks, commercial banks, credit unions and mortgage
bankers, and packages pools of such mortgages in the form of pass-through
securities generally called FNMA Mortgage-Backed Certificates, which are
guaranteed as to timely payment of principal and interest by FNMA but are not
backed by the full faith and credit of the U.S. Government. GNMA Certificates
and FNMA Mortgage-Backed Certificates are called "pass-through" securities
because a pro rata share of both regular interest and principal payments, as
well as unscheduled early prepayments, on the underlying mortgage pool is passed
through monthly to the holder of the Certificate (i.e., the Fund). The Fund may
purchase GNMA Certificates, FNMA Mortgage-Backed Certificates and various other
mortgage-backed securities on a when-issued basis subject to certain limitations
and requirements.

The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the U.S. Government created by Congress for the purposes of
increasing the availability of mortgage credit for residential housing, issues
participation certificates ("PCs") representing undivided interest in FHLMC'S
mortgage portfolio. While FHLMC guarantees the timely payment of interest and
ultimate collection of the principal of its PCs, its PCs are not backed by the
full faith and credit of the U.S. Government. FHLMC PCs differ from GNMA
Certificates in that the mortgages underlying the PCs are monthly "conventional"
mortgages rather than mortgages insured or guaranteed by a federal agency or
instrumentality. However, in several other respects, such as the monthly
pass-through of interest and principal (including unscheduled prepayments) and
the unpredictability of future unscheduled prepayments on the underlying
mortgage pools, FHLMC PCs are similar to GNMA Certificates.

While it is not possible to accurately predict the life of a particular issue of
a mortgage-backed "pass-through" security held by the Fund, the actual life of
any such security is likely to be substantially less than the average final
maturities of the mortgage loans underlying the security. This is because
unscheduled early prepayments of principal on the security owned by the Fund
will result from the prepayment, refinancings or foreclosure of the underlying
mortgage loans in the mortgage pool. The Fund, when the monthly payments (which
may include unscheduled prepayments) on such a security are passed through to
it, may be able to reinvest them only at a lower rate of interest. Because of
the regular scheduled payments of principal and the early unscheduled
prepayments of principal, the mortgage-backed "pass-through" security is less
effective than other types of obligations as a means of "locking-in" attractive
long-term interest rates. As a result, this type of security may have less
potential for capital appreciation during periods of declining interest rates
than other U.S. Government securities of comparable maturities, although many
issues of mortgage-backed "pass-through" securities may have a comparable risk
of decline in market value during periods of rising interest rates. If such a
security has been purchased by the Fund at a premium above its par value, both a
scheduled payment of principal and an unscheduled prepayment of principal, which
would be made at par, will accelerate the realization of a loss equal to that
portion of the premium applicable to the payment or prepayment. If such a
security has been purchased by the Fund at a discount from its par value, both a

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2

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------

scheduled payment of principal and an unscheduled prepayment of principal will
increase current returns and will accelerate the recognition of income, which,
when distributed to Fund shareholders, will be taxable as ordinary income.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The CMO classes in which the Fund may invest include sequential and parallel pay
CMOs, including planned amortization class and target amortization class
securities. CMOs are debt securities issued by the FHLMC and by financial
institutions and other mortgage lenders which are generally fully collateralized
by a pool of mortgages held under an indenture. The key feature of the CMO
structure is the prioritization of the cash flows from a pool of mortgages among
the several classes of CMO holders, thereby creating a series of obligations
with varying rates and maturities appealing to a wide range of investors. CMOs
generally are secured by an assignment to a trustee under the indenture pursuant
to which the bonds are issued of collateral consisting of a pool of mortgages.
Payments with respect to the underlying mortgages generally are made to the
trustee under the indenture. Payments of principal and interest on the
underlying mortgages are not passed through to the holders of the CMOs as such
(that is, the character of payments of principal and interest is not passed
through and therefore payments to holders of CMOs attributable to interest paid
and principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such payments
are dedicated to payment of interest on and repayment of principal of the CMOs.
CMOs are issued in two or more classes or series with varying maturities and
stated rates of interest determined by the issuer. Senior CMO classes will
typically have priority over residual CMO classes as to the receipt of principal
and/or interest payments on the underlying mortgages. Because the interest and
principal payments on the underlying mortgages are not passed through to holders
of CMOs, CMOs of varying maturities may be secured by the same pool of
mortgages, the payments on which are used to pay interest to each class and to
retire successive maturities in sequence. CMOs are designed to be retired as the
underlying mortgages are repaid. In the event of sufficient early prepayments on
such mortgages, the class or series of CMO first to mature generally will be
retired prior to maturity. Therefore, although in most cases the issuer of CMOs
will not supply additional collateral in the event of such prepayments, there
will be sufficient collateral to secure CMOs that remain outstanding. Currently,
the Adviser will consider privately issued CMOs or other mortgage-backed
securities as possible investments for the Fund only when the mortgage
collateral is insured, guaranteed or otherwise backed by the U.S. Government or
one or more of its agencies or instrumentalities (e.g., insured by the Federal
Housing Administration or Farmers Home Administration or guaranteed by the
Administrator of Veterans Affairs or consisting in whole or in part of U.S.
Government securities).

RISKS OF CERTAIN MORTGAGE-BACKED AND INDEXED SECURITIES
Although not mortgage-backed securities, index amortizing notes and other
callable securities are subject to extension risk resulting from the issuer's
failure to exercise its option to call or redeem the notes before their stated
maturity date. The residual classes of CMOs are subject to both prepayment and
extension risk.

Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. The
market values of currency-linked securities may be very volatile and may decline
during periods of unstable currency exchange rates.

SENIOR LOANS

STRUCTURE OF SENIOR LOANS
A Senior Loan is typically originated, negotiated and structured by a U.S. or
foreign commercial bank, insurance company, finance company or other financial
institution (the "Agent") for a group of loan investors ("Loan Investors"). The
Agent typically administers and enforces the Senior Loan on behalf of the other
Loan Investors in the syndicate. In addition, an institution, typically but not
always the Agent, holds any collateral on behalf of the Loan Investors.

Senior Loans primarily include senior floating rate loans to corporations and
secondarily institutionally traded senior floating rate debt obligations issued
by an asset-backed pool, and interests therein. Loan interests primarily take
the form of assignments purchased in the primary or secondary market. Loan
interests may also take the form of participation interests in a Senior Loan.
Such loan interests may be acquired from U.S. or foreign commercial banks,
insurance companies, finance companies or other financial institutions who have
made loans or are Loan Investors or from other investors in loan interests.

The Fund typically purchases "Assignments" from the Agent or other Loan
Investors. The purchaser of an Assignment typically succeeds to all the rights
and obligations under the Loan Agreement of the assigning Loan Investor and
becomes a Loan Investor under the Loan Agreement with the same rights and
obligations as the assigning Loan Investor. Assignments may, however, be

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3

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------

arranged through private negotiations between potential assignees and potential
assignors, and the rights and obligations acquired by the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Loan Investor.

The Fund also may invest in "Participations." Participations by the Fund in a
Loan Investor's portion of a Senior Loan typically will result in the Fund
having a contractual relationship only with such Loan Investor, not with the
Borrower. As a result, the Fund may have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Loan
Investor selling the Participation and only upon receipt by such Loan Investor
of such payments from the Borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance by
the Borrower with the terms of the loan agreement, nor any rights with respect
to any funds acquired by other Loan Investors through set-off against the
Borrower and the Fund may not directly benefit from the collateral supporting
the Senior Loan in which it has purchased the Participation. As a result, the
Fund may assume the credit risk of both the Borrower and the Loan Investor
selling the Participation. In the event of the insolvency of the Loan Investor
selling a Participation, the Fund may be treated as a general creditor of such
Loan Investor. The selling Loan Investors and other persons interpositioned
between such Loan Investors and the Fund with respect to such Participations
will likely conduct their principal business activities in the banking, finance
and financial services industries. Persons engaged in such industries may be
more susceptible to, among other things, fluctuations in interest rates, changes
in the Federal Open Market Committee's monetary policy, governmental regulations
concerning such industries and concerning capital raising activities generally
and fluctuations in the financial markets generally.

The Fund will only acquire Participations if the Loan Investor selling the
Participation, and any other persons interpositioned between the Fund and the
Loan Investor, at the time of investment has outstanding debt or deposit
obligations rated investment grade (BBB or A-3 or higher by Standard & Poor's
Ratings Group ("S&P") or Baa or P-3 or higher by Moody's Investors Service, Inc.
("Moody's") or comparably rated by another nationally recognized rating agency)
or determined by the Adviser to be of comparable quality. Securities rated Baa
by Moody's have speculative characteristics. Long-term debt rated BBB by S&P is
regarded by S&P as having adequate capacity to pay interest and repay principal
and debt rated Baa by Moody's is regarded by Moody's as a medium grade
obligation, i.e., it is neither highly protected nor poorly secured. Commercial
paper rated A-3 by S&P indicates that S&P believes such obligations exhibit
adequate protection parameters but that 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 and issues of commercial paper
rated P-3 by Moody's are considered by Moody's to have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Indebtedness of
companies whose creditworthiness is poor involves substantially greater risks,
and may be highly speculative. Some companies may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Consequently,
when investing in indebtedness of companies with poor credit, the Fund bears a
substantial risk of losing the entire amount invested.

LOAN COLLATERAL
In order to borrow money pursuant to a Senior Loan, a Borrower will frequently,
for the term of the Senior Loan, pledge collateral, including but not limited
to, (i) working capital assets, such as accounts receivable and inventory; (ii)
tangible fixed assets, such as real property, buildings and equipment; (iii)
intangible assets, such as trademarks and patent rights (but excluding
goodwill); and (iv) security interests in shares of stock of subsidiaries or
affiliates. In the case of Senior Loans made to non-public companies, the
company's shareholders or owners may provide collateral in the form of secured
guarantees and/or security interests in assets that they own. In many instances,
a Senior Loan may be secured only by stock in the Borrower or its subsidiaries.
Collateral may consist of assets that may not be readily liquidated, and there
is no assurance that the liquidation of such assets would satisfy fully a
Borrower's obligations under a Senior Loan.

CERTAIN FEES PAID TO THE FUND
In the process of buying, selling and holding Senior Loans, the Fund may receive
and/or pay certain fees. These fees are in addition to interest payments
received and may include facility fees, commitment fees, amendment fees,
commissions and prepayment penalty fees. When the Fund buys a Senior Loan it may
receive a facility fee and when it sells a Senior Loan it may pay a facility
fee. On an ongoing basis, the Fund may receive a commitment fee based on the
undrawn portion of the underlying line of credit portion of a Senior Loan. In
certain circumstances, the Fund may receive a prepayment penalty fee upon the
prepayment of a Senior Loan by a Borrower. Other fees received by the Fund may
include covenant waiver fees and covenant modification fees.

BORROWER COVENANTS
A Borrower must comply with various restrictive covenants contained in a loan
agreement or note purchase agreement between the Borrower and the holders of the
Senior Loan (the "Loan Agreement"). Such covenants, in addition to requiring the
scheduled payment of interest and principal, may include restrictions on
dividend payments and other distributions to stockholders, provisions requiring
the Borrower to maintain specific minimum financial ratios, and limits on total
debt. In addition, the Loan Agreement may contain a covenant requiring the

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4

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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Borrower to prepay the Loan with any free cash flow. Free cash flow is generally
defined as net cash flow after scheduled debt service payments and permitted
capital expenditures, and includes the proceeds from asset dispositions or sales
of securities. A breach of a covenant which is not waived by the Agent, or by
the Loan Investors directly, as the case may be, is normally an event of
acceleration; i.e., the Agent, or the Loan Investors directly, as the case may
be, has the right to call the outstanding Senior Loan. The typical practice of
an Agent or a Loan Investor in relying exclusively or primarily on reports from
the Borrower to monitor the Borrower's compliance with covenants may involve a
risk of fraud by the Borrower. In the case of a Senior Loan in the form of a
Participation, the agreement between the buyer and seller may limit the rights
of the holder to vote on certain changes which may be made to the Loan
Agreement, such as waiving a breach of a covenant. However, the holder of the
Participation will, in almost all cases, have the right to vote on certain
fundamental issues such as changes in principal amount, payment dates and
interest rate.

ADMINISTRATION OF LOANS
In a typical Senior Loan the Agent administers the terms of the Loan Agreement.
In such cases, the Agent is normally responsible for the collection of principal
and interest payments from the Borrower and the apportionment of these payments
to the credit of all institutions which are parties to the Loan Agreement. The
Fund will generally rely upon the Agent or an intermediate participant to
receive and forward to the Fund its portion of the principal and interest
payments on the Senior Loan. Furthermore, unless under the terms of a
Participation Agreement the Fund has direct recourse against the Borrower, the
Fund will rely on the Agent and the other Loan Investors to use appropriate
credit remedies against the Borrower. The Agent is typically responsible for
monitoring compliance with covenants contained in the Loan Agreement based upon
reports prepared by the Borrower. The seller of the Senior Loan usually does,
but is often not obligated to, notify holders of Senior Loans of any failures of
compliance. The Agent may monitor the value of the collateral and, if the value
of the collateral declines, may accelerate the Senior Loan, may give the
Borrower an opportunity to provide additional collateral or may seek other
protection for the benefit of the participants in the Senior Loan. The Agent is
compensated by the Borrower for providing these services under a Loan Agreement,
and such compensation may include special fees paid upon structuring and funding
the Senior Loan and other fees paid on a continuing basis. With respect to
Senior Loans for which the Agent does not perform such administrative and
enforcement functions, the Fund will perform such tasks on its own behalf,
although a collateral bank will typically hold any collateral on behalf of the
Fund and the other Loan Investors pursuant to the applicable Loan Agreement.

A financial institution's appointment as Agent may usually be terminated in the
event that it fails to observe the requisite standard of care or becomes
insolvent, enters Federal Deposit Insurance Corporation ("FDIC") receivership,
or, if not FDIC insured, enters into bankruptcy proceedings. A successor Agent
would generally be appointed to replace the terminated Agent, and assets held by
the Agent under the Loan Agreement should remain available to holders of Senior
Loans. However, if assets held by the Agent for the benefit of the Fund were
determined to be subject to the claims of the Agent's general creditors, the
Fund might incur certain costs and delays in realizing payment on a Senior Loan,
or suffer a loss of principal and/or interest. In situations involving
intermediate participants similar risks may arise.

PREPAYMENTS
Senior Loans will usually require, in addition to scheduled payments of interest
and principal, the prepayment of the Senior Loan from free cash flow, as defined
above. The degree to which Borrowers prepay Senior Loans, whether as a
contractual requirement or at their election, may be affected by general
business conditions, the financial condition of the Borrower and competitive
conditions among Loan Investors, among others. As such, prepayments cannot be
predicted with accuracy. Upon a prepayment, either in part or in full, the
actual outstanding debt on which the Fund derives interest income will be
reduced. However, the Fund may receive both a prepayment penalty fee from the
prepaying Borrower and a facility fee upon the purchase of a new Senior Loan
with the proceeds from the prepayment of the former. Prepayments generally will
not materially affect the Fund's performance because the Fund typically is able
to reinvest prepayments in other Senior Loans that have similar yields and
because receipt of such fees may mitigate any adverse impact on the Fund's
yield.

OTHER INFORMATION REGARDING SENIOR LOANS
From time to time the Adviser and its affiliates may borrow money from various
banks in connection with their business activities. Such banks may also sell
interests in Senior Loans to or acquire them from the Fund or may be
intermediate participants with respect to Senior Loans in which the Fund owns
interests. Such banks may also act as Agents for Senior Loans held by the Fund.

The Fund may acquire interests in Senior Loans which are designed to provide
temporary or "bridge" financing to a Borrower pending the sale of identified
assets or the arrangement of longer-term loans or the issuance and sale of debt
obligations. The Fund may also invest in Senior Loans of Borrowers that have
obtained bridge loans from other parties. A Borrower's use of bridge loans
involves a risk that the Borrower may be unable to locate permanent financing to
replace the bridge loan, which may impair the Borrower's perceived
creditworthiness.

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5

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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The Fund will be subject to the risk that collateral securing a loan will
decline in value or have no value. Such a decline, whether as a result of
bankruptcy proceedings or otherwise, could cause the Senior Loan to be
undercollateralized or unsecured. In most credit agreements there is no formal
requirement to pledge additional collateral. In addition, the Fund may invest in
Senior Loans guaranteed by, or secured by assets of, shareholders or owners,
even if the Senior Loans are not otherwise collateralized by assets of the
Borrower; provided, however, that such guarantees are fully secured. There may
be temporary periods when the principal asset held by a Borrower is the stock of
a related company, which may not legally be pledged to secure a Senior Loan. On
occasions when such stock cannot be pledged, the Senior Loan will be temporarily
unsecured until the stock can be pledged or is exchanged for or replaced by
other assets, which will be pledged as security for the Senior Loan. However,
the Borrower's ability to dispose of such securities, other than in connection
with such pledge or replacement, will be strictly limited for the protection of
the holders of Senior Loans and, indirectly, Senior Loans themselves.

If a Borrower becomes involved in bankruptcy proceedings, a court may invalidate
the Fund's security interest in the loan collateral or subordinate the Fund's
rights under the Senior Loan to the interests of the Borrower's unsecured
creditors or cause interest previously paid to be refunded to the Borrower. If a
court required interest to be refunded, it could negatively affect the Fund's
performance. Such action by a court could be based, for example, on a
"fraudulent conveyance" claim to the effect that the Borrower did not receive
fair consideration for granting the security interest in the loan collateral to
the Fund. For Senior Loans made in connection with a highly leveraged
transaction, consideration for granting a security interest may be deemed
inadequate if the proceeds of the Loan were not received or retained by the
Borrower, but were instead paid to other persons (such as shareholders of the
Borrower) in an amount which left the Borrower insolvent or without sufficient
working capital. There are also other events, such as the failure to perfect a
security interest due to faulty documentation or faulty official filings, which
could lead to the invalidation of the Fund's security interest in loan
collateral. If the Fund's security interest in loan collateral is invalidated or
the Senior Loan is subordinated to other debt of a Borrower in bankruptcy or
other proceedings, the Fund would have substantially lower recovery, and perhaps
no recovery on the full amount of the principal and interest due on the Loan.

The Fund may acquire warrants and other equity securities as part of a unit
combining a Senior Loan and equity securities of a Borrower or its affiliates.
The acquisition of such equity securities will only be incidental to the Fund's
purchase of a Senior Loan. The Fund may also acquire equity securities or debt
securities (including non-dollar denominated debt securities) issued in exchange
for a Senior Loan or issued in connection with the debt restructuring or
reorganization of a Borrower, or if such acquisition, in the judgment of the
Adviser, may enhance the value of a Senior Loan or would otherwise be consistent
with the Fund's investment policies.

DEBTOR-IN-POSSESSION FINANCING
The Fund may invest in debtor-in-possession financings (commonly called "DIP
financings"). DIP financings are arranged when an entity seeks the protections
of the bankruptcy court under chapter 11 of the U.S. Bankruptcy Code. These
financings allow the entity to continue its business operations while
reorganizing under chapter 11. Such financings are senior liens on unencumbered
security (i.e., security not subject to other creditors claims). There is a risk
that the entity will not emerge from chapter 11 and be forced to liquidate its
assets under chapter 7 of the Bankruptcy Code. In such event, the Fund's only
recourse will be against the property securing the DIP financing.

LITIGATION INVOLVING EATON VANCE
On October 15, 2001, an amended consolidated complaint was filed in the United
States District Court for the District of Massachusetts against four Eaton Vance
closed-end interval funds (the "Interval Funds"); their Trustees and certain
officers of the Interval Funds; Eaton Vance, the Interval Funds' administrator;
Boston Management and Research, the Interval Funds' investment adviser; and
Eaton Vance Corp., the parent of Eaton Vance and Boston Management and Research.
The Complaint, framed as a class action, alleges that for the period between May
25, 1998 and March 5, 2001, the Interval Funds' assets were incorrectly valued
and certain matters were not properly disclosed, in violation of the federal
securities laws. The Complaint seeks unspecified damages. The named defendants
believe that the Complaint is without merit and are vigorously contesting the
lawsuit. Eaton Vance believes that the lawsuit is not likely to have a material
adverse affect on its ability to render services to the Fund.

REGULATORY CHANGES
To the extent that legislation or state or federal regulators that regulate
certain financial institutions impose additional requirements or restrictions
with respect to the ability of such institutions to make loans, particularly in
connection with highly leveraged transactions, the availability of Senior Loans
for investment may be adversely affected. Further, such legislation or
regulation could depress the market value of Senior Loans.

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ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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CREDIT QUALITY
Many Senior Loans in which the Fund may invest are of below investment grade
credit quality. Accordingly, these Senior Loans are subject to similar or
identical risks and other characteristics described below in relation to
Non-Investment Grade Bonds.

NON-INVESTMENT GRADE BONDS

Investments in Non-Investment Grade Bonds generally provide greater income and
increased opportunity for capital appreciation than investments in higher
quality securities, but they also typically entail greater price volatility and
principal and income risk, including the possibility of issuer default and
bankruptcy. Non-Investment Grade Bonds are regarded as predominantly speculative
with respect to the issuer's continuing ability to meet principal and interest
payments. Debt securities in the lowest investment grade category also may be
considered to possess some speculative characteristics by certain rating
agencies. In addition, analysis of the creditworthiness of issuers of
Non-Investment Grade Bonds may be more complex than for issuers of higher
quality securities.

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

The secondary market on which Non-Investment Grade Bonds are traded may be less
liquid than the market for investment grade securities. Less liquidity in the
secondary trading market could adversely affect the net asset value of the
Shares. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of Non-Investment
Grade Bonds, especially in a thinly traded market. When secondary markets for
Non-Investment Grade Bonds are less liquid than the market for investment grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is no reliable, objective data available.
During periods of thin trading in these markets, the spread between bid and
asked prices is likely to increase significantly and the Fund may have greater
difficulty selling these securities. The Fund will be more dependent on Eaton
Vance's research and analysis when investing in Non-Investment Grade Bonds.
Eaton Vance seeks to minimize the risks of investing in all securities through
in-depth credit analysis and attention to current developments in interest rate
and market conditions.

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

In the event that a rating agency or Eaton Vance downgrades its assessment of
the credit characteristics of a particular issue, the Fund is not required to
dispose of such security. In determining whether to retain or sell a downgraded
security, Eaton Vance may consider such factors as Eaton Vance's assessment of
the credit quality of the issuer of such security, the price at which such
security could be sold and the rating, if any, assigned to such security by
other rating agencies. However, analysis of the creditworthiness of issuers of
Non-Investment Grade Bonds may be more complex than for issuers of high quality
debt securities.

OTHER INVESTMENTS

FIXED INCOME SECURITIES
Fixed income securities include preferred, preference and convertible
securities, equipment lease certificates, equipment trust certificates and
conditional sales contracts. Preference stocks are stocks that have many
characteristics of preferred stocks, but are typically junior to an existing
class of preferred stocks. Equipment lease certificates are debt obligations
secured by leases on equipment (such as railroad cars, airplanes or office

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7

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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equipment), with the issuer of the certificate being the owner and lessor of the
equipment. Equipment trust certificates are debt obligations secured by an
interest in property (such as railroad cars or airplanes), the title of which is
held by a trustee while the property is being used by the borrower. Conditional
sales contracts are agreements under which the seller of property continues to
hold title to the property until the purchase price is fully paid or other
conditions are met by the buyer.

Fixed-rate bonds may have a demand feature allowing the holder to redeem the
bonds at specified times. These bonds are more defensive than conventional
long-term bonds (protecting to some degree against a rise in interest rates)
while providing greater opportunity than comparable intermediate term bonds,
since they may be retained if interest rates decline. Acquiring these kinds of
bonds provides the contractual right to require the issuer of the bonds to
purchase the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement or instrument. Since this
right is assignable only with the bond, it will not be assigned any separate
value.

Certain securities may permit the issuer at its option to "call," or redeem, the
securities. If an issuer were to redeem securities during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.

The rating assigned to a security by a rating agency does not reflect assessment
of the volatility of the security's market value or of the liquidity of an
investment in the securities. Credit ratings are based largely on the issuer's
historical financial condition and the rating agency's investment analysis at
the time of rating, and the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition. Credit
quality in the high yield, high risk bond market can change from time to time,
and recently issued credit ratings may not fully reflect the actual risks posed
by a particular high yield security. In addition to lower rated securities, the
Fund also may invest in higher rated securities. For a description of corporate
bond ratings, see Appendix A.

REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements (the purchase of a security
coupled with an agreement to resell at a higher price) with respect to its
permitted investments. In the event of the bankruptcy of the other party to a
repurchase agreement, the Fund might experience delays in recovering its cash.
To the extent that, in the meantime, the value of the securities the Fund
purchased may have decreased, the Fund could experience a loss. Repurchase
agreements which mature in more than seven days will be treated as illiquid. The
Fund's repurchase agreements will provide that the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest earned on the agreement, and
will be marked to market daily.

ZERO COUPONS BONDS
Zero coupon bonds are debt obligations which do not require the periodic payment
of interest and are issued at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. The Fund is required to
accrue income from zero coupon bonds on a current basis, even though it does not
receive that income currently in cash and the Fund is required to distribute its
income for each taxable year. Thus, the Fund may have to sell other investments
to obtain cash needed to make income distributions.

INDEXED SECURITIES
The Fund may invest in securities that fluctuate in value with an index. Such
securities generally will either be issued by the U.S. Government or one of its
agencies or instrumentalities or, if privately issued, collateralized by
mortgages that are insured, guaranteed or otherwise backed by the U.S.
Government, its agencies or instrumentalities. The interest rate or, in some
cases, the principal payable at the maturity of an indexed security may change
positively or inversely in relation to one or more interest rates, financial
indices, securities prices or other financial indicators ("reference prices").
An indexed security may be leveraged to the extent that the magnitude of any
change in the interest rate or principal payable on an indexed security is a
multiple of the change in the reference price. Thus, indexed securities may
decline in value due to adverse market changes in reference prices. Because
indexed securities derive their value from another instrument, security or
index, they are considered derivative debt securities, and are subject to
different combinations of prepayment, extension, interest rate and/or other
market risks.

SHORT SALES
The Fund may utilize short sales for hedging purposes. A short sale is affected
by selling a security which the Fund does not own, or, if the Fund does own the
security, is not to be delivered upon consummation of the sale. The Fund may
engage in short sales "against the box" (i.e., short sales of securities the
Fund already owns) for hedging purposes. If the price of the security in the
short sale decreases, the Fund will realize a profit to the extent that the
short sale price for the security exceeds the market price. If the price of the

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8

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
--------------------------------------------------------------------------------

security increases, the Fund will realize a loss to the extent that the market
price exceeds the short sale price. Selling securities short runs the risk of
losing an amount greater than the initial investment therein.

Purchasing securities to close out the short position can itself cause the price
of the securities to rise further, thereby exacerbating the loss. Short-selling
exposes the Fund to unlimited risk with respect to that security due to the lack
of an upper limit on the price to which an instrument can rise. Although the
Fund reserves the right to utilize short sales, the Adviser is under no
obligation to utilize shorts at all.

FOREIGN INVESTMENTS
The Fund may invest up to [__]% of its total assets in securities of non-U.S.
issuers. Because foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a domestic company.
Volume and liquidity in most foreign debt markets is less than in the United
States and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. There is generally less
government supervision and regulation of securities exchanges, broker-dealers
and listed companies than in the United States. Mail service between the United
States and foreign countries may be slower or less reliable than within the
United States, thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Payment for
securities before delivery may be required. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Foreign securities markets, while growing in volume and sophistication, are
generally not as developed as those in the United States, and securities of some
foreign issuers (particularly those located in developing countries) may be less
liquid and more volatile than securities of comparable U.S. companies.

American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs) may be purchased. ADRs, EDRs and GDRs are
certificates evidencing ownership of shares of a foreign issuer and are
alternatives to directly purchasing the underlying foreign securities in their
national markets and currencies. However, they continue to be subject to many of
the risks associated with investing directly in foreign securities. These risks
include foreign exchange risk as well as the political and economic risks of the
underlying issuer's country. ADRs, EDRs and GDRs may be sponsored or
unsponsored. Unsponsored receipts are established without the participation of
the issuer. Unsponsored receipts may involve higher expenses, they may not
pass-through voting or other shareholder rights, and they may be less liquid.

DERIVATIVE INSTRUMENTS

The following describes certain derivative instruments and products in which the
Fund may invest and risks associated therewith. The Fund might not employ any of
the strategies described below, and no assurance can be given that any strategy
used will succeed. Also, suitable derivative and/or hedging transactions may not
be available in all circumstances and there can be no assurance that the Fund
will be able to identify or employ a desirable derivative and/or hedging
transaction at any time or from time to time or that any such transactions will
be successful.

OPTIONS
Call options may be purchased to provide exposure to increases in the market
(e.g., with respect to temporary cash positions) or to hedge against an increase
in the price of securities or other investments that the Fund intends to
purchase or has sold short. Similarly, put options may be purchased for
speculative purposes or to hedge against a decrease in the market generally or
in the price of securities or other investments held by the Fund. Buying options
may reduce the Fund's returns, but by no more than the amount of the premiums
paid for the options.

The Fund may write covered call options (i.e., where the Fund owns the security
or other investment that is subject to the call) to enhance returns when the
Adviser perceives that the option premium offered is in excess of the premium
that the Adviser would expect to be offered under existing market conditions, or
if the exercise price of the option is in excess of the price that the Adviser
expects the security or other underlying investment to reach during the life of
the option. Writing covered call options may limit the Fund's gain on portfolio
investments if the option is exercised because the Fund will have to sell the
underlying investments below the current market price. Purchasing and writing
put and call options are highly specialized activities and entail greater than
ordinary market risks.

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9

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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SHORT-TERM TRADING
Securities may be sold in anticipation of market decline (a rise in interest
rates) or purchased in anticipation of a market rise (a decline in interest
rates) and later sold. In addition, a security may be sold and another purchased
at approximately the same time to take advantage of what the Adviser believes to
be a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for or supply of various types of
fixed income securities or changes in the investment objectives of investors.

TEMPORARY INVESTMENTS
The Fund may invest temporarily in cash or cash equivalents. Cash equivalents
are highly liquid, short-term securities such as commercial paper, certificates
of deposit, short-term notes and short-term U.S. Government obligations.

INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as fundamental
policies and as such cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, which as used in this SAI
means the lesser of (a) 67% of the shares of the Fund present or represented by
proxy at a meeting if the holders of more than 50% of the outstanding shares are
present or represented at the meeting or (b) more than 50% of outstanding shares
of the Fund. As a matter of fundamental policy the Fund may not:

(1) Borrow money, except as permitted by the Investment Company Act of 1940
(the "1940 Act"). The 1940 Act currently requires that any indebtedness
incurred by a closed-end investment company have an asset coverage of at
least 300%;

(2) Issue senior securities, as defined in the 1940 Act, other than (i)
preferred shares which immediately after issuance will have asset coverage
of at least 200%, (ii) indebtedness which immediately after issuance will
have asset coverage of at least 300%, or (iii) the borrowings permitted by
investment restriction (1) above. The 1940 Act currently defines "senior
security" as any bond, debenture, note or similar obligation or instrument
constituting a security and evidencing indebtedness, and any stock of a
class having priority over any other class as to distribution of assets or
payment of dividends. Debt and equity securities issued by a closed-end
investment company meeting the foregoing asset coverage provisions are
excluded from the general 1940 Act prohibition on the issuance of senior
securities;

(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The purchase of investment assets with the proceeds of a
permitted borrowing or securities offering will not be deemed to be the
purchase of securities on margin;

(4) Underwrite securities issued by other persons, except insofar as it may
technically be deemed to be an underwriter under the Securities Act of 1933
in selling or disposing of a portfolio investment;

(5) Make loans to other persons, except by (a) the acquisition of loan
interests, debt securities and other obligations in which the Fund is
authorized to invest in accordance with its investment objectives and
policies, (b) entering into repurchase agreements, and (c) lending its
portfolio securities;

(6) Purchase or sell real estate, although it may purchase and sell securities
which are secured by interests in real estate and securities of issuers
which invest or deal in real estate. The Fund reserves the freedom of
action to hold and to sell real estate acquired as a result of the
ownership of securities;

(7) Purchase or sell physical commodities or contracts for the purchase or sale
of physical commodities. Physical commodities do not include futures
contracts with respect to securities, securities indices or other financial
instruments;

(8) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of a single issuer or purchase more than 10% of
the outstanding voting securities of a single issuer, except obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities and except securities of other investment companies; and

(9) Invest 25% or more of its total assets in any single industry (other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities.

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10

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
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The Fund 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 Fund
securities. The 1940 Act currently requires that the Fund have 300% asset
coverage with respect to all borrowings other than temporary borrowings.

For purposes of construing restriction (8), securities of the U.S. Government,
its agencies, or instrumentalities are not considered to represent industries.
Municipal obligations backed by the credit of a governmental entity are also not
considered to represent industries.

The Fund has adopted the following nonfundamental investment policy which may be
changed by the Board without approval of the Fund's shareholders. As a matter of
nonfundamental policy, the Fund may not make short sales of securities or
maintain a short position, unless at all times when a short position is open it
either owns an equal amount of such securities or owns securities convertible
into or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities sold
short.

Upon the Board's approval, the Fund may invest more than 10% of its total assets
in one or more other management investment companies (or may invest in
affiliated investment companies) to the extent permitted by the 1940 Act and
rules thereunder.

Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's acquisition of such security or
asset. Accordingly, any later increase or decrease resulting from a change in
values, assets or other circumstances or any subsequent rating change made by a
rating service (or as determined by the Adviser if the security is not rated by
a rating agency) will not compel the Fund to dispose of such security or other
asset. Notwithstanding the foregoing, the Fund must always be in compliance with
the borrowing policies set forth above.

As described in the Prospectus, under normal market circumstances, the Fund
expects to maintain a weighted average portfolio credit quality of investment
grade. In determining the average credit quality of the Fund, Eaton Vance
intends to use a methodology, based structurally on the S&P or Moody's rating
system (or both) described in Appendix A to this SAI, which assumes a linear
relationship in the credit quality ratings for ratings between C and AAA (Aaa).
Securities with a rating below C will not be assigned any value in the
calculation of average credit quality. For the purpose of determining the Fund's
average credit quality, when a security is rated by more than one nationally
recognized statistical rating agency, the Adviser generally will use the highest
rating available. Within this general guideline, the Fund may invest in
individual securities of any credit quality. The Fund's holdings of
Non-Investment Grade Bonds and Senior Loans with lower credit ratings generally
will be offset by MBS with very high credit ratings. A "barbell" portfolio of
lower rated and higher rated securities may have risk characteristics that
differ from fixed income securities with credit ratings equivalent to the
portfolio average.

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

TRUSTEES AND OFFICERS

[The Trustees of the Fund are responsible for the overall management and
supervision of the affairs of the Fund. The Trustees and officers of the Fund
are listed below. Except as indicated, each individual has held the office shown
or other offices in the same company for the last five years. The "noninterested
Trustees" consist of those Trustees who are not "interested persons" of the
Fund, as that term is defined under the 1940 Act. The business address of each
Trustee and officer is The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109. As used in this SAI, "EVC" refers to Eaton Vance Corp.,
"EV" refers to Eaton Vance, Inc., "BMR" refers to Boston Management and
Research, and "EVD" refers to Eaton Vance Distributors Inc. EVC and EV are the
corporate parent and trustee, respectively, of Eaton Vance and BMR.]
[Independent Trustee information required in tabular format to be added by
amendment.]

NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX OTHER
NAME AND POSITION(S) AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH WITH THE FUND OF SERVICE DURING PAST FIVE YEARS TRUSTEE(1) HELD
-------------------------- ---------------- ---------------- -------------------------- ---------------- ----------------

INTERESTED TRUSTEES
Thomas E. Faust Jr. Trustee and Since 4/15/04 Executive Vice President
5/31/58 Vice President of Eaton Vance, BMR, EVC
and EV. Chief Investment
Officer of Eaton Vance and
BMR and .Director of EVC.
Chief Executive Officer of
Belair Capital Fund LLC,
Belcrest Capital Fund LLC,
Belmar Capital Fund LLC,
Belport Capital Fund LLC
and Belrose Capital Fund
LLC (private investment
companies sponsored by
Eaton Vance). Officer of
56 registered investment
companies managed by Eaton
Vance or BMR.
------------------------------------------------------------------------------------------------------------------------------------
11

TRUSTEES AND OFFICERS
------------------------------------------------------------------------------------------------------------------------------------

James B. Hawkes Trustee and Since 4/15/04 Chairman, President and 197
11/9/41 Vice President Chief Executive Officer of
BMR, Eaton Vance, EVC and
EV; Director of EV and
EVC; Vice President and
Director of EVD. Trustee
and/or officer of 197
registered investment
companies in the Eaton
Vance Fund Complex. Mr.
Hawkes is an interested
person because of his
positions with BMR, Eaton
Vance, EVC and EV, which
are affiliates of the
Fund.

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

(1) Includes both master and feeder funds in master-feeder structure.

PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES

TERM OF OFFICE
POSITION(S) AND LENGTH OF
NAME AND DATE OF BIRTH WITH THE FUND SERVICE PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
--------------------------------------------------------------------------------------------------------------------------------

Mark S. Venezia President and Chief Since 4/15/04 Vice President Eaton Vance and BMR.
5/23/49 Executive Officer

James L. O'Connor Treasurer and Principal Since 4/15/04 Vice President of BMR, Eaton Vance and EVD.
4/1/45 Financial and Accounting Officer of 119 registered investment companies
Officer managed by Eaton Vance or BMR.

Alan R. Dynner Secretary Since 4/15/04 Vice President, Secretary and Chief Legal Officer
10/10/40 of BMR, Eaton Vance, EVD, EV and EVC. Officer of
197 registered investment companies managed by
Eaton Vance or BMR.

Christine Johnson Vice President Since 4/15/04 Vice President Eaton Vance and BMR. Officer of
11/9/72 2egistered investment companies managed by
Eaton Vance or BMR.

Scott H. Page Vice President Since 4/15/04 Vice President of Eaton Vance and BMR. Officer
11/30/59 of 15 registered investment companies managed
by Eaton Vance or BMR

Susan Schiff Vice President Since 4/15/04 Vice President of Eaton Vance and BMR. Officer
3/13/61 of 27 registered investment companies managed
by Eaton Vance or BMR.

Payson F. Swaffield Vice President Since 4/15/04 Vice President of Eaton Vance and BMR. Officer
8/13/56 of 15 registered investment companies managed
by Eaton Vance or BMR.

Michael W. Weilheimer Vice President Since 4/15/04 Vice President of Eaton Vance and BMR. Officer
2/11/61 of 12 registered investment companies managed
by Eaton Vance or BMR.

[The Board of Trustees of the Fund has several standing Committees, including the Governance Committee, the Audit Committee, and
the Special Committee. Each such Committee is comprised of only noninterested Trustees.

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12

TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------

The Governance Committee of the Board of Trustees of the Fund is comprised of
the noninterested Trustees. [_______] currently serves as chairperson of the
Governance Committee. The purpose of the Governance Committee is to consider,
evaluate and make recommendations to the Board of Trustees with respect to the
structure, membership and operation of the Board of Trustees and the Committees
thereof, including the nomination and selection of noninterested Trustees and
the compensation of noninterested Trustees.

The Governance Committee will, when a vacancy exists or is anticipated, consider
any nominee for noninterested Trustee recommended by a shareholder if such
recommendation is submitted to the Governance Committee, contains sufficient
background information concerning the candidate and is received in a
sufficiently timely manner.

[____________________] are members of the Audit Committee of the Board of
Trustees of the Fund. The Board of Trustees has designated [ _______________],
each a noninterested Trustee, as audit committee financial experts. The Audit
Committee's functions include (i) overseeing the Fund's accounting and financial
reporting policies and practices, its internal audit controls and procedures,
the internal controls of certain service providers, as appropriate, and the
quality and integrity of the Fund's financial statements and independent audit
thereof; (ii) approving the selection, evaluation and, when appropriate,
replacement of the Fund's independent auditors; and (iii) evaluating the
qualification, independence, and performance of the Fund's independent
auditors.]

[________________________] are currently members of the Special Committee of the
Board of Trustees of the Fund. The purposes of the Special Committee are to
consider, evaluate and make recommendations to the Board of Trustees concerning
the following matters: (i) contractual arrangements with each service provider
to the Fund, including advisory, subadvisory, transfer agency, custodial and
fund accounting, distribution services and administrative services; (ii) any and
all other matters in which any of the Fund service providers (including Eaton
Vance or any affiliated entity thereof) has an actual or potential conflict of
interest with the interests of the Fund, or investors therein; and (iii) any
other matter appropriate for review by the noninterested Trustees, unless the
matter is within the responsibilities of the Audit Committee or the Governance
Committee of the Fund. In addition, the Special Committee has established a
Contract Review Subcommittee whose duties and powers include evaluating proposed
new or amended or existing contracts for services provided to the Fund and
making recommendations to the Board of Trustees with respect to all matters
involving an actual or potential conflict of interest between the interests of
Eaton Vance or any of its affiliated companies, on the one hand, and the Fund on
the other hand. The members of the Contract Review Subcommittee are
[____________]].

As of the date of this SAI, each of the Committees has held [___] meetings.

When considering approval of the Advisory Agreement between the Fund and the
Adviser, the Contract Review Sub-Committee of the Special Committee considered,
among other things, the following:

>> A report comparing the fees and expenses of the Fund and certain
profitability analyses prepared by Eaton Vance;

>> Information on the relevant peer group(s) of funds;

>> The economic outlook and the general investment outlook in the relevant
investment markets;

>> Eaton Vance's results and financial condition and the overall organization
of the Adviser;

>> Arrangements regarding the distribution of Fund shares;

>> The procedures used to determine the fair value of the Fund's assets;

>> The allocation of brokerage, including allocations to soft dollar brokerage
and allocations to firms that sell Eaton Vance fund shares;

>> Eaton Vance's management of the relationship with the custodian,
subcustodians and fund accountants;

>> The resources devoted to Eaton Vance's compliance efforts undertaken on
behalf of the funds it manages and the record of compliance with the
investment policies and restrictions and with policies on personal
securities transactions;

>> The quality nature, cost and character of the administrative and other
non-investment management services provided by Eaton Vance and its
affiliates;

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13

TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------

>> Investment management staffing;

>> Operating expenses (including transfer agency expenses) to be paid to third
parties; and

>> Information to be provided to investors, including the Fund's shareholders.
]

[In evaluating the Advisory Agreement between the Fund and Eaton Vance, the
Contract Review Subcommittee of the Special Committee reviewed material
furnished by Eaton Vance at the initial Board meeting held on __________,
including the above referenced considerations and information relating to the
education, experience and number of investment professionals and other personnel
who would provide services under the Advisory Agreement. The Contract Review
Subcommittee also took into account the time and attention to be devoted by
senior management to the Fund and the other funds in the complex. The Contract
Review Subcommittee evaluated the level of skill required to manage the Fund and
concluded that the human resources available at Eaton Vance were appropriate to
fulfill effectively the duties of the Adviser on behalf of the Fund. The
Contract Review Subcommittee also considered the business reputation of the
Adviser, its financial resources and professional liability insurance coverage
and concluded that Eaton Vance would be able to meet any reasonably foreseeable
obligations under the Advisory Agreement.

The Contract Review Subcommittee of the Special Committee received information
concerning the investment philosophy and investment process to be applied by
Eaton Vance in managing the Fund. In this regard, the Contract Review
Subcommittee considered Eaton Vance's in-house research capabilities as well as
other resources available to Eaton Vance personnel, including research services
that may be available to Eaton Vance as a result of securities transactions
effected for the Fund and other investment advisory clients. The Contract Review
Subcommittee concluded that Eaton Vance's investment process, research
capabilities and philosophy were well suited to the Fund, given the Fund's
investment objective and policies.

In addition to the factors mentioned above, the Contract Review Subcommittee of
the Special Committee also reviewed the level of the Adviser's profits in
respect of the management of the Eaton Vance funds, including the Fund. The
Contract Review Subcommittee considered the profits realized by Eaton Vance and
its affiliates in connection with the operation of the Fund. The Contract Review
Subcommittee also considered profit margins of Eaton Vance in comparison with
available industry data.

The Contract Review Subcommittee of the Special Committee did not consider any
single factor as controlling in determining whether or not to approve the
Advisory Agreement. Nor are the items described herein all encompassing of the
matters considered by the Contract Review Subcommittee. In assessing the
information provided by Eaton Vance and its affiliates, the Contract Review
Subcommittee also took into consideration the benefits to shareholders of
investing in a fund that is part of a large family of funds which provides a
large variety of shareholder services. Based on its consideration of all factors
that it deemed material and assisted by the advice of its independent counsel,
the Contract Review Subcommittee of the Special Committee concluded that the
approval of the Advisory Agreement, including the fee structure (described
herein) is in the interests of shareholders.]

SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee in the Fund and all Eaton Vance Funds overseen by the
Trustee as of December 31, 2003.

AGGREGATE DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF SECURITIES OWNED IN ALL REGISTERED
EQUITY SECURITIES FUNDS OVERSEEN BY TRUSTEE IN THE
NAME OF TRUSTEE OWNED IN THE FUND EATON VANCE FUND COMPLEX
-----------------------------------------------------------------------------------------------------------

INTERESTED TRUSTEES
....................................
....................................
NONINTERESTED TRUSTEES
....................................

As of [____________], no noninterested Trustee or any of their immediate family
members owned beneficially or of record any class of securities of EVC, EVD or
any person controlling, controlled by or under common control with EVC or EVD.

During the calendar years ended December 31, 2002 and December 31, 2003, no
noninterested Trustee (or their immediate family members) had:

--------------------------------------------------------------------------------
14

TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------

1. Any direct or indirect interest in Eaton Vance, EVC, EVD or any person
controlling, controlled by or under common control with EVC or EVD;

2. Any direct or indirect material interest in any transaction or series of
similar transactions with (i) the Trust or any Fund; (ii) another fund
managed by EVC, distributed by EVD or a person controlling, controlled by
or under common control with EVC or EVD; (iii) EVC or EVD; (iv) a person
controlling, controlled by or under common control with EVC or EVD; or (v)
an officer of any of the above; or

3. Any direct or indirect relationship with (i) the Trust or any Fund; (ii)
another fund managed by EVC, distributed by EVD or a person controlling,
controlled by or under common control with EVC or EVD; (iii) EVC or EVD;
(iv) a person controlling, controlled by or under common control with EVC
or EVD; or (v) an officer of any of the above.

During the calendar years ended December 31, 2002 and December 31, 2003, no
officer of EVC, EVD or any person controlling, controlled by or under common
control with EVC or EVD served on the Board of Directors of a company where a
noninterested Trustee of the Fund or any of their immediate family members
served as an officer.

Trustees of the Fund who are not affiliated with the Adviser may elect to defer
receipt of all or a percentage of their annual fees in accordance with the terms
of a Trustees Deferred Compensation Plan (the "Trustees' Plan"). Under the
Trustees' Plan, an eligible Trustee may elect to have his deferred fees invested
by the Fund in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Trustees' Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Trustees' Plan will have a negligible effect on the
Fund's assets, liabilities, and net income per share, and will not obligate the
Fund to retain the services of any Trustee or obligate the Fund to pay any
particular level of compensation to the Trustee. The Fund does not have a
retirement plan for its Trustees.

The fees and expenses of the Trustees of the Fund are paid by the Fund. (A
Trustee of the Fund who is a member of the Eaton Vance organization receives no
compensation from the Fund.) During the Fund's fiscal year ending May 31, 2005
it is anticipated that the Trustees of the Fund will earn the following
compensation in their capacities as Trustees. For the year ended December 31,
2003, the Trustees earned the compensation set forth below in their capacities
as Trustees from the funds in the Eaton Vance fund complex(1).

[----] [----] [-----] [----] [----] [----]
SOURCE OF COMPENSATION
--------------------------------------------------------------------------------------

Fund*................. $ $ $ $ $ $
Fund Complex.......... $ $ $ $ $ $

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

* Estimated

(1) AS OF ______________, 2004, THE EATON VANCE FUND COMPLEX CONSISTED OF [197]
REGISTERED INVESTMENT COMPANIES OR SERIES THEREOF.

PROXY VOTING POLICY
The Board of Trustees of the Fund has adopted a proxy voting policy and
procedure (the "Fund Policy"), pursuant to which the Trustees have delegated
proxy voting responsibility to the Adviser and adopted the Adviser's proxy
voting policies and procedures (the "Policies") which are described below. The
Trustees will review the Fund's proxy voting records from time to time and will
annually consider approving the Policies for the upcoming year. In the event
that a conflict of interest arises between the Fund's Shareholders and the
Adviser or any of its affiliates or any affiliate of the Fund, the Adviser will
generally refrain from voting the proxies related to the companies giving rise
to such conflict until it consults with the Board of the Fund except as
contemplated under the Fund Policy. The Board's Special Committee will instruct
the Adviser on the appropriate course of action.

The Policies are designed to promote accountability of a company's management
to its shareholders and to align the interests of management with those
shareholders. The Adviser will generally support company management on proposals
relating to environmental and social policy issues, on matters regarding the
state of organization of the company and routine matters related to corporate
administration which are not expected to have a significant economic impact on
the company or its shareholders. On all other matters, the Adviser will review
each matter on a case-by-case basis and reserves the right to deviate from the
Policies' guidelines when it believes the situation warrants such a deviation.
The Policies include voting guidelines for matters relating to, among other
things, the elections of directors, approval of independent auditors, executive
compensation, corporate structure and anti-takeover defenses. The Adviser may
abstain from voting from time to time where it determines that the costs
associated with voting a proxy outweigh the benefits derived from exercising the
right to vote.

--------------------------------------------------------------------------------
15

INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------

In addition, the Adviser will monitor situations that may result in a conflict
of interest between the Fund's shareholders and the Adviser or any of its
affiliate or any affiliate of the Fund by maintaining a list of significant
existing and prospective corporate clients. The Adviser's personnel responsible
for reviewing and voting proxies on behalf of the Fund will report any proxy
received or expected to be received from a company included on that list to
members of senior management of the investment adviser identified in the
Policies. Such members of senior management will determine if a conflict exists.
If a conflict does exist, the proxy will either be voted strictly in accordance
with the Policies or the Adviser will seek instruction on how to vote from the
Special Committee. Effective August 31, 2004, information on how the Fund voted
proxies relating to portfolio securities during the 12 month period ended June
30, 2004 will be available (1) without charge, upon request, by calling
1-800-262-1122, and (2) on the Securities and Exchange Commission's website at
http://www.sec.gov.

INVESTMENT ADVISORY AND OTHER SERVICES

Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and of investment companies
since 1931. They maintain a large staff of experienced fixed-income, senior loan
and equity investment professionals to service the needs of their clients. The
fixed-income group focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The senior loan group focuses on senior floating
rate loans, unsecured loans and other floating rate debt securities such as
notes, bonds and asset backed securities. The equity group covers stocks ranging
from blue chip to emerging growth companies. Eaton Vance and its affiliates act
as adviser to a family of mutual funds, and individual and various institutional
accounts, including corporations, hospitals, retirement plans, universities,
foundations and trusts.

The Fund will be responsible for all of its costs and expenses not expressly
stated to be payable by Eaton Vance under the Advisory Agreement or
Administration Agreement. Such costs and expenses to be borne by the Fund
include, without limitation: custody and transfer agency fees and expenses,
including those incurred for determining net asset value and keeping accounting
books and records; expenses of pricing and valuation services; the cost of share
certificates; membership dues in investment company organizations; expenses of
acquiring, holding and disposing of securities and other investments; fees and
expenses of registering under the securities laws, stock exchange listing fees
and governmental fees; rating agency fees and preferred share remarketing
expenses; expenses of reports to shareholders, proxy statements and other
expenses of shareholders' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with Eaton Vance; expenses
of conducting repurchase offers for the purpose of repurchasing Fund shares; and
investment advisory and administration fees. The Fund will also bear expenses
incurred in connection with any litigation in which the Fund is a party and any
legal obligation to indemnify its officers and Trustees with respect thereto, to
the extent not covered by insurance.

The Advisory Agreement with the Adviser continues in effect to [_____________]
and from year to year so long as such continuance is approved at least annually
(i) by the vote of a majority of the noninterested Trustees of the Fund or of
the Adviser cast in person at a meeting specifically called for the purpose of
voting on such approval and (ii) by the Board of Trustees of the Fund or by vote
of a majority of the outstanding interests of the Fund. The Fund's
Administration Agreement continues in effect from year to year so long as such
continuance is approved at least annually by the vote of a majority of the
Fund's Trustees. Each agreement may be terminated at any time without penalty on
sixty (60) days' written notice by the Trustees of the Fund or Eaton Vance, as
applicable, or by vote of the majority of the outstanding shares of the Fund.
Each agreement will terminate automatically in the event of its assignment. Each
agreement provides that, in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties to the Fund under
such agreements on the part of Eaton Vance, Eaton Vance shall not be liable to
the Fund for any loss incurred, to the extent not covered by insurance.

Eaton Vance is a business trust organized under Massachusetts law. EV serves as
trustee of Eaton Vance. Eaton Vance and EV are subsidiaries of EVC, a Maryland
corporation and publicly-held holding company. EVC through its subsidiaries and
affiliates engages primarily in investment management, administration and
marketing activities. The Directors of EVC are James B. Hawkes, John G. L.
Cabot, Thomas E. Faust Jr., Leo I. Higdon, Jr., John M. Nelson, Vincent M.
O'Reilly and Ralph Z. Sorenson. All shares of the outstanding Voting Common
Stock of EVC are deposited in a voting trust, the voting trustees of which are
Messrs. James B. Hawkes, Jeffrey P. Beale, Alan R. Dynner, Thomas E. Faust, Jr.,
Thomas J. Fetter, Scott H. Page, Duncan W. Richardson, William M. Steul, Payson
F. Swaffield, Michael W. Weilheimer and Wharton P. Whitaker (all of whom are
officers of Eaton Vance). The voting trustees have unrestricted voting rights
for the election of Directors of EVC. All of the outstanding voting trust
receipts issued under said voting trust are owned by certain of the officers of
BMR and Eaton Vance who are also officers, or officers and Directors of EVC and

--------------------------------------------------------------------------------
16

INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------

EV. As indicated under "Trustees and Officers", all of the officers of the Fund
(as well as Mr. Hawkes who is also a Trustee) hold positions in the Eaton Vance
organization.

EVC and its affiliates and their officers and employees from time to time have
transactions with various banks, including the custodian of the Fund, IBT. It is
Eaton Vance's opinion that the terms and conditions of such transactions were
not and will not be influenced by existing or potential custodial or other
relationships between the Fund and such banks.

CODE OF ETHICS
The Adviser and the Fund have adopted a Code of Ethics governing personal
securities transactions. Under the Code, Eaton Vance employees may purchase and
sell securities (including securities held or eligible for purchase by the Fund)
subject to certain pre-clearance and reporting requirements and other
procedures.

The Code can be reviewed and copied at the Securities and Exchange Commission's
public reference room in Washington, DC (call 1-202-942-8090 for information on
the operation of the public reference room); on the EDGAR Database on the SEC's
Internet site (http:/www.sec.gov); or, upon payment of copying fees, by writing
the SEC's public reference section, Washington, DC 20549-0102, or by electronic
mail at publicinfo@sec.gov.

INVESTMENT ADVISORY SERVICES
Under the general supervision of the Fund's Board of Trustees, Eaton Vance will
carry out the investment and reinvestment of the assets of the Fund, will
furnish continuously an investment program with respect to the Fund, will
determine which securities should be purchased, sold or exchanged, and will
implement such determinations. Eaton Vance will furnish to the Fund investment
advice and provide related office facilities and personnel for servicing the
investments of the Fund. Eaton Vance will compensate all Trustees and officers
of the Fund who are members of the Eaton Vance organization and who render
investment services to the Fund, and will also compensate all other Eaton Vance
personnel who provide research and investment services to the Fund.

ADMINISTRATIVE SERVICES
Under the Administration Agreement, Eaton Vance is responsible for managing the
business affairs of the Fund, subject to the supervision of the Fund's Board of
Trustees. Eaton Vance will furnish to the Fund all office facilities, equipment
and personnel for administering the affairs of the Fund. Eaton Vance will
compensate all Trustees and officers of the Fund who are members of the Eaton
Vance organization and who render executive and administrative services to the
Fund, and will also compensate all other Eaton Vance personnel who perform
management and administrative services for the Fund. Eaton Vance's
administrative services include recordkeeping, preparation and filing of
documents required to comply with federal and state securities laws, supervising
the activities of the Fund's custodian and transfer agent, providing assistance
in connection with the Trustees and shareholders' meetings, providing services
in connection with quarterly repurchase offers and other administrative services
necessary to conduct the Fund's business.

DETERMINATION OF NET ASSET VALUE

The net asset value per Share of the Fund is determined no less frequently than
weekly, generally on the last day of the week that the New York Stock Exchange
(the "Exchange") is open for trading, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
Share is determined by IBT, in the manner authorized by the Trustees of the
Fund. Net asset value is computed by dividing the value of the Fund's total
assets, less its liabilities by the number of shares outstanding.

The Trustees of the Fund have established the following procedures for fair
valuation of the Fund's assets under normal market conditions. Marketable
securities listed on foreign or U.S. securities exchanges generally are valued
at closing sale prices or, if there were no sales, at the mean between the
closing bid and asked prices therefor on the exchange where such securities are
principally traded (such prices may not be used, however, where an active
over-the-counter market in an exchange listed security better reflects current
market value). Marketable securities listed in the NASDAQ National Market System
are valued at the NASDAQ official closing price. Unlisted or listed securities
for which closing sale prices are not available are valued at the mean between
the latest bid and asked prices. An option is valued at the last sale price as
quoted on the principal exchange or board of trade on which such option or
contract is traded, or in the absence of a sale, at the mean between the last
bid and asked prices.

The Adviser and the Valuation Committee may implement new pricing methodologies
or expand mark-to-market valuation of debt securities whose market prices are
not readily available in the future, which may result in a change in the Fund's
net asset value per share. The Fund's net asset value per share will also be
affected by fair value pricing decisions and by changes in the market for such
debt securities. In determining the fair value of a debt security, the Adviser
will consider relevant factors, data, and information, including: (i) the

--------------------------------------------------------------------------------
17

DETERMINATION OF NET ASSET VALUE
--------------------------------------------------------------------------------

characteristics of and fundamental analytical data relating to the debt
security, including the cost, size, current interest rate, period until next
interest rate reset, maturity and base lending rate of the debt security, the
terms and conditions of the debt security and any related agreements, and the
position of the debt security in the borrower's debt structure; (ii) the nature,
adequacy and value of the collateral, including the Fund's rights, remedies and
interests with respect to the collateral; (iii) the creditworthiness of the
borrower, based on an evaluation of its financial condition, financial
statements and information about the borrower's business, cash flows, capital
structure and future prospects; (iv) information relating to the market for the
debt security, including price quotations for and trading in the debt security
and interests in similar debt securities and the market environment and investor
attitudes towards the debt security and interests in similar debt securities;
(v) the experience, reputation, stability and financial condition of the agent
and any intermediate participants in the debt security; and (vi) general
economic and market conditions affecting the fair value of the debt security.
The fair value of each debt security is reviewed and approved by the Adviser's
Valuation Committee and the Fund's Trustees.

The Adviser uses an independent pricing service to value most loans,
mortgage-backed securities (other than seasoned mortgage-backed securities) and
other debt securities at their market value. Seasoned mortgage-backed securities
are valued through the use of an independent matrix pricing system which takes
into account bond prices, yield differentials, anticipated prepayment and
interest rates provided by dealers. The Adviser may use the fair value method to
value loans or other securities if market quotations for them are not readily
available or are deemed unreliable, or if events occurring after the close of a
securities market and before the Fund values its assets would materially affect
net asset value. A security that is fair valued may be valued at a price higher
or lower than actual market quotations or the value determined by other funds
using their own fair valuation procedures.

The Trustees have approved and monitor the procedures under which Senior Loans
are valued. The Adviser and the Valuation Committee may implement new pricing
methodologies or expand mark-to-market valuation of Senior Loans in the future,
which may result in a change in the Fund's net asset value per share. The Fund's
net asset value per share will also be affected by fair value pricing decisions
and by changes in the market for Senior Loans. In determining the fair value of
a Senior Loan, the Adviser will consider relevant factors, data, and
information, including: (i) the characteristics of and fundamental analytical
data relating to the Senior Loan, including the cost, size, current interest
rate, period until next interest rate reset, maturity and base lending rate of
the Senior Loan, the terms and conditions of the Senior Loan and any related
agreements, and the position of the Senior Loan in the Borrower's debt
structure; (ii) the nature, adequacy and value of the collateral, including the
Fund's rights, remedies and interests with respect to the collateral; (iii) the
creditworthiness of the Borrower, based on an evaluation of its financial
condition, financial statements and information about the Borrower's business,
cash flows, capital structure and future prospects; (iv) information relating to
the market for the Senior Loan, including price quotations for and trading in
the Senior Loan and interests in similar Senior Loans and the market environment
and investor attitudes towards the Senior Loan and interests in similar Senior
Loans; (v) the experience, reputation, stability and financial condition of the
Agent and any intermediate participants in the Senior Loan; and (vi) general
economic and market conditions affecting the fair value of the Senior Loan. The
fair value of each Senior Loan is reviewed and approved by the Adviser's
Valuation Committee and the Fund's Trustees.

Non-loan holdings (other than debt securities, including short term obligations)
may be valued on the basis of prices furnished by one or more pricing services
which determine prices for normal, institutional-size trading units of such
securities using market information, transactions for comparable securities and
various relationships between securities which are generally recognized by
institutional traders. In certain circumstances, portfolio securities will be
valued at the last sale price on the exchange that is the primary market for
such securities, or the average of the last quoted bid price and asked price for
those securities for which the over-the-counter market is the primary market or
for listed securities in which there were no sales during the day. Marketable
securities listed on the NASDAQ National Market System are valued at the NASDAQ
official closing price. The value of interest rate swaps will be based upon a
dealer quotation.

Debt securities for which the over-the-counter market is the primary market are
normally valued on the basis of prices furnished by one or more pricing services
at the mean between the latest available bid and asked prices. OTC options are
valued at the mean between the bid and asked prices provided by dealers.
Financial futures contracts listed on commodity exchanges and exchange-traded
options are valued at closing settlement prices. Short-term obligations having
remaining maturities of less than 60 days are valued at amortized cost, which
approximates value, unless the Trustees determine that under particular
circumstances such method does not result in fair value. As authorized by the
Trustees, debt securities (other than short-term obligations) may be valued on
the basis of valuations furnished by a pricing service which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. Mortgage-backed "pass-through" securities are valued
through use of an independent matrix pricing system applied by the Adviser which
takes into account closing bond valuations, yield differentials, anticipated
prepayments and interest rates provided by dealers. Securities for which there
is no such quotation or valuation and all other assets are valued at fair value
as determined in good faith by or at the direction of the Fund's Trustees.

--------------------------------------------------------------------------------
18

INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------

Generally, trading in the foreign securities owned by the Fund is substantially
completed each day at various times prior to the close of the Exchange. The
values of these securities used in determining the net asset value of the Fund
generally are computed as of such times. Occasionally, events affecting the
value of foreign securities may occur between such times and the close of the
New York Stock Exchange which will not be reflected in the computation of the
Fund's net asset value (unless the Fund deems that such events would materially
affect its net asset value, in which case an adjustment would be made and
reflected in such computation). The Fund may rely on an independent fair
valuation service in making any such adjustment. Foreign securities and currency
held by the Fund will be valued in U.S. dollars; such values will be computed by
the custodian based on foreign currency exchange rate quotations supplied by an
independent quotation service.

All other securities are valued at fair value as determined in good faith by or
at the direction of the Trustees.

PORTFOLIO TRADING

Decisions concerning the execution of portfolio security transactions, including
the selection of the market and the executing firm, are made by the Adviser. The
Adviser is also responsible for the execution of transactions for all other
accounts managed by it. The Adviser places the portfolio security transactions
of the Fund and of all other accounts managed by it for execution with many
firms. The Adviser uses its best efforts to obtain execution of portfolio
security transactions at prices which are advantageous to the Fund and at
reasonably competitive spreads or (when a disclosed commission is being charged)
at reasonably competitive commission rates. In seeking such execution, the
Adviser will use its best judgment in evaluating the terms of a transaction, and
will give consideration to various relevant factors, including without
limitation the full range and quality of the executing firm's services, the
value of the brokerage and research services provided, the responsiveness of the
firm to the Adviser, the size and type of the transaction, the nature and
character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any.

The Fund will acquire Senior Loans from major international banks, selected
domestic regional banks, insurance companies, finance companies and other
financial institutions. In selecting financial institutions from which Senior
Loans may be acquired, the Adviser will consider, among other factors, the
financial strength, professional ability, level of service and research
capability of the institution. While these financial institutions are generally
not required to repurchase Senior Loans which they have sold, they may act as
principal or on an agency basis in connection with their sale by the Fund.

Other fixed income obligations which may be purchased and sold by the Fund are
generally traded in the over-the-counter market on a net basis (i.e., without
commission) through broker-dealers or banks acting for their own account rather
than as brokers, or otherwise involve transactions directly with the issuers of
such obligations. The Fund may also purchase fixed income and other securities
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters.

Transactions on stock exchanges and other agency transactions involve the
payment of negotiated brokerage commissions. Such commissions vary among
different broker-dealer firms, and a particular broker-dealer may charge
different commissions according to such factors as the difficulty and size of
the transaction and the volume of business done with such broker-dealer.
Transactions in foreign securities often involve the payment of brokerage
commissions, which may be higher than those in the United States. There is
generally no stated commission in the case of securities traded in the over-the-
counter markets, but the price paid or received usually includes an undisclosed
dealer markup or markdown. In an underwritten offering the price paid often
includes a disclosed fixed commission or discount retained by the underwriter or
dealer.

Although spreads or commissions paid on portfolio security transactions will, in
the judgment of the Adviser, be reasonable in relation to the value of the
services provided, commissions exceeding those which another firm might charge
may be paid to broker-dealers who were selected to execute transactions on
behalf of the Adviser's clients in part for providing brokerage and research
services to the Adviser.

As authorized in Section 28(e) of the Securities Exchange Act of 1934, a broker
or dealer who executes a portfolio transaction on behalf of the Fund may receive
a commission which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Adviser
determines in good faith that such compensation was reasonable in relation to
the value of the brokerage and research services provided. This determination

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19

PORTFOLIO TRADING
--------------------------------------------------------------------------------

may be made on the basis of that particular transaction or on the basis of
overall responsibilities which the Adviser and its affiliates have for accounts
over which they exercise investment discretion. In making any such
determination, the Adviser will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of the
commission should be related to such services. Brokerage and research services
may include advice as to the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts; effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement); and
the "Research Services" referred to in the next paragraph.

It is a common practice of the investment advisory industry and of the advisers
of investment companies, institutions and other investors to receive research,
analytical, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, the Adviser receives Research Services from many
broker-dealer firms with which the Adviser places the Fund's transactions and
from third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic, political, business
and market information, industry and company reviews, evaluations of securities
and portfolio strategies and transactions, proxy voting data and analysis
services, technical analysis of various aspects of the securities market,
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by the Adviser in
connection with client accounts other than those accounts which pay commissions
to such broker-dealer. Any such Research Service may be broadly useful and of
value to the Adviser in rendering investment advisory services to all or a
significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or may be
useful for the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The advisory fee
paid by the Fund is not reduced because the Adviser receives such Research
Services. The Adviser evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient portfolio security transactions to such firms to ensure the continued
receipt of Research Services which the Adviser believes are useful or of value
to it in rendering investment advisory services to its clients.

The Fund and the Adviser may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed and
evaluated by the Adviser in connection with its investment responsibilities. The
investment companies sponsored by the Adviser or its affiliates may allocate
trades in such offerings to acquire information relating to the performance,
fees and expenses of such companies and other mutual funds, which information is
used by the Trustees of such companies to fulfill their responsibility to
oversee the quality of the services provided by various entities, including the
Adviser, to such companies. Such companies may also pay cash for such
information.

Subject to the requirement that the Adviser shall use its best efforts to seek
and execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, the Adviser is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by the Adviser.
This policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc. ("NASD"), which rule provides that no firm which is a
member of the NASD shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the basis of
brokerage commissions received or expected by such firm from any source.

Securities considered as investments for the Fund may also be appropriate for
other investment accounts managed by the Adviser or its affiliates. Whenever
decisions are made to buy or sell securities by the Fund and one or more of such
other accounts simultaneously, the Adviser will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may be
instances where the Fund will not participate in a transaction that is allocated
among other accounts. If an aggregated order cannot be filled completely,
allocations will generally be made on a pro rata basis. An order may not be
allocated on a pro rata basis where, for example: (i) consideration is given to
portfolio managers who have been instrumental in developing or negotiating a
particular investment; (ii) consideration is given to an account with
specialized investment policies that coincide with the particulars of a specific
investment; (iii) pro rata allocation would result in odd-lot or de minimis
amounts being allocated to a portfolio or other client; or (iv) where the
Adviser reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the

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20

PORTFOLIO TRADING
--------------------------------------------------------------------------------

Fund from time to time, it is the opinion of the Trustees of the Fund that the
benefits from the Adviser's organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.

TAXES

The following discussion of federal income tax matters is based on the advice of
Kirkpatrick & Lockhart LLP, counsel to the Fund. The Fund intends to elect to be
treated and to qualify each year as a regulated investment company ("RIC') under
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute substantially all of its net
income and net short-term and long-term capital gains (after reduction by any
available capital loss carryforwards) in accordance with the timing requirements
imposed by the Code, so as to maintain its RIC status and to avoid paying any
federal income or excise tax. To the extent it qualifies for treatment as a RIC
and satisfies the above-mentioned distribution requirements, the Fund will not
be subject to federal income tax on income paid to its shareholders in the form
of dividends or capital gain distributions.

In order to avoid incurring a 4% federal excise tax obligation, the Code
requires that the Fund distribute (or be deemed to have distributed) by December
31 of each calendar year an amount at least equal to the sum of (i) 98% of its
ordinary income for such year and (ii) 98% of its capital gain net income (which
is the excess of its realized net long-term capital gain over its realized net
short-term capital loss), generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, plus 100% of any ordinary income and capital gain net income from
the prior year (as previously computed) that were not paid out during such year
and on which the Fund paid no federal income tax. Under current law, provided
that the Fund qualifies as a RIC for federal income tax purposes, the Fund
should not be liable for any income, corporate excise or franchise tax in The
Commonwealth of Massachusetts.

If the Fund does not qualify as a RIC for any taxable year, the Fund's taxable
income will be subject to corporate income taxes, and all distributions from
earnings and profits, including distributions of net capital gain (if any), will
be taxable to the shareholder as ordinary income. In addition, in order to
requalify for taxation as a RIC, the Fund may be required to recognize
unrealized gains, pay substantial taxes and interest, and make certain
distributions.

Under the "JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF 2003" (the "Tax
Act"), certain income distributions paid by the Fund (whether paid in cash or
reinvested in additional Fund Shares) to individual taxpayers are taxed at rates
applicable to net long-term capital gains (15%, or 5% for individuals in the 10%
or 15% tax brackets). This tax treatment applies only if certain holding period
requirements and other requirements are satisfied by the Common Shareholder and
the dividends are attributable to QUALIFIED DIVIDEND INCOME received by the Fund
itself. For this purpose, "QUALIFIED DIVIDEND INCOME" means dividends received
by the Fund from United States corporations and "qualified foreign
corporations," provided that the Fund satisfies certain holding period and other
requirements in respect of the stock of such corporations. In the case of
securities lending transactions, payments in lieu of dividends do not constitute
qualified dividend income. Any dividends received by the Fund from REITs are
qualified dividend income eligible for this lower tax rate only in limited
circumstances. These special rules relating to the taxation of ordinary income
dividends paid by RICs generally apply to taxable years beginning after December
31, 2002 and beginning before January 1, 2009. Thereafter, the Fund's dividends,
other than capital gain dividends, will be fully taxable at ordinary income tax
rates unless further Congressional action is taken. There can be no assurance
that a portion of the Fund's income distributions will not be fully taxable as
ordinary income.

Subject to certain exceptions, a "qualified foreign corporation" is any foreign
corporation that is either (i) incorporated in a possession of the United States
(the "possessions test"), or (ii) eligible for benefits of a comprehensive
income tax treaty with the United States, which the Secretary of the Treasury
determines is satisfactory for these purposes and which includes an exchange of
information program (the "treaty test"). The Secretary of the Treasury has
currently identified tax treaties between the United States and 52 other
countries that satisfy the treaty test. Subject to the same exceptions, a
foreign corporation that does not satisfy either the possessions test or the
treaty test will still be considered a "qualified foreign corporation" with
respect to any dividend paid by such corporation if the stock with respect to
which such dividend is paid is readily tradable on an established securities
market in the United States. The Treasury Department has issued a notice stating
that common or ordinary stock, or an American Depositary Receipt in respect of
such stock, is considered readily tradable on an established securities market
in the Unites States if it is listed on a national securities exchange that is
registered under section 6 of the Securities Exchange Act of 1934, as amended,
or on the Nasdaq Stock Market. A qualified foreign corporation does not include
any foreign corporation which for the taxable year of the corporation in which
the dividend is paid, or the preceding taxable year, is a foreign personal
holding company, a foreign investment company or a passive foreign investment
company.

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21

TAXES
--------------------------------------------------------------------------------

The TAX ACT, in amending certain Code provisions to provide that dividends paid
by a RIC would be treated as "QUALIFIED DIVIDEND INCOME" to the extent that such
dividends were derived from qualified dividend income received by the RIC,
failed to make certain conforming amendments to other provisions of the Code. As
a result, the Code contains certain contradictory provisions creating some
ambiguity as to whether the Code authorizes the Fund to designate in certain
circumstances as qualified dividend income that portion of its dividends that is
derived from dividends it has received from qualified foreign corporations. The
Fund believes, however, that the intention of the TAX ACT was to authorize the
Fund's designation of such dividends as qualified dividend income. Further,
bills proposing to make technical corrections to the TAX ACT (the "Technical
Corrections Bills") have been filed in both the Senate and the House of
Representatives, and these Technical Corrections Bills would amend the Code to
make it clear that a RIC's dividends can be designated qualified dividend income
to the extent that they are derived from dividends received from qualified
foreign corporations. The Fund cannot predict whether or in what form the
Technical Corrections Bills will be enacted or, if enacted, when that will
occur. Nevertheless, the Treasury Department and the IRS have announced that
they will apply the provision of the Technical Corrections Bill relating to
qualified dividend income in advance of the enactment of such legislation.

A dividend (whether paid in cash or reinvested in additional Fund shares) will
not be treated as qualified dividend income (whether received by the Fund or
paid by the Fund to a shareholder) if (1) the dividend is received with respect
to any share held for fewer than 61 days during the 120-day period beginning on
the date which is 60 days before the date on which such share becomes exdividend
with respect to such dividend (the 120-day period would be expanded to a 121-day
period under the Technical Corrections Bills), (2) to the extent that the
shareholder is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially
similar or related property, or (3) if the shareholder elects to have the
dividend treated as investment income for purposes of the limitation on
deductibility of investment interest.

The Fund's investment in zero coupon and certain other securities will cause it
to realize income prior to the receipt of cash payments with respect to these
securities. Such income will be accrued daily by the Fund and, in order to avoid
a tax payable by the Fund, the Fund may be required to liquidate securities that
it might otherwise have continued to hold in order to generate cash so that the
Fund may make required distributions to its shareholders.

Investments in lower rated or unrated securities may present special tax issues
for the Fund to the extent that the issuers of these securities default on their
obligations pertaining thereto. The Code is not entirely clear regarding the
federal income tax consequences of the Fund's taking certain positions in
connection with ownership of such distressed securities.

Any recognized gain or income attributable to market discount on long-term debt
obligations (i.e., on obligations with a term of more than one year except to
the extent of a portion of the discount attributable to original issue discount)
purchased by the Fund is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if purchased after its
original issue at a price less than (i) the stated principal amount payable at
maturity, in the case of an obligation that does not have original issue
discount or (ii) in the case of an obligation that does have original issue
discount, the sum of the issue price and any original issue discount that
accrued before the obligation was purchased, subject to a DE MINIMIS exclusion.

The Fund's investments in options, futures contracts, hedging transactions,
forward contracts (to the extent permitted) and certain other transactions will
be subject to special tax rules (including mark-to-market, constructive sale,
straddle, wash sale, short sale and other rules), the effect of which may be to
accelerate income to the Fund, defer Fund losses, cause adjustments in the
holding periods of securities held by the Fund, convert capital gain into
ordinary income and convert short-term capital losses into long-term capital
losses. These rules could therefore affect the amount, timing and character of
distributions to shareholders. The Fund may be required to limit its activities
in options and futures contracts in order to enable it to maintain its RIC
status.

Any loss realized upon the sale or exchange of Fund shares with a holding period
of six months or less will be treated as a long-term capital loss to the extent
of any capital gain distributions received with respect to such shares. In
addition, all or a portion of a loss realized on a redemption or other
disposition of Fund shares may be disallowed under "wash sale" rules to the
extent the shareholder acquires other shares of the same Fund (whether through
the reinvestment of distributions or otherwise) within the period beginning 30
days before the redemption of the loss shares and ending 30 days after such
date. Any disallowed loss will result in an adjustment to the shareholder's tax
basis in some or all of the other shares acquired.

Sales charges paid upon a purchase of shares cannot be taken into account for
purposes of determining gain or loss on a sale of the shares before the 91st day
after their purchase to the extent a sales charge is reduced or eliminated in a
subsequent acquisition of shares of the Fund (or of another fund) pursuant to
the reinvestment or exchange privilege. Any disregarded amounts will result in
an adjustment to the shareholder's tax basis in some or all of any other shares
acquired.

--------------------------------------------------------------------------------
22

TAXES
--------------------------------------------------------------------------------

Dividends and distributions on the Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when the Fund's net asset value also reflects unrealized
losses. Certain distributions declared in October, November or December and paid
in the following January will be taxed to shareholders as if received on
December 31 of the year in which they were declared. In addition, certain other
distributions made after the close of a taxable year of the Fund may be "spilled
back" and treated as paid by the Fund (except for purposes of the 4% excise tax)
during such taxable year. In such case, Shareholders will be treated as having
received such dividends in the taxable year in which the distributions were
actually made.

Dividends and interest received, and gains realized, by the Fund on foreign
securities may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions (collectively "foreign taxes") that would
reduce the return on its securities. Tax conventions between certain countries
and the United States, however, may reduce or eliminate foreign taxes, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of the Fund's total assets
at the close of its taxable year consists of securities of foreign issuers, the
Fund will be eligible to, and may, file an election with the Internal Revenue
Service (the "IRS") that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign taxes paid by it.
Pursuant to the election, the Fund would treat those taxes as dividends paid to
its shareholders and each shareholder (1) would be required to include in gross
income, and treat as paid by such shareholder, a proportionate share of those
taxes, (2) would be required to treat such share of those taxes and of any
dividend paid by the Fund that represents income from foreign or U.S.
possessions sources as such shareholder's own income from those sources, and (3)
could either deduct the foreign taxes deemed paid in computing taxable income
or, alternatively, use the foregoing information in calculating the foreign tax
credit against federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of foreign taxes paid
and the income from sources within, and taxes paid to, foreign countries and
persons filing jointly) of creditable foreign taxes included on Forms 1099 and
all of whose foreign source income is "qualified passive income" may elect each
year to be exempt from the complicated foreign tax credit limitation, in which
event such individual would be able to claim a foreign tax credit without
needing to file the detailed Form 1116 that otherwise is required.

The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is any foreign corporation (with certain exceptions) that, in
general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances, the
Fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain from disposition of
that stock (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders. If the Fund invests in a PFIC and
elects to treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of
the foregoing tax and interest obligation, the Fund will be required to include
in income each year its pro rata share of the QEF's annual ordinary earnings and
net capital gain--which it may have to distribute to satisfy the distribution
requirement and avoid imposition of the excise tax--even if the QEF does not
distribute those earnings and gain to the Fund. In most instances it will be
very difficult, if not impossible, to make this election because of certain of
its requirements.

The Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
the Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, the Fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains (reduced by any prior deductions) with respect to that
stock included by the Fund for prior taxable years under the election. The
Fund's adjusted basis in each PFIC's stock with respect to which it has made
this election will be adjusted to reflect the amounts of income included and
deductions taken thereunder.

Amounts paid by the Fund to individuals and certain other shareholders who have
not provided the Fund with their correct taxpayer identification number ("TIN")
and certain certifications required by the Internal Revenue Service (the "IRS")
as well as shareholders with respect to whom the Fund has received certain
information from the IRS or a broker may be subject to "backup" withholding of
federal income tax arising from the Fund's taxable dividends and other
distributions as well as the gross proceeds of sales of shares, at a rate of up
to 28% for amounts paid during 2003. An individual's TIN is generally his or her
social security number. Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from payments made to a Shareholder

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23

TAXES
--------------------------------------------------------------------------------

may be refunded or credited against such Shareholder's U.S. federal income tax
liability, if any, provided that the required information is furnished to the
IRS.

The foregoing discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, foreign investors,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local, and, where applicable,
foreign tax consequences of investing in the Fund.

If the Fund issues preferred shares, the Fund will designate dividends made to
holders of shares and to holders of those preferred shares in accordance with
each class's proportionate share of each item of Fund income (such as net
capital gains and other taxable income).

The Fund will inform Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. [The IRS has taken
the position that if a RIC has more than one class of shares, it may designate
distributions made to each class in any year as consisting of no more than that
class's proportionate share of particular types of income for that year,
including ordinary income and net capital gain. A class's proportionate share of
a particular type of income for a year is determined according to the percentage
of total dividends paid by the RIC during that year to the class. Accordingly,
the Fund intends to designate a portion of its distributions in capital gain
dividends in accordance with the IRS position.

Although the matter is not free from doubt, due to the absence of direct
regulatory or judicial authority, in the opinion of Kirkpatrick & Lockhart LLP,
counsel to the Fund, under current law the manner in which the Fund intends to
allocate items of ordinary income and net capital gain among the Fund's Common
Shares and any applicable preferred shares class will be respected for federal
income tax purposes. It is possible that the IRS could disagree with counsel's
opinion and attempt to reallocate the Fund's net capital gain or other taxable
income.

STATE AND LOCAL TAXES
Shareholders should consult their own tax advisers as the state or local tax
consequences of investing in the Fund.

OTHER INFORMATION

The Fund is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may, in
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Declaration of Trust contains an express disclaimer of
shareholder liability in connection with the Fund property or the acts,
obligations or affairs of the Fund. The Declaration of Trust also provides for
indemnification out of the Fund property of any shareholder held personally
liable for the claims and liabilities to which a shareholder may become subject
by reason of being or having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself is unable to meet its obligations. The
Fund has been advised by its counsel that the risk of any shareholder incurring
any liability for the obligations of the Fund is remote.

The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law; but nothing in the Declaration of
Trust protects a Trustee against any liability to the Fund or its shareholders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office. Voting rights are not cumulative, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees and, in such event, the holders of the remaining less
than 50% of the shares voting on the matter will not be able to elect any
Trustees.

The Declaration of Trust provides that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Fund's custodian or
by votes cast at a meeting called for that purpose. The Declaration of Trust
further provides that the Trustees of the Fund shall promptly call a meeting of
the shareholders for the purpose of voting upon a question of removal of any
such Trustee or Trustees when requested in writing so to do by the record
holders of not less than 10 per centum of the outstanding shares.

The Fund's Prospectus and this SAI do not contain all of the information set
forth in the Registration Statement that the Fund has filed with the SEC. The
complete Registration Statement may be obtained from the SEC upon payment of the
fee prescribed by its Rules and Regulations.

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24

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

INDEPENDENT AUDITORS

[_______________________], Boston, Massachusetts are the independent auditors
for the Fund, providing audit services, tax return preparation, and assistance
and consultation with respect to the preparation of filings with the SEC.

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25

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INDEPENDENT AUDITORS' REPORT

To the Trustees and Shareholder of
Eaton Vance Low Duration Diversified Income Fund:

We have audited the accompanying statement of assets and liabilities of Eaton
Vance Low Duration Diversified Income (the "Fund") as of [__________________]
and the related statement of operations for the period from [__________________]
(date of organization) through [_________________]. These financial statements
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Fund as of
[__________________], and the result of its operations for the period from
[___________] (date of organization) through [____________________] in
conformity with accounting principles generally accepted in the United States of
America.

--------------------
Boston, Massachusetts

[_______________], 2004

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26

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

EATON VANCE LOW DURATION DIVERSIFIED INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES
___________, 2004

ASSETS

Cash......................................................... $
-------
Offering costs...............................................
-------
Receivable from Adviser......................................
-------
Total assets................................................. $
========

LIABILITIES

Accrued offering costs....................................... $
-------

Accrued organizational costs.................................
-------

Total liabilities............................................ $
========

Net assets applicable to _____ common shares of
beneficial interest issued and outstanding..................... $
========

NET ASSET VALUE AND OFFERING PRICE PER SHARE................... $
========

STATEMENT OF OPERATIONS
PERIOD FROM APRIL 16, 2004 (DATE OF ORGANIZATION) THROUGH ___________, 2004

INVESTMENT INCOME.............................................. $ --
-------

EXPENSES $
-------

Organization costs........................................... $
-------

Expense reimbursement........................................ -------

Net expenses............................................... $ --
-------

NET INVESTMENT INCOME.......................................... $ --
========

See notes to financial statements.

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27

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

NOTES TO FINANCIAL STATEMENTS

NOTE 1: ORGANIZATION

The Fund was organized as a Massachusetts business trust on April 16, 2004, and
has been inactive since that date except for matters relating to its
organization and registration as a diversified, closed-end management investment
company under the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended, and the sale of [_______] common shares to Eaton Vance
Management, the Fund's Investment Adviser.

[Eaton Vance Management, or an affiliate, has agreed to reimburse all
organizational costs, estimated at approximately $[_________.]]

[Eaton Vance Management, or an affiliate, has agreed to pay all offering costs
(other than sales loads) that exceed $[______] per common share.]

NOTE 2: ACCOUNTING POLICIES

The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America which require the
use of management estimates. Actual results may differ from those estimates.

The Fund's share of offering costs will be recorded within paid in capital as a
reduction of the proceeds from the sale of common shares upon the commencement
of Fund operations. The offering costs reflected above assume the sale of
[__________] common shares.

NOTE 3: INVESTMENT MANAGEMENT AGREEMENT

Pursuant to an investment advisory agreement between the Adviser and the Fund,
the Fund has agreed to pay an investment advisory fee, payable on a monthly
basis, at an annual rate of [______]% of the average weekly gross assets of the
Fund. Gross assets of the Fund shall be calculated by deducting accrued
liabilities of the Fund not including the amount of any preferred shares
outstanding or the principal amount of any indebtedness for money borrowed.

In addition, Eaton Vance has contractually agreed to reimburse the Fund for fees
and other expenses in the amount of [_____]% of the average weekly gross assets
for the first 5 full years of the Fund's operations, [_____]% of average weekly
gross assets in year 6, [_____]% in year 7 and [_____]% in year 8.

NOTE 4: FEDERAL INCOME TAXES

The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income, including any net realized gain on investments.

--------------------------------------------------------------------------------
28

APPENDIX A
--------------------------------------------------------------------------------

DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.

LONG-TERM DEBT SECURITIES 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 sometime in the future.

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

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other 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.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

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

+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating agencies
may from time to time revise such ratings, they undertake no obligation to do
so, and the ratings indicated do not necessarily represent ratings which would
be given to these securities on the date of the Fund's fiscal year end.

DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not published
in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

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

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

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

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

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

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

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

STANDARD & POOR'S RATINGS GROUP

INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.

--------------------------------------------------------------------------------
A-2

DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------

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

BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-- rating.

B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB--
rating.

CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-- rating.

CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.

C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.

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 that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments 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.

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

L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.

NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.

COMMERCIAL PAPER

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

--------------------------------------------------------------------------------
A-3

DESCRIPTION OF SECURITIES 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: A short-term obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless 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.

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

FITCH RATINGS

INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated `AAA'. Because bonds rated in the `AAA' and
`AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'.

l: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

--------------------------------------------------------------------------------
A-4

DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------

CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

DDD, DD and D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these bonds, and `D' represents
the lowest potential for recovery.

Plus (+) or Minus (--): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.

NR: Indicates that Fitch does not rate the specific issue.

CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.

INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
`F-1+'.

F-2: Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
`F-1+' and `F-1' categories.

F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.

* * * * * * * *

NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Fund is dependent on the Adviser's judgment,
analysis and experience in the evaluation of such bonds.

Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.

--------------------------------------------------------------------------------
A-5

DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------

APPENDIX B
--------------------------------------------------------------------------------

PERFORMANCE RELATED & COMPARATIVE INFORMATION

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

DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------

EATON VANCE LOW DURATION DIVERSIFIED INCOME FUND

STATEMENT OF ADDITIONAL INFORMATION
_________, 2004
---------------

INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
255 State Street
Boston, MA 02109

CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116

TRANSFER AGENT
PFPC INC.
P.O. Box 43027
Providence, RI 02940-3027
(800) 331-1710

INDEPENDENT AUDITORS
--------------------

--------------------------------------------------------------------------------
B-2

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1) FINANCIAL STATEMENTS:

Included in Part A:
Not applicable.

Included in Part B:
Independent Auditor's Report*
Statement of Assets and Liabilities*
Notes to Financial Statement*

----------------------------
*To be added by amendment.

(2) EXHIBITS:

(a) Agreement and Declaration of Trust dated April 15, 2004 filed
herewith.

(b) By-Laws filed herewith.

(d) Form of Specimen Certificate for Common Shares of Beneficial Interest
to be filed by amendment.

(e) Form of Dividend Reinvestment Plan to be filed by amendment.

(f) Not applicable.

(g) (1) Form of Investment Advisory Agreement dated ________, 2004, to be
filed by amendment.

(2) Form of Expense Reimbursement Arrangement dated __________, 2004,
to be filed by amendment.

(h) (1) Form of Underwriting Agreement to be filed by amendment.

(2) Form of Master Agreement Among Underwriters to be filed by
amendment.

(3) Form of Master Selected Dealers Agreement to be filed by
amendment.

(i) The Securities and Exchange Commission has granted the Registrant an
exemptive order that permits the Registrant to enter into deferred
compensation arrangements with its independent Trustees. See in the
matter of Capital Exchange Fund, Inc., Release No. IC- 20671 (November
1, 1994).

(j) (1) Master Custodian Agreement with Investors Bank & Trust Company
dated ______________, 2004 to be filed by amendment.

(2) Extension Agreement dated August 31, 2000 to Master Custodian
Agreement with Investors Bank & Trust Company filed as Exhibit
(g)(4) to Post-Effective Amendment No. 85 of Eaton Vance
Municipals Trust (File Nos. 33-572, 811-4409) filed with the
Commission on January 23, 2001 (Accession No.
0000940394-01-500027) and incorporated herein by reference.

(3) Delegation Agreement dated December 11, 2000, with Investors Bank
& Trust Company filed as Exhibit (j)(e) to the Eaton Vance Prime
Rate Reserves N-2, Amendment No. 5 (File Nos. 333-32267,
811-05808) filed April 3, 2002 (Accession No.
0000940394-01-500126) and incorporated herein by reference.

(k) (1) Supplement to the Transfer Agency and Services Agreement dated
___________, 2004 to be filed by amendment.

(2) Transfer Agency and Services Agreement as amended and restated on
June 16, 2003, filed as Exhibit (k)(2) to the Registration
Statement of Eaton Vance Tax-Advantaged Dividend Income Fund
(File Nos. 333- 107050 and 811-21400) filed July 15, 2003
(Accession No. 0000898432- 03- 000638) and incorporated herein by
reference.

(3) Form of Administration Agreement dated _______________, 2004 to
be filed by amendment.

(l) Opinion and Consent of Kirkpatrick & Lockhart LLP as to Registrant's
Common Shares to be filed by amendment.

(m) Not applicable.

(n) Consent of Independent Auditors to be filed by amendment.

(o) Not applicable.

(p) Letter Agreement with Eaton Vance Management to be filed by amendment.

(q) Not applicable.

(r) Code of Ethics adopted by Eaton Vance Corp., Eaton Vance Management,
Boston Management and Research, Eaton Vance Distributors, Inc. and the
Eaton Vance Funds effective September 1, 2000, as revised June 4,
2002, filed as Exhibit (p) to Post- Effective Amendment No. 45 of
Eaton Vance Investment Trust (File Nos. 33-1121, 811-4443) filed July
24, 2002 (Accession No. 0000940394-02-000462) and incorporated herein
by reference.

(s) Power of Attorney dated ____________, 2004 to be filed by amendment.

ITEM 25. MARKETING ARRANGEMENTS

See Form of Underwriting Agreement to be filed by amendment.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The approximate expenses in connection with the offering are as follows:

Registration and Filing Fees $_________________
National Association of Securities Dealers, Inc. Fees
New York Stock Exchange Fees
Costs of Printing and Engraving
Accounting Fees and Expenses
Legal Fees and Expenses
===============
Total $_________________

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

None.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

Set forth below is the number of record holders as of April 15 2004, of
each class of securities of the Registrant:

Title of Class Number of Record Holders
-------------- ------------------------
Common Shares of Beneficial interest,
par value $0.01 per share 0

ITEM 29. INDEMNIFICATION

The Registrant's By-Laws contain and the form of Underwriting Agreement to
be filed by amendment is expected to contain provisions limiting the liability,
and providing for indemnification, of the Trustees and officers under certain
circumstances.

Registrant's Trustees and officers are insured under a standard investment
company errors and omissions insurance policy covering loss incurred by reason
of negligent errors and omissions committed in their official capacities as
such. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
described in this Item 29, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is

against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Reference is made to: (i) the information set forth under the caption
Investment advisory and other services" in the Statement of Additional
Information; (ii) the Eaton Vance Corp. 10-K filed under the Securities Exchange
Act of 1934 (File No. 001-8100); and (iii) the Form ADV of Eaton Vance
Management (File No. 801-15930) filed with the Commission, all of which are
incorporated herein by reference.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon Street,
16th Floor, Boston, MA 02116, and its transfer agent, PFPC Inc., 4400 Computer
Drive, Westborough, MA 01581-5120, with the exception of certain corporate
documents and portfolio trading documents which are in the possession and
custody of Eaton Vance Management, The Eaton Vance Building, 255 State Street,
Boston, MA 02109. Registrant is informed that all applicable accounts, books and
documents required to be maintained by registered investment advisers are in the
custody and possession of Eaton Vance Management.

ITEM 32. MANAGEMENT SERVICES

Not applicable.

ITEM 33. UNDERTAKINGS

1. The Registrant undertakes to suspend offering of Common Shares until
the prospectus is amended if (1) subsequent to the effective date of this
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of this Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.

2. Not applicable.

3. Not applicable.

4. Not applicable.

5. The Registrant undertakes that:

a. for the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to 497(h) under the Securities Act
shall be deemed to be part of the Registration Statement as of the time it was
declared effective; and

b. for the purpose of determining any liability under the Securities
Act, each post- effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

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

NOTICE

A copy of the Agreement and Declaration of Trust of Eaton Vance Low
Duration Diversified Income Fund is on file with the Secretary of the
Commonwealth of Massachusetts and notice is hereby given that this instrument is
executed on behalf of the Registrant by an officer of the Registrant as an
officer and not individually and that the obligations of or arising out of this
instrument are not binding upon any of the Trustees, officers or shareholders
individually, but are binding only upon the assets and property of the
Registrant.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, there unto duly
authorized in the City of Boston and the Commonwealth of Massachusetts, on the
19th day of April 2004.

EATON VANCE LOW DURATION DIVERSIFIED INCOME FUND

By: /s/ Mark S. Venezia
----------------------------------------
Mark S. Venezia
President and Chief Executive Officer

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

Signature Title Date
--------- ----- ----

/s/Mark S. Venezia President and Executive April 19, 2004
------------------ Officer
Mark S. Venezia

/s/ James L. O'Connor Treasurer and Principal April 19, 2004
--------------------- Financial and Accounting
James L. O'Connor Officer

/s/ Thomas E. Faust Jr. Trustee April 19, 2004
-----------------------
Thomas E. Faust Jr.

/s/ James B. Hawkes Trustee April 19, 2004
-------------------
James B. Hawkes

INDEX TO EXHIBITS

(a) Agreement and Declaration of Trust dated April 15, 2004

(b) By-Laws