Edgar Filing: EVERGREEN UTILITIES & HIGH INCOME FUND

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 2004

SECURITIES ACT FILE NO. 333-112631
INVESTMENT COMPANY ACT FILE NO. 811-21507
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-2

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. 2 [X]

POST-EFFECTIVE AMENDMENT NO. __ [ ]

AND/OR
REGISTRATION STATEMENT UNDER

THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 2 [X]
=

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

EVERGREEN UTILITIES AND HIGH INCOME FUND
(Exact Name of Registrant As Specified in Charter )

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

DAVID C. MAHAFFEY SARAH E. COGAN
SULLIVAN & WORCESTER LLP SIMPSON THACHER & BARTLETT LLP
1666 K STREET, N.W. 425 LEXINGTON AVENUE
WASHINGTON, D.C. 20006 NEW YORK, NEW YORK 10017
---------------- ----------------

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

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

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

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

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

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

Common Shares (no par value)

12,500,000 shares $20.00 $250,000,000 $31,675(2)

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

(2) $3,801 of this amount was previously paid. The remainder was
transmitted prior to this filing to the designated lockbox of the
Securities and Exchange Commission at Mellon Bank in Pittsburgh,
Pennsylvania.

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

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

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

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED APRIL 19, 2004

PROSPECTUS [EVERGREEN LOGO]

Shares
Evergreen Utilities and
High Income Fund
Common Shares
$20.00 per Share
--------------

Investment Objective. Evergreen Utilities and High Income Fund (the "Fund")
is a newly organized, non-diversified, closed-end management investment company.
The Fund's investment objective is to seek a high level of current income and
moderate capital growth, with an emphasis on providing tax-advantaged dividend
income.

Portfolio Contents. Under normal market conditions, the Fund will invest at
least 80% of its net assets in securities of utilities companies (water, gas,
electric and telecommunications companies) and in U.S. dollar-denominated
non-investment grade debt securities. The Fund allocates its assets between two
separate investment strategies. Under normal market conditions, the Fund
allocates approximately 70% of its total assets to an investment strategy that
focuses on common, preferred and convertible preferred stocks and convertible
debentures of utility companies (water, gas, electric and telecommunications
companies), and approximately 30% of its total assets to an investment strategy
that focuses on U.S. dollar-denominated non-investment grade bonds, debentures,
and other income obligations.

The Fund's investment adviser reserves the discretion based upon market
conditions to reallocate the proportions of total assets invested in each
investment strategy. The U.S. high yield debt securities portion of the Fund's
portfolio is expected to be invested in high yield debt securities that are
rated between and including B3 and Ba1 by Moody's Investors Service, Inc.
("Moody's") or B- and BB+ by Standard & Poor's Ratings Services ("S&P") or are
unrated securities of comparable quality as determined by the Fund's investment
adviser. Up to 35% of the utilities portion of the Fund's portfolio may be
invested in convertible debentures of any quality. Of this 35%, a maximum of 7%
may be non-investment grade. No more than 35% of the Fund's total assets will be
invested in non-investment grade debt securities. Non-investment grade
securities are commonly referred to as "junk bonds" and are considered
speculative with respect to the issuer's capacity to pay interest and principal.
They involve greater risk of loss, are subject to greater price volatility and
are less liquid, especially during periods of economic uncertainty or change,
than higher rated debt securities.

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

Investing in the Fund's common shares involves risks that are described in
the "Risk Factors" section beginning on page 33 of this prospectus.

--------------
Per Share Total
----- ---
Public offering price $20.00 $___
Sales load $ $___
Estimated offering expenses(1) $ $___
Proceeds to the Fund $ $___
(1) The aggregate expenses of the offering are estimated to be $ . The
investment adviser has agreed to pay the amount by which the aggregate of
all of the Fund's organizational expenses and offering costs (other than
the sales load) exceeds $0.04 per common share. For information on
additional compensation, see "Underwriting."

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

Neither the Securities and Exchange Commission (the "Commission") nor any
state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.

The common shares will be ready for delivery on or about , 2004.

-----------

Citigroup A.G. Edwards & Sons, Inc. Merrill Lynch & Co. Wachovia Securities
Advest, Inc. Ferris, Baker Watts Janney Montgomery Scott LLC Incorporated

KeyBanc Capital Markets Quick & Reilly, Inc. Wells Fargo Securities, LLC

______, 2004

(continued from cover page.)

No Prior Trading History. Because the Fund is newly organized, its shares
have no history of public trading. Shares of closed-end funds frequently trade
at prices lower than their net asset value. The risk of loss due to this
discount may be greater for initial investors expecting to sell their shares in
a relatively short period after completion of the public offering. The Fund has
applied for listing on the American Stock Exchange under the symbol "ERH".

Investment Adviser. Evergreen Investment Management Company, LLC is the
Fund's investment adviser. See "Management of the Fund."

Leverage. The Fund initially intends, within approximately three months of
the commencement of the Fund's operations, to issue preferred shares of
beneficial interest representing approximately 35% of the Fund's capital
immediately after their issuance. The Fund currently does not intend to have
multiple issues of preferred shares, but reserves the right to do so. The Fund
may also borrow money from banks or other financial institutions or issue debt
securities. This practice is known as leverage. The Fund will not issue
preferred shares or borrow money if, immediately after such issuance or
borrowing, total leverage for the Fund exceeds 38% of the Fund's total assets
immediately after such issuance or borrowing. The Fund may also borrow through
reverse repurchase agreements (up to 20% of its total assets subject to the
overall limit on leverage and borrowings). The use of preferred shares or
borrowing to leverage the common shares creates risks. Any such preferred shares
or borrowings will have seniority over the common shares.

Tender Offers for Shares (Evergreen Enhanced Liquidity Plan). Under certain
circumstances, the Fund intends to make tender offers for up to 5% of the Fund's
outstanding common shares at net asset value on a quarterly basis, subject to
certain conditions described in this prospectus, and for a total of eight
consecutive calendar quarters. The Fund will make its first tender offer within
the first six to eight months of the Fund's operations if certain conditions are
met. See "Tender Offers (Evergreen Enhanced Liquidity Plan)."

You should read the prospectus, which contains important information about
the Fund, before deciding whether to invest in the Fund's common shares, and
retain it for future reference. A Statement of Additional Information, dated
_____ , 2004 containing additional information about the Fund has been filed
with the Commission and is incorporated by reference in its entirety into this
prospectus. You may request a free copy of the Statement of Additional
Information, the table of contents of which is on page 60 of this prospectus, by
calling 1-800-730-6001 or by writing to the Fund. You can review and copy
documents the Fund has filed at the Commission's Public Reference Room in
Washington, D.C. Call 1-202-942-8090 for information. The Commission charges a
fee for copies. You can get the same information free from the Commission's
EDGAR database on the Internet (http://www.sec.gov). You may also e-mail
requests for these documents to publicinfo@sec.gov or make a request in writing
to the Commission's Public Reference Section, Washington, D.C. 20549-0102.

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

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

TABLE OF CONTENTS

Page
----
Prospectus Summary......................................................... 5
Summary of Fund Expenses................................................... 21
The Fund................................................................... 22
Use of Proceeds............................................................ 22
Investment Objective and Principal Investment Strategies................... 23
Leverage................................................................... 30
Risk Factors............................................................... 33
Management of the Fund..................................................... 41
Dividends and Distributions................................................ 43
Automatic Dividend Reinvestment Plan....................................... 44
Closed-End Fund Structure.................................................. 46
U.S. Federal Income Tax Matters............................................ 47
Net Asset Value............................................................ 49
Tender Offers (Evergreen Enhanced Liquidity Plan).......................... 50
Description of Shares...................................................... 52
Anti-takeover Provisions of the Agreement and Declaration of Trust and
By-laws.................................................................. 53
Underwriting............................................................... 55
Custodian, Transfer Agent, Dividend Disbursing Agent and Registrar......... 58
Validity of Common Shares.................................................. 59
Table of Contents for Statement of Additional Information.................. 60

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

PROSPECTUS SUMMARY

This is only a summary. This summary may not contain all of the information
that you should consider before investing in the Fund's common shares. You
should review the more detailed information contained in this prospectus and in
the statement of additional information, especially the information set forth
under the heading "Risk Factors."

The Fund.............................. Evergreen Utilities and High Income Fund (the "Fund") is a newly
organized, non-diversified, closed-end management investment company.
The Fund's principal offices are located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034, and its telephone number is 1-800-343-2898.

The Offering.......................... The Fund is offering common shares at an initial
offering price of $20.00 per share. The common shares are being offered
by a group of underwriters (the "underwriters") led by Citigroup Global
Markets Inc., A.G. Edwards & Sons, Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Wachovia Capital Markets, LLC, Advest, Inc., Ferris,
Baker Watts, Incorporated, Janney Montgomery Scott LLC, KeyBanc Capital
Markets, A Division of McDonald Investments Inc., Quick & Reilly, Inc.
A FleetBoston Financial Company and Wells Fargo Securities, LLC. You
must purchase at least 100 common shares ($2,000.00) in order to
participate in the offering. The Fund has granted the underwriters the
right to purchase up to an additional common shares at the public
offering price, less the sales load, within days from the date of
this prospectus to cover over-allotments. Evergreen Investment
Management Company, LLC, the Fund's investment adviser (the "Advisor"),
has agreed to pay the amount by which the aggregate of all of the Fund's
organizational expenses and offering costs (other than sales load)
exceeds $0.04 per common share. See "Underwriting" beginning on page 55.

Investment Objective.................. The Fund's investment objective is to seek a high level of current
income and moderate capital growth, with an emphasis on providing
tax-advantaged dividend income. There can be no assurance that the Fund
will achieve its investment objective. See "Investment Objective and
Principal Investment Strategies" beginning on page 23.
Investment Policies................... Under normal market conditions, the Fund will invest at least 80% of its
net assets in securities of utilities companies (water, gas, electric
and telecommunications companies) and in U.S. non-investment grade debt
securities. The Fund allocates its assets between two separate
investment strategies. Under normal market conditions, the Fund
allocates approximately 70% of its total assets to an investment
strategy that focuses on common, preferred and convertible preferred
stocks and convertible debentures of utility companies (water, gas,
electric and telecommunications companies), and approximately 30% of its
total assets to an investment strategy that focuses on U.S. dollar
denominated non-investment grade bonds, debentures, and other income
obligations. The Advisor reserves the discretion based upon market
conditions to reallocate the proportions of total assets invested in
each investment strategy. No more than 35% of the Fund's total assets
will be invested in non-investment grade debt securities. The Fund may
invest up to 25% of its total assets in foreign securities.
The two separate investment strategies are as follows:
o Utility Securities. Under normal market conditions, the Fund expects
to invest approximately 70% of its total assets to an investment
strategy that focuses on common, preferred and convertible preferred
stocks and convertible debentures of utility companies (water, gas,
electric and telecommunications companies). The Fund may invest this
portion of its assets in companies of all market capitalizations. The
Fund may invest up to 35% of this portion of the Fund's assets in
convertible debentures of utility companies of any quality. Of this
35%, a maximum of 7% may be non-investment grade.

o U.S. High Yield Debt Securities. Under normal market conditions, the
Fund expects to invest approximately 30% of its total assets in an
investment strategy that focuses on U.S. dollar denominated
non-investment grade bonds, debentures and other income obligations.

The high yield securities in which the Fund invests are expected to be
rated between and including B3 and Ba1 by Moody's or B- and BB+ by S&P
or will be unrated but determined by the Advisor to be of comparable
quality. This portion of the Fund will not purchase high yield
securities with a rating of CCC or below, although the Fund may hold
such securities as a result of a downgrade in ratings subsequent to
their purchase. No more than 10% of this portion of the Fund's assets
may be invested in securities that are unrated or rated CCC or below.
Debt securities rated below investment grade are commonly referred to as
"junk bonds" and are considered speculative with respect to the issuer's
capacity to pay interest and repay principal. Non-investment grade debt
securities involve greater risk of loss, are subject to greater price
volatility and are less liquid, especially during periods of economic
uncertainty or change, than higher rated debt securities. For purposes
of the Fund's credit quality policies, if a security receives different
ratings from nationally recognized securities rating organizations, the
Fund will use the rating chosen by the portfolio managers as
most representative of the security's credit quality. The Advisor
anticipates that, assuming the issuance of preferred shares representing
approximately 35% of the Fund's capital immediately after their
issuance, the weighted average duration of the Fund's high yield U.S.
debt securities will be 4.6 to 9.2 years (after leverage), although
there is no guarantee that this range will be obtained.

Tax-advantaged Dividend Income. Recent changes in the tax laws have
allowed qualifying dividends to be taxed at the same rate as long-term
capital gains (currently 15%). Through the Fund's investments in the
utilities sector, the Fund expects to invest a significant portion of
its assets in equity securities that pay quarterly dividends qualifying
for such rate. Therefore, a significant portion of the Fund's yield may
be considered to be tax-advantaged relative to investments in securities
that do not qualify for the same rate as long-term capital gains.
However, because the Fund will also invest in debt obligations, it will
have less tax advantages than a fund fully invested in securities
qualifying for this rate.

In addition to the investment strategies discussed above, the Fund may
also invest in the following:

Foreign Currency Transactions. Foreign currency transactions are
entered into for the purpose of hedging against foreign exchange risk
arising from the Fund's investment or anticipated investment in
securities denominated in foreign currencies. The Fund also may enter
into these contracts for purposes of increasing exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one
country to another. Foreign currency transactions include the purchase
of foreign currency on a spot (or cash) basis, contracts to purchase or
sell foreign currencies at a future date (forward contracts), the
purchase and sale of foreign currency futures contracts, and the
purchase of exchange traded and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies.
Corporate Loans. The Fund may invest a portion of its total assets in
loan participations and other claims against a corporate borrower. The
Fund may invest up to 10% of its total assets in corporate loans. The
corporate loans in which the Fund invests primarily consist of direct
obligations of a borrower. The Fund may invest in a corporate loan at
origination as a co-lender or by acquiring in the secondary market
participations in, assignments of or novations of a corporate loan. By
purchasing a participation, the Fund acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate
borrower.
Derivatives. The Fund may invest up to 10% of its total assets in
futures and options on securities and indices and in other
derivatives. The Fund may use derivatives for a variety of purposes,
including:
o As a hedge against adverse changes in securities market prices or
interest rates; and
o As a substitute for purchasing or selling securities.
In addition, the Fund may enter into interest rate swap transactions
with respect to the total amount the Fund is leveraged in order to hedge
against adverse changes in interest rates affecting dividends payable on
any preferred shares or interest payable on borrowings constituting
leverage. In connection with any such swap transaction, the Fund will
segregate liquid securities in the amount of its obligations under the
transaction. A derivative is a security or instrument whose value is
determined by reference to the value or the change in value of one or
more securities, currencies, indices or other financial instruments.
The Fund does not use derivatives as a primary investment technique and
generally does not anticipate using derivatives for non-hedging
purposes. In the event the Advisor uses derivatives for non-hedging
purposes, no more than 10% of the Fund's total assets will be committed
to initial margin for derivatives for such purposes.
Temporary Investments. Due to current market conditions, investments
that, in the judgment of the Advisor, are appropriate investments for
the Fund may not be immediately available. Therefore, the Fund expects
that there will be an initial investment period of up to three months
following the completion of its common shares offering before it is
fully invested in accordance with its investment objective and
policies. Pending such investment, the Fund anticipates that all or a
portion of the proceeds will be invested in typically lower-yielding
U.S. government securities or high grade, short-term money market
instruments.
See "Investment Objective and Principal Investment Strategies" beginning
on page 23.
Use of Leverage by the Fund........... The Fund initially intends, within approximately three months of the
commencement of the Fund's operations, to issue preferred shares of
beneficial interest representing approximately 35% of the Fund's capital
immediately after their issuance. The Fund may also borrow money from
banks or other financial institutions or issue debt securities. This
practice is known as leverage. The Fund may not be leveraged at all
times and the amount of borrowing or leverage, if any, may vary
depending upon a variety of factors, including the Advisor's outlook for
the fixed income market and the costs that the Fund would incur as a
result of such leverage. The Fund will not issue preferred shares or
borrow money if, immediately after such issuance or borrowing, total
leverage for the Fund exceeds 38% of the Fund's total assets immediately
after such issuance or borrowing. The Fund may also borrow through
reverse repurchase agreements (up to 20% of its total assets subject to
the overall limitation on leverage and borrowings). The Fund's
leveraging strategy may not be successful. By leveraging its investment
portfolio, the Fund creates an opportunity for increased net income or
capital appreciation. However, the use of leverage also involves risks,
which can be significant. These risks include the possibility that the
value of the assets acquired with such borrowing decreases although the
Fund's liability is fixed, greater volatility in the Fund's net asset
value, fluctuations in the dividend paid by the Fund and the market
price of the Fund's common shares and higher expenses. Because the
Advisor's fee is based upon a percentage of the Fund's Total Assets (as
defined below), the Advisor's fee will be higher if the Fund is
leveraged and the Advisor will have an incentive to be more aggressive
and leverage the Fund. The Advisor intends only to leverage the Fund
when it believes that the potential return on such additional
investments is likely to exceed the costs incurred in connection with
the leverage. See "Leverage" beginning on page 30.

Risks................................. For a further discussion on the risks described below, see "Risk
Factors" beginning on page 33.
Risk of No Operating History. The Fund is a newly organized
closed-end management investment company and has no operating history or
history of public trading.
Investment Risk. An investment in the Fund is subject to investment
risk, including the possible loss of the entire principal amount that
you invest. Your investment in the Fund represents an indirect
investment in the securities owned by the Fund. The value of these
securities may increase or decrease, at times rapidly and unexpectedly.
Your investment in the Fund may at any point in the future be worth less
than your original investment even after taking into account the
reinvestment of dividends and distributions.
Concentration Risk. The Fund will invest primarily in securities of
utilities companies. An investment in a fund that concentrates its
investments in a single sector or industry entails greater risk than an
investment in a fund that invests its assets in numerous sectors or
industries. The Fund may be vulnerable to any financial, economic,
political or other development in its concentration sector or industry
that may weaken the sector or industry. As a result, the Fund's shares
may fluctuate more widely in value than those of a fund investing in a
number of different sectors or industries.
Non-Diversification Risk. An investment in a fund that is
non-diversified entails greater risk than an investment in a diversified
fund. When a fund is non-diversified, it may invest a greater
percentage of assets in a single issuer than may be invested by a
diversified fund. A higher percentage of investments among fewer
issuers may result in greater fluctuation in the total market value of
the Fund's portfolio as compared to a fund which invests in numerous
issuers.

Utility Securities Risk. Investments in utility sectors include the
unique risks associated with decreases in the demand for utility company
(water, gas and electric) products and services, increased competition
resulting from deregulation, and rising energy costs, among others.
Such developments also could cause utility companies to reduce the
dividends they pay on their stock, potentially decreasing the dividends
you receive from the Fund. Telecommunications, similar to technology,
is highly dependent on innovation and expansion of existing
technologies, such as internet communications and the ability to access
the internet through cellular phones, as well as intense pricing
competition and industry consolidation. Water, gas and electric
companies typically borrow heavily to support continuing operations.
Increases in interest rates could increase these utility companies'
borrowing costs, which could adversely impact their financial results
and stock price, and ultimately the value of and total return on your
Fund shares.

Investment Style Risk. Securities with different characteristics
tend to shift in and out of favor depending upon market and economic
conditions as well as investor sentiment. The Fund may outperform or
underperform other funds that employ a different style of investing.
The Fund may also employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing. Growth stocks may be more volatile than other stocks because
they are more sensitive to investor perceptions of the issuing company's
earnings growth potential. Growth-oriented funds will typically
underperform when value investing is popular. Value stocks are those
which are undervalued in comparison to their peers due to adverse
business developments or other factors. Value-oriented funds will
typically underperform when growth investing is popular.
Stock Market Risk. Your investment in the Fund will be affected by
general economic conditions such as prevailing economic growth,
inflation and interest rates. When economic growth slows, or interest
or inflation rates increase, equity securities tend to decline in
value. Such events could also cause companies to decrease the dividends
they pay. If these events were to occur, the dividend yield, total
return earned on and the value of your investment would likely decline.
Even if general economic conditions do not change, the dividend yield,
total return earned on and the value of your investment could decline if
the particular industries, companies or sectors in which a Fund invests
do not perform well.
Market Capitalization Risk. The Fund may invest the portion of its
assets invested in utilities securities in securities of companies of
all market capitalizations. Stocks fall into three broad market
capitalization categories--large, medium and small. Investing primarily
in one category carries the risk that due to current market conditions
that category may be out of favor with investors. If valuations of
large capitalization companies appear to be greatly out of proportion to
the valuations of small or medium capitalization companies, investors
may migrate to the stocks of small- and mid-sized companies causing a
fund that invests in these companies to increase in value more rapidly
than a fund that invests in larger, fully-valued companies. Investing
in medium and small capitalization companies may be subject to special
risks associated with narrower product lines, more limited financial
resources, smaller management groups or greater dependence on a few key
employees, and a more limited trading market for their stocks as
compared to larger capitalization companies. As a result, stocks of
small and medium capitalization companies may decline significantly in
market downturns or their value may fluctuate more sharply than other
securities.
Preferred Stock Risk. The Fund may purchase preferred stock.
Preferred stock, unlike common stock, has a stated dividend rate payable
from the corporation's earnings. Preferred stock dividends may be
cumulative or non-cumulative, participating, or auction rate.
"Cumulative" dividend provisions require all or a portion of prior
unpaid dividends to be paid. If interest rates rise, the fixed dividend
on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to
maturity, which can be a negative feature when interest rates decline.
The rights of preferred stock on distribution of a corporation's assets
in the event of a liquidation are generally subordinate to the rights
associated with a corporation's debt securities.

Credit Risk. Credit risk refers to an issuer's ability to make
payments of principal and interest when they are due. Because the Fund
will own securities with low credit quality, it will be subject to a
high level of credit risk. The credit quality of such securities is
considered speculative by rating agencies with respect to the issuer's
ability to pay interest or principal. The prices of lower grade
securities are more sensitive to negative corporate developments, such
as a decline in profits, or adverse economic conditions, such as a
recession, than are the prices of higher grade securities. Securities
that have longer maturities or that do not make regular interest
payments also fluctuate more in price in response to negative corporate
or economic news. Therefore, lower grade securities may experience high
default rates, which could mean that the Fund may lose some of its
investments in such securities. If this occurs, the Fund's net
asset value and ability to make distributions to you would be adversely
affected. The effects of this default risk are significantly greater
for the holders of lower grade securities because these securities often
are unsecured and subordinated to the payment rights of other creditors
of the issuer. The Fund may also be subject to credit risk to the
extent it engages in transactions, such as repurchase agreements or
dollar rolls, which involve a promise by a third party to honor an
obligation to the Fund.
Interest Rate Risk. If interest rates go up, the value of debt
securities and certain dividend paying stocks tends to fall. If a Fund
invests a significant portion of its portfolio in debt securities or
stocks purchased primarily for dividend income, and interest rates rise,
then the value of your investment may decline. If interest rates go
down, interest earned by a Fund on its debt investments may also
decline, which could cause the Fund to reduce the dividends it pays.
The longer the term of a debt security held by a Fund, the more the Fund
is subject to interest rate risk.
High Yield Debt Securities Risk. Investment in high yield securities
involves substantial risk of loss. Non-investment grade debt securities
or comparable unrated securities are commonly referred to as "junk
bonds" and are considered predominantly speculative with respect to the
issuer's ability to pay interest and principal and are susceptible to
default or decline in market value due to adverse economic and business
developments. The market values for high yield securities tend to be
very volatile, and these securities are less liquid than investment
grade debt securities. For these reasons, your investment in the Fund
is subject to the following specific risks:
o Increased price sensitivity to changing interest rates and to a
deteriorating economic environment.
o Greater risk of loss due to default or declining credit quality.
o Adverse company specific events are more likely to render the issuer
unable to make interest and/or principal payments.
o If a negative perception of the high yield market develops, the price
and liquidity of high yield securities may be depressed. This negative
perception could last for a significant period of time.
o Adverse changes in economic conditions are more likely to cause a high
yield issuer to default on principal and interest payments than an
investment grade issuer. The principal amount of high yield securities
outstanding has proliferated in the past decade as an increasing number
of issuers have used high yield securities for corporate financing. An
economic downturn could severely affect the ability of highly leveraged
issuers to service their debt obligations or to repay their obligations
upon maturity.
o The secondary market for high yield securities may not be as liquid as
the secondary market for more highly rated securities, a factor which
may have an adverse effect on the Fund's ability to dispose of a
particular security. There are fewer dealers in the market for high
yield securities than for investment grade obligations. The prices
quoted by different dealers may vary significantly and the spread
between the bid and ask price is generally much larger than for higher
rated instruments. Under adverse market or economic conditions, the
secondary market for high yield securities could contract further,
independent of any specific adverse changes in the condition of a
particular issuer, and these instruments may become illiquid. As a
result, the Fund could find it more difficult to sell these securities
or may be able to sell the securities only at prices lower than if such
securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be
less than the prices used in calculating the Fund's net asset value.
In addition to the risks discussed above, debt securities, including
high yield securities, are subject to certain risks, including:
Issuer Risk. The value of corporate income-producing securities may
decline for a number of reasons which directly relate to the issuer,
such as management performance, financial leverage and reduced demand
for the issuer's goods and services.
Reinvestment Risk. Reinvestment risk is the risk that income from
the Fund's bond portfolio will decline if and when the Fund invests the
proceeds from matured, traded or called bonds at market interest rates
that are below the portfolio's current earnings rate. A decline in
income could affect the common shares' market price or their overall
returns.
Prepayment Risk. During periods of declining interest rates, the
issuer of a security may exercise its option to prepay principal earlier
than scheduled, forcing the Fund to reinvest in lower yielding
securities. Debt securities frequently have call features that allow
the issuer to repurchase the security prior to its stated maturity. An
issuer may redeem an obligation if the issuer can refinance the debt at
a lower cost due to declining interest rates or an improvement in the
credit standing of the issuer.
Extension Risk. During periods of rising interest rates, the average
life of certain types of securities may be extended because of slower
than expected principal payments. This may lock in a below market
interest rate, increase the security's duration (the estimated period
until the security is paid in full) and reduce the value of the security.
Management Risk. The Fund is subject to management risk because it
is an actively managed investment portfolio. The Advisor's judgment
about the attractiveness, relative value or potential appreciation of a
particular sector, security or investment strategy may prove to be
incorrect and there can be no guarantee that it will produce the desired
results.
Foreign (Non-U.S.) Investment Risk. Investing in the securities of
foreign issuers may involve unique risks compared to investing in the
securities of U.S. issuers. Some of these risks do not apply to issuers
located in larger, more developed countries. These risks will be more
pronounced if the Fund invests significantly in emerging market
countries or in one country. For example, political turmoil and
economic instability in the countries in which a Fund invests could
adversely affect the dividend yield, total return earned on and the
value of your investment. Less information about non-U.S. issuers or
markets may be available due to less rigorous disclosure and accounting
standards or regulatory practices. This may make it harder to get
accurate information about a security or company, and increase the
likelihood that an investment will not perform as well as expected.
Many non-U.S. markets are smaller, less liquid and more volatile than
US. markets. In a changing market, the Advisor may not be able to sell
the Fund's portfolio securities in amounts and prices the Advisor
considers reasonable. In addition, if the value of any foreign currency
in which a Fund's investments are denominated declines relative to the
U.S. dollar, the dividend yield, total return earned on and the value of
your investment in the Fund may decline as well.

Currency Devaluation and Fluctuations Risk. The Fund may invest in
non-dollar-denominated investments. The Fund may be limited in its
ability to hedge the value of its non-dollar-denominated investments
against currency fluctuations. As a result, a decline in the value of
currencies in which the Fund's investments are denominated against the
dollar will result in a corresponding decline in the dollar value of the
Fund's assets. These declines will in turn affect the Fund's income and
net asset value.

Convertible Securities Risk. Convertible securities generally offer
lower interest or dividend yields than non-convertible securities
of similar quality. As with all fixed income securities, the market
values of convertible securities tend to decline as interest rates
increase and, conversely, to increase as interest rates decline.
However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the convertible
security tends to reflect the market price of the underlying common
stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis and
thus may not decline in price to the same extent as the underlying
common stock. Convertible securities rank senior to common stocks in an
issuer's capital structure and consequently entail less risk than the
issuer's common stock.
Corporate Loans Risk. The Fund may acquire interests in loans made
by banks or other financial institutions to corporate issuers or
participation interests in such loans (up to 10% of the Fund's total
assets). By purchasing a participation interest in a loan, the Fund
acquires some or all of the interest of a bank or other lending
institution in a loan to a corporate or government borrower. The
participations typically will result in the Fund having a contractual
relationship only with the lender, not the borrower. The Fund will have
the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender selling the participation and
only upon receipt by the lender of the payments from the borrower.
If the Fund only acquires a participation in the loan made by a third
party, the Fund may not be able to control the exercise of any remedies
that the lender would have under the corporate loan. Such third party
participation arrangements are designed to give corporate loan investors
preferential treatment over high yield investors in the event of a
deterioration in the credit quality of the issuer. Even when these
arrangements exist, however, there can be no assurance that the
principal and interest owed on the corporate loan will be repaid in
full. The secondary dealer market for certain corporate loans may not
be as well developed as the secondary dealer market for bonds and,
therefore, presents increased market risk relating to liquidity and
pricing concerns. In addition, the markets in loans are not regulated by
federal securities laws or the Commission.
Derivatives Risk. Even a small investment in derivatives can have
a significant impact on the Fund's exposure to interest rates or currency
exchange rates. If changes in a derivative's value do not correspond to
changes in the value of the Fund's other investments, the Fund may not
fully benefit from or could lose money on the derivative position. In
addition, some derivatives involve risk of loss if the person who issued
the derivative defaults on its obligation. Certain derivatives may be
less liquid and more difficult to value.
Counterparty Risk. The Fund will be subject to credit risk with
respect to the counterparties to the derivatives contracts purchased by
the Fund. If a counterparty becomes bankrupt or otherwise fails to
perform its obligations under a derivative contract due to financial
difficulties, the Fund may experience significant delays in obtaining
any recovery under the derivative contract in a bankruptcy or other
reorganization proceeding. The Fund may obtain only a limited recovery
or may obtain no recovery in such circumstances.
Leverage Risk. The Fund initially intends to issue preferred shares
of beneficial interest representing approximately 35% of the Fund's
capital after their issuance of common shares. The Fund may also borrow
money from banks or other financial institutions or issue debt
securities. The Fund will not issue preferred shares or borrow money
if, immediately after such issuance or borrowing, total leverage for the
Fund exceeds 38% of the Fund's total assets immediately after such
issuance or borrowing. Leverage creates risks which may adversely
affect the return for the holders of common shares, including:
o the likelihood of greater volatility of net asset value, market price
and dividend rate of the Fund's common shares;
o fluctuations in the dividend rates on any preferred shares or in
interest rates on borrowings and short-term debt;
o increased operating costs, which may reduce the Fund's total return;
and
o the potential for a decline in the value of an investment acquired
with borrowed funds, while the Fund's obligations under such borrowing
remain fixed.
To the extent the income or capital appreciation derived from securities
purchased with funds received from leverage exceeds the cost of
leverage, the Fund's return will be greater than if leverage had not
been used. Conversely, if the income or capital appreciation from the
securities purchased with such funds is not sufficient to cover the cost
of leverage or if the Fund incurs capital losses, the return of the Fund
will be less than if leverage had not been used, and therefore the
amount available for distribution to shareholders as dividends and other
distributions will be reduced or potentially eliminated.
Certain types of borrowings may result in the Fund being subject to
covenants in credit agreements, including those relating to asset
coverage, borrowing base and portfolio composition requirements and
additional covenants that may affect the Fund's ability to pay dividends
and distributions on common shares in certain instances. The Fund may
also be required to pledge its assets to the lenders in connection with
certain types of borrowing. The Fund may be subject to certain
restrictions on investments imposed by guidelines of one or more
nationally recognized rating organizations which may issue ratings for
the preferred shares or short-term debt instruments issued by the Fund.
These guidelines may impose asset coverage or portfolio composition
requirements that are more stringent than those imposed by the
Investment Company Act of 1940, as amended (the "1940 Act").
Market Price of Shares Risk. Whether investors will realize a gain or
loss upon the sale of the Fund's common shares will depend upon whether
the market value of the shares at the time of sale is above or below the
price the investor paid, taking into account transaction costs, for the
shares and is not directly dependent upon the Fund's net asset value.
Because the market value of the Fund's shares will be determined by
factors such as the relative demand for and supply of the shares in the
market, general market conditions and other factors beyond the control
of the Fund, the Fund cannot predict whether its common shares will
trade at, below or above net asset value, or below or above the initial
offering price for the shares.
Market Disruption and Geopolitical Risk. The war with Iraq, its
aftermath and the continuing occupation of Iraq are likely to have a
substantial impact on the U.S. and the world economies and securities
markets. The nature, scope and duration of the occupation cannot be
predicted with any certainty. Terrorist attacks on the World Trade
Center and Pentagon on September 11, 2001 closed some of the U.S.
securities markets for a four-day period and the occurrence of similar
events in the future cannot be ruled out. The war and occupation,
terrorism and related geopolitical risks have led, and may in the future
lead, to increased short-term market volatility and may have adverse
long-term effects on the U.S. and world economies and markets
generally. Those events could also have an acute effect on individual
issuers or related groups of issuers, securities markets, interest
rates, auctions, secondary trading, ratings, credit risk, inflation and
other factors relating to the common shares.
Inflation Risk. Inflation risk is the risk that the value of assets
or income from the Fund's investments will be worth less in the future
as inflation decreases the value of money. As inflation increases, the
real, or inflation-adjusted, value of the common shares and
distributions can decline and the dividend payments on the Fund's
preferred shares, if any, or interest payments on Fund borrowings, if
any, may increase.
Market Discount Risk. Shares of closed-end funds frequently trade at
prices lower than their net asset value. This is commonly referred to
as "trading at a discount." This characteristic of shares of closed-end
funds is a risk separate and distinct from the risk that the Fund's net
asset value may decrease. Investors who sell their shares within a
relatively short period after completion of the public offering are
likely to be exposed to this risk. Accordingly, the Fund is designed
primarily for long-term investors and should not be considered a vehicle
for trading purposes. Net asset value will be reduced following the
offering by the underwriting discount and the amount of offering
expenses paid by the Fund.
Tender Offers (Evergreen Enhanced Liquidity Plan) Risk. The Fund's
potential quarterly tender offers for common shares may prevent the Fund
from taking advantage of attractive investment opportunities. Moreover,
if the Fund does not generate sufficient cash flow from operations, it
may be forced to sell investments at disadvantageous times, and in
amounts that the Adviser would not otherwise contemplate, or to borrow
money, in order to make such tender offers. If the Fund borrows money,
rather than liquidate investments, to fund a tender offer, it is subject
to the risk that investment return on the common shares will be reduced
to the extent the cost of borrowings exceeds income on the retained
investments.

Liquidity Risk. The Fund does not intend to purchase illiquid
securities, which are securities that cannot be disposed of within seven
days in the ordinary course of business at approximately the value at
which the Fund has valued the securities. However, the Fund is not
required to sell or dispose of any debt security that becomes illiquid
subsequent to its purchase. Illiquid securities may be subject to wide
fluctuations in market value. The Fund may be subject to significant
delays in disposing of illiquid securities. Accordingly, the Fund may be
forced to sell these securities at less than fair market value or may
not be able to sell them when the Advisor believes that it is desirable
to do so. Illiquid securities also may entail registration expenses and
other transaction costs that are higher than those for liquid securities.
Anti-takeover Provisions Risk. The Fund's Declaration of Trust and
By-laws include provisions that could limit the ability of other
entities or persons to acquire control of the Fund or to change
the composition of its Board of Trustees. Such provisions could limit the
ability of shareholders to sell their shares at a premium over
prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund. These provisions include staggered terms of
office for the Trustees, advance notice requirements for shareholder
proposals, and super-majority voting requirements for open-ending the
Fund or a merger, liquidation, asset sale or similar transactions.
Other Regulatory Matters Risk. Governmental and self-regulatory
authorities have instituted numerous ongoing investigations of various
practices in the securities and mutual fund industries, including those
relating to market-timing and late trading. The investigations cover
advisory companies to mutual funds (including the Advisor),
broker-dealers, hedge funds and others. Wachovia Corporation (the
Advisor's parent) and/or certain of its subsidiaries (including the
Advisor) have received subpoenas and/or other requests for documents and
testimony relating to the investigations, are attempting to comply with
those requests and are cooperating with the investigations. Wachovia
Corporation and its subsidiaries, including the Advisor, are continuing
their own internal review of policies, practices, procedures and
personnel, and are taking remedial actions where appropriate. Wachovia
Corporation also is cooperating with governmental and self-regulatory
authorities in matters relating to the brokerage operations of
Prudential Financial, Inc. ("Prudential") that were included in Wachovia
Corporation's retail brokerage combination with Prudential. Under the
terms of that transaction, Wachovia Corporation is indemnified by
Prudential for liabilities relating to those matters.
Based on information currently available, advice of counsel, available
insurance coverage and established reserves, Wachovia Corporation
believes that the eventual outcome of the actions against Wachovia
Corporation and/or its subsidiaries, including the matters described
above, will not, individually or in the aggregate, have a material
adverse effect on Wachovia Corporation's consolidated financial position
or results of operations or on its subsidiaries, including the Advisor.
However, in the event of unexpected future developments, it is possible
that the ultimate resolution of those matters, if unfavorable, may be
material to Wachovia Corporation's results of operations for any
particular period, including for that of the Advisor.
Investment Adviser.................... Evergreen Investment Management Company, LLC (previously defined as the
"Advisor") is responsible on a day-to-day basis for investment of the
Fund's portfolio in accordance with its investment objective and
policies. Day-to-day management of these portions of the Fund's
portfolio is the responsibility of a team of portfolio management
professionals from the Advisor's High Yield Bond and Value Equity teams,
respectively.

The Advisor has been managing mutual funds and private accounts since
1932 and, as of December 31, 2003, with its affiliates, managed over
$247 billion in assets, including more than $4.5 billion in high yield
fixed income assets. The Advisor is a wholly-owned subsidiary of
Wachovia Corporation.

The Fund pays the Advisor an annual fee for its investment advisory
services equal to 0.60% of the Fund's average daily Total Assets. This
fee is payable monthly. "Total Assets" means the net assets of the Fund
(plus borrowings or other leverage for investment purposes to the extent
excluded in calculating net assets) See "Management of the Fund"
beginning on page 41.

Listing............................... Currently, there is no public market for the Fund's common shares. The
Fund has applied for listing on the American Stock Exchange under the
===========
symbol "ERH".

Custodian and Transfer Agent.......... State Street Bank and Trust Company will serve as the Fund's custodian,
and EquiServe Trust Company, N.A. will serve as the Fund's transfer
agent.
Administrator......................... The Fund has engaged Evergreen Investment Services, Inc. ("EIS") to
provide certain administrative services for the Fund. The Fund will pay
the administrator a monthly fee computed at an annual rate of 0.05% of
the Fund's average daily Total Assets.
Market Price of Common Shares........... Common shares of closed-end investment companies frequently trade at prices
lower than their net asset value. Common
shares of closed-end investment companies have in the past during some
periods traded at prices higher than their net asset value and during
other periods traded at prices lower then their net asset value. The
Fund cannot assure you that its common shares will trade at a price
higher than or equal to net asset value. The Fund's net asset value will
be reduced immediately following this offering by the sales load and the
amount of the organization and offering expenses paid by the Fund. See
"Use of Proceeds." In addition to net asset value, the market price of
the Fund's common shares may be affected by such factors as the Fund's
use of leverage, dividend stability, portfolio credit quality,
liquidity, market supply and demand, the Fund's dividends paid (which
are in turn affected by expenses), call protection for portfolio
securities and interest rate movements. See "Leverage," "Risk Factors"
and "Description of Shares." The Fund's common shares are designed
primarily for long-term investors, and you should not purchase common
shares if you intend to sell them shortly after purchase.
Distributions......................... The Fund intends to distribute to common shareholders all or a portion
of its net investment income monthly and net realized capital gains, if
any, at least annually. While the Fund will attempt to maintain a
stable level of distributions, the Fund will still comply with
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to seek an exemptive order from the Commission
that would allow it to distribute capital gains monthly to further allow
it to maintain a stable level of distributions to shareholders. The
Fund expects that it will declare initial distributions within
approximately 45 days and commence paying dividends within approximately
60 to 90 days from the date of this prospectus. However, investments
that, in the judgment of the Advisor, are appropriate investments for
the Fund may not be immediately available. Therefore, the Fund expects
that there will be a period of up to three months following
the completion of its common shares offering before it is fully invested
in accordance with its investment objective and policies. Pending such
investment, the Fund anticipates that all or a portion of the proceeds
will be invested in U.S. government securities or high grade, short-term
money market instruments.
At times, in order to maintain a stable level of distributions, the Fund
may pay out less than all of its net investment income or pay out
accumulated undistributed income in addition to current net investment
income.
Dividend and capital gains distributions generally are reinvested in
additional common shares of the Fund. However, an investor can choose
to receive distributions in cash. Since not all investors can
participate in the Fund's Automatic Dividend Reinvestment Plan (the
"Plan"), you should contact your broker or nominee to confirm that you
are eligible to participate in the Plan. See "Dividends and
Distributions" beginning on page 43.
Tender Offers (Evergreen
Enhanced Liquidity Plan)............ For a time period of eight consecutive calendar quarters beginning six
to eight months after the Fund's commencement of operations, if the
Fund's common shares trade at a greater than 5% discount to net asset
value for a certain number of days during a quarter, the Fund intends to
make a tender offer during such quarter for up to 5% of the Fund's
outstanding common shares at net asset value, subject to certain
conditions described in this prospectus. The Fund will make its first
tender offer within the first six to eight months of the Fund's
operations and for the next seven consecutive calendar quarters of
operation thereafter if certain conditions are met. See "Tender Offers
(Evergreen Enhanced Liquidity Plan)" beginning on page 50.

SUMMARY OF FUND EXPENSES

The following fee table shows the Fund's estimated expenses as a percentage
of net assets attributable to common shares assuming the use of leverage through
the issuance of preferred shares in an amount equal to 35% of the Fund's
capital. Footnote 2 to the table also shows Fund estimated expenses as a
percentage of net assets attributable to common shares, but assumes that no
preferred shares are issued or outstanding (such as will be the case prior to
the Fund's expected issuance of preferred shares.)

Shareholder Transaction Expenses:
Sales Load (as a percentage of offering price)................................. 4.50%
Dividend Reinvestment Plan Fees................................................ None(1)

Percentage of net assets
attributable to common
shares (assuming the issuance
of Fund preferred shares)(2)
---------------------------
Annual Expenses:
Management Fee................................................................. 0.92%
Other Expenses................................................................. 0.38%(3)(4)
-----
Total Annual Expenses.......................................................... 1.30%(5)

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

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

Percentage of net assets
attributable to common
shares (assuming no
Fund preferred shares
are issued or outstanding)
------------------------
Annual Expenses:
Management Fee............................................................. 0.60%
Other Expenses............................................................. 0.20%(3)
-----
Total Annual Expenses.............................................. 0.80% (5)(6)
-----

(3) Other Expenses includes an administrative services fee of 0.05% of the
Fund's average daily Total Assets payable to EIS, an affiliate of the
Advisor.

(4) If the Fund offers preferred shares, costs of the offering, estimated to be
approximately 1.20% of the total dollar amount of the Fund preferred share
offering, will effectively be borne by the shareholders of common shares
and result in the reduction of the paid-in capital attributable to the
common shares. Assuming the issuance of Fund preferred shares in an amount
equal to 35% of the Fund's capital (after issuance), those offering costs
are estimated to be no more than approximately $0.13 per common share
(0.64% of the offering price or $1,609,979 based on a $250,000,000
offering). These offering costs are not included among the expenses shown
in the table.

(5) The Fund will bear expenses in connection with the offering in an amount up
to $0.04 per share. The Advisor has agreed to pay the amount by which the
aggregate of all of the Fund's organizational expenses and all offering
costs (other than the sales load) exceeds $0.04 per common share (0.20% of
the offering price). These offering costs are not included among the
expenses shown in the table. If the Fund completes an offering of preferred
shares, the Fund will also pay expenses in connection with such offering.

(6) The Advisor has agreed to contractually waive the management fee and/or
reimburse expenses in order to limit Total Annual Expenses to 1.50% if
preferred shares are issued and to 1.00% if no preferred shares are issued.

The purpose of the tables in this section is to assist you in understanding
the various costs and expenses that a shareholder will bear directly or
indirectly by investing in the Fund's common shares. The amount set forth under
Other Expenses in each table is based upon estimates for the Fund's first year
of operations and assumes that the Fund issues approximately 12,500,000 common
shares and, with respect to the first table, issues preferred shares as a means
of leverage. If the Fund issues fewer common shares, all other things being
equal, these expenses as a percentage of net assets would increase. For
additional information with respect to the Fund's expenses, see "Management of
the Fund."

The following example illustrates the expenses that you would pay on a
$1,000 investment in common shares (including the sales load of $45, estimated
offering expenses of this offering of $2.00 and the estimated offering costs of
issuing preferred shares, assuming the Fund issues preferred shares representing
35% of the Fund's capital (after their issuance) of $6.44) in years one through
ten, assuming (1) total net annual expenses of 1.30% of net assets attributable
to common shares (assuming the issuance of preferred shares) and (2) a 5% annual
return:*

1 Year 3 Years 5 Years 10 Years
------- ------- ------- -------
Total Expenses Incurred..................... $66 $93 $122 $203

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

THE FUND

The Fund is a newly organized, non-diversified, closed-end management
investment company. The Fund was organized as a statutory trust under the laws
of the state of Delaware on February 4, 2004, and has registered under the 1940
Act. As a recently organized entity, the Fund has no operating history. The
Fund's principal offices are located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034, and its telephone number is 1-800-343-2898.

USE OF PROCEEDS

The net proceeds of this offering will be approximately $ (or approximately
$ assuming the underwriters exercise the overallotment option in full) after
payment of offering costs estimated to be approximately $ .. and the deduction
of the sales load. The Advisor has agreed to pay the amount by which the
aggregate of all of the Fund's organizational expenses and offering costs (other
than the sales load) exceeds $0.04 per common share.

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

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

Investment Objective
The Fund's investment objective is to seek a high level of current income
and moderate capital growth, with an emphasis on providing tax-advantaged
dividend income. The Fund's investment objective is a fundamental policy and may
not be changed without the approval of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund. The Fund makes no assurance
that it will realize its objective.

Principal Investment Strategies

Under normal market conditions, the Fund will invest at least 80% of its
net assets in securities of utilities companies (water, gas, electric and
telecommunications companies) and in U.S non-investment grade debt securities.
Under normal market conditions, the Fund allocates approximately 70% of its
total assets to an investment strategy that focuses on common, preferred and
convertible preferred stocks and convertible debentures of utility (water, gas,
electric and telecommunications companies), and approximately 30% of its total
assets in an investment strategy that focuses on U.S. dollar denominated
non-investment grade bonds, debentures, and other income obligations. This is a
non-fundamental policy and may be changed by the Board of Trustees of the Fund
so long as shareholders are provided with at least 60 days prior written notice
of any change as required by the rules under the 1940 Act. The Advisor reserves
the discretion based upon market conditions to reallocate the proportions of
total assets invested in each investment strategy. No more than 35% of the
Fund's total assets will be invested in non-investment grade debt securities.
The Fund may invest up to 25% of its total assets in foreign securities.

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

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

o Utility Securities. Under normal market conditions, the Fund expects to
invest approximately 70% of its total assets in an investment strategy that
focuses on common, preferred and convertible preferred stocks and convertible
debentures of utility companies (water, gas, electric and telecommunications
companies). The Fund may invest this portion of its assets in companies of all
market capitalizations. This portion generally will be invested in approximately
60 to 70 different securities of utilities companies. In addition, the Fund may
invest up to 35% of this portion of the Fund's assets in convertible debentures
of utility companies of any quality. Of this 35%, a maximum of 7% may be
non-investment grade.

Recent changes in the tax laws have allowed qualifying dividends to be
taxed at the same rate as long-term capital gains (currently 15%). Through the
Fund's investments in the utilities sector, the Fund expects to invest a
significant portion of its assets in equity securities that pay quarterly
dividends qualifying for such rate. Therefore, a significant portion of the
Fund's yield may be considered to be tax-advantaged relative to investments in
securities that do not qualify for the same rate as long-term capital gains.
However, because the Fund will also invest in debt obligations, it will have
less tax advantages than a fund fully invested in securities qualifying for this
rate.

o U.S. High Yield Debt Securities. Under normal market conditions, the Fund
invests approximately 30% of its total assets in an investment strategy that
focuses on U.S. dollar denominated non-investment grade bonds, debentures and
other income obligations.

The high yield securities in which this portion of the Fund invests are
expected to be rated between and including B3 and Ba1 by Moody's or B- and BB+
by S&P or will be unrated but determined by the Advisor to be of comparable
quality. This portion of the Fund's portfolio targets securities with a minimum
rating of B to BB at the time of purchase and attempts to maintain a weighted
average credit quality with respect to the high yield securities of B to BB.
This portion of the Fund will not purchase high yield securities with a rating
of CCC or below, although the Fund may hold such securities as a result of a
downgrade in ratings subsequent to their purchase. No more than 10% of this
portion of the Fund's assets may be invested in securities that are rated CCC or
below or are unrated. Debt securities rated below investment grade are commonly
referred to as "junk bonds" and are considered speculative with respect to the
issuer's capacity to pay interest and repay principal. Non-investment grade debt
securities involve greater risk of loss, are subject to greater price volatility
and are less liquid, especially during periods of economic uncertainty or
change, than higher rated debt securities. For purposes of the Fund's credit
quality policies, if a security receives different ratings from nationally
recognized securities rating organizations, the Fund will use the rating chosen
by the portfolio managers as most representative of the security's credit
quality. The Fund's high yield securities may have fixed or variable principal
payments and all types of interest rate and dividend payment and reset terms,
including fixed rate, adjustable rate, contingent, deferred, payment in kind and
auction rate features. The Fund invests in high yield securities with a broad
range of maturities. The Advisor anticipates that, assuming the issuance of
preferred shares representing approximately 35% of the Fund's capital
immediately after their issuance, the weighted average duration of the Fund's
high yield U.S. debt securities will be 4.6 to 9.2 years (after leverage),
although there is no guarantee that this range will be obtained. Maturity
measures the average final payable dates of debt instruments. Duration measures
the average life of a bond, defined as the weighted-average maturity of the
periods until payment is made, with weights proportional to the present value of
payment. For example, a fund with a duration of 5 years would likely drop 5% in
value if interest rates rise one percentage. Because the Fund will be leveraged,
its net asset value may fall more than 5% because changes in the value of the
Fund are borne entirely by the common shareholders.

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

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

Other Investment Techniques and Strategies

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

Investments in Equity Securities. The Fund may invest in equity securities.
Equity securities, such as common stock, generally represent an ownership
interest in a company. While equity securities have historically generated
higher average returns than fixed income securities, equity securities have also
experienced significantly more volatility in those returns. An adverse event,
such as an unfavorable earnings report, may depress the value of a particular
equity security held by the Fund. Also, the price of equity securities,
particularly common stocks, are sensitive to general movements in the stock
market. A drop in the stock market may depress the price of equity securities
held by the Fund.

Convertible and Other Securities. The Fund's investment in fixed income
securities may include bonds and preferred stocks that are convertible into the
equity securities of the issuer or a related company. The Fund will not invest
more than 35% of the utilities portion of the Fund's assets in convertible
securities of any quality. Of this 35%, a maximum of 7% may be non-investment
grade. Depending upon the relationship of the conversion price to the market
value of the underlying securities, convertible securities may trade more like
equity securities than debt instruments.

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

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

Corporate Loans. The Fund may invest a portion of its assets in loan
participations and other claims against corporate borrowers. The Fund may invest
up to 10% of its total assets in corporate loans. The Fund considers corporate
loans to be high yield debt instruments if the issuer has outstanding debt
securities rated below investment grade or has no rated securities, and includes
corporate loans in determining the percentage of its total assets that are
invested in high yield debt instruments. The corporate loans in which the Fund
invests primarily consist of direct obligations of a borrower. The Fund may
invest in a corporate loan at origination as a co-lender or by acquiring in the
secondary market participations in, assignments of or novations of a corporate
loan. By purchasing a participation, the Fund acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate
borrower. The participations typically will result in the Fund having a
contractual relationship only with the lender, not the borrower. The Fund will
have the right to receive payments of principal, interest and any fees to which
it is entitled only from the lender selling the participation and only upon
receipt by the lender of the payments from the borrower. Many such loans are
secured, although some may be unsecured. Loans that are fully secured offer the
Fund more protection than an unsecured loan in the event of non-payment of
scheduled interest or principal. However, there is no assurance that the
liquidation of collateral from a secured loan would satisfy the corporate
borrower's obligation, or that the collateral can be liquidated. Direct debt
instruments may involve a risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to the Fund in the event of fraud
or misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. The markets in
loans are not regulated by federal securities laws or the Commission.

As in the case of other high yield investments, such corporate loans may be
rated in the lower rating categories of the established rating services (B3 or
higher by Moody's or B- or higher by S&P), or may be unrated investments
considered by the Advisor to be of comparable quality. As in the case of other
high yield investments, such corporate loans can be expected to provide higher
yields than lower yielding, higher rated fixed income securities, but may be
subject to greater risk of loss of principal and income. There are, however,
some significant differences between corporate loans and high yield bonds.
Corporate loan obligations are frequently secured by pledges of liens and
security interests in the assets of the borrower, and the holders of corporate
loans are frequently the beneficiaries of debt service subordination provisions
imposed on the borrower's bondholders. These arrangements are designed to give
corporate loan investors preferential treatment over high yield investors in the
event of a deterioration in the credit quality of the issuer. Even when these
arrangements exist, however, there can be no assurance that the borrowers of the
corporate loans will repay principal and/or pay interest in full. Corporate
loans generally bear interest at rates set at a margin above a generally
recognized base lending rate that may fluctuate on a day-to-day basis, in the
case of the prime rate of a U.S. bank. Consequently, the value of corporate
loans held by the Fund may be expected to fluctuate significantly less than the
value of other fixed rate high yield instruments as a result of changes in the
interest rate environment. On the other hand, the secondary dealer market for
certain corporate loans may not be as well developed as the secondary dealer
market for high yield bonds and, therefore, presents increased market risk
relating to liquidity and pricing concerns.

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

U.S. Government Securities. U.S. government securities in which the Fund
may invest include debt obligations of varying maturities issued by the U.S.
Treasury or issued or guaranteed by an agency or instrumentality of the U.S.
government, including the Federal Housing Administration, Federal Financing
Bank, Farmers Home Administration, Export-Import Bank of the United States,
Small Business Administration, Government National Mortgage Association (GNMA),
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
(FHLMC), Federal National Mortgage Association (FNMA), Maritime Administration,
Tennessee Valley Authority, District of Columbia Armory Board, Student Loan
Marketing Association, Resolution Trust Corporation and various institutions
that previously were or currently are part of the Farm Credit System (which has
been undergoing reorganization since 1987). Some U.S. government securities,
such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ
only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the United States. Securities issued by GNMA, but
not those issued by FNMA or FHLMC, are also backed by the full faith and credit
of the U.S. government. Others are supported by: (1) the right of the issuer to
borrow from the U.S. Treasury, such as securities of the Federal Home Loan
Banks; (2) the discretionary authority of the U.S. government to purchase the
agency's obligations, such as securities of the FNMA or FHLMC; or (3) only the
credit of the issuer. In general, securities issued by U.S. government-sponsored
entities are neither insured nor guaranteed by the U.S. Treasury. No assurance
can be given that the U.S. government will provide financial support in the
future to U.S. government agencies, authorities or instrumentalities that are
not supported by the full faith and credit of the United States. Securities
guaranteed as to principal and interest by the U.S. government, its agencies,
authorities or instrumentalities include: (i) securities for which the payment
of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government or any of its agencies, authorities or instrumentalities;
and (ii) participations in loans made to non-U.S. governments or other entities
that are so guaranteed. The secondary market for certain of these participations
is limited and, therefore, they may be regarded as illiquid (i.e., the Fund
cannot easily resell them within seven days at current value).

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

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

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

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

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

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

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

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

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

As with other extensions of credit, there are risks of delay in recovery or
even loss of rights in the collateral should the borrower of the securities fail
financially. The Fund will lend portfolio securities only to firms that have
been approved in advance by the Board of Trustees, which will monitor the
creditworthiness of any such firms. At no time would the value of the securities
loaned exceed 35% of the value of the Fund's total assets.

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

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

Benefits of Investing in the Fund

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

The Advisor's Investment Approach

The Fund combines investments in high yield debt securities with equity
securities and convertible debentures of utilities companies. Each of these
sectors has its own distinct attributes that the Advisor believes could
contribute to the potential for the Fund to achieve its investment objective.
There is no guarantee that the Fund will obtain its investment objective. The
Fund is managed following a rigorous investment process that emphasizes both
quality and value. The research-driven approach includes both a top-down review
of macroeconomic factors and intensive, bottom-up scrutiny of individual
securities. The Advisor considers both broad economic and issuer specific
factors in selecting a portfolio which it believes will achieve the Fund's
investment objective. In assessing the appropriate maturity and duration for the
Fund's portfolio and the credit quality parameters and weighting objectives for
sector and industry of each portion of the Fund's portfolio, the Advisor
considers a variety of factors that are expected to influence the economic
environment and the dynamics of the equity and debt securities markets. These
factors include fundamental economic indicators, such as interest rate trends,
the rates of economic growth and inflation, the performance of equity markets,
commodities prices, monetary policies in the U.S. and overseas and the relative
value of the U.S. dollar compared to other currencies. Once the Advisor
determines the preferable portfolio characteristics, the Advisor conducts
further evaluation to determine capacity and inventory levels in the utility
industry. The Advisor considers a number of factors when selecting individual
utility company stocks: a history of high dividends and profits; the size of the
company's market and market share; competitive or technological advantages that
may help it in the future; potential merger activity; and the projected
volatility of the company or industry. The stock selection is based on a blended
style of equity management that allows it to invest in both value- and
growth-oriented equity securities. The Advisor also selects individual
securities based upon the terms of the securities (such as yields compared to
U.S. Treasuries or comparable issues), liquidity and rating. In addition, the
Advisor employs due diligence and fundamental research to assess an issuer's
credit quality, taking into account financial condition and profitability,
future capital needs, potential for change in rating, industry outlook, the
competitive environment and management ability. The Advisor uses extensive,
proprietary research and broad sector diversification to help manage risk. The
Advisor considers both macro- and microeconomic factors -- such as inflation,
consumer spending and wages -- that affect the conditions of firms in the Fund's
portfolio.

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

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

LEVERAGE

To increase its assets available for investment, the Fund initially
intends, within approximately three months of the commencement of the Fund's
operations, to issue preferred shares of beneficial interest representing
approximately 35% of the Fund's capital immediately after their issuance. The
Fund currently does not intend to have multiple issues of preferred shares but
reserves the right to do so. The Fund may also borrow money from banks or
financial institutions or issue debt securities. The Fund generally will not
issue preferred shares or borrow unless the Advisor expects that the Fund will
achieve a greater return on such borrowed funds than the additional costs the
Fund incurs as a result of such leverage. The Fund also may borrow money as a
temporary measure for extraordinary or emergency purposes, including the payment
of dividends and the settlement of securities transactions which otherwise might
require untimely dispositions of the Fund's holdings. The Fund will not issue
preferred shares or borrow money if, immediately after such issuance or
borrowing, total leverage for the Fund exceeds 38% of the Fund's total assets.
The Fund may also borrow through reverse repurchase agreements (up to 20% of its
total assets). Reverse repurchase agreements involve the sale of a security by
the Fund to another party (generally a bank or dealer) in return for cash and an
agreement by the Fund to buy the security back at a specified price and time.
When the Fund leverages its assets, the fees paid to the Advisor for investment
advisory and management services will be higher than if the Fund did not
leverage because the Advisor's fees are calculated based on the Fund's total
assets including the proceeds of the issuance of preferred shares or any other
amounts representing leverage. Consequently, the Fund and the Advisor may have
differing interests in determining whether to leverage the Fund's assets. The
Board of Trustees will monitor this potential conflict.

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

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

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

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

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

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

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

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

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

If and to the extent that the Fund employs leverage will depend on many
factors, the most important of which are investment outlook, market conditions
and interest rates. Successful use of a leveraging strategy depends on the
Advisor's ability to predict correctly interest rates and market movements. The
Advisor generally expects to utilize leverage when the Fund can borrow at a
lower rate than the securities it invests in are likely to return or yield.
There is no assurance that a leveraging strategy will be successful during any
period in which it is employed.

The Fund has the ability to hedge the short-term interest rate exposure of
the preferred shares. The Fund initially intends to hedge a substantial portion
of such short-term interest rate exposure through engaging in interest rate
swaps or other investment techniques. Since the hedge is designed to protect
against adverse changes to interest rates, the usefulness of the hedge is
dependent on the direction of interest rate movements. If interest rates fall,
the full value of the hedge may not be obtained.

Assuming the Fund issues preferred shares with a liquidation preference
equal to approximately 35% of the Fund's total assets and an annual dividend
rate of 2.13% of such liquidation preference (which rate is approximately the
rate which the Advisor expects the Fund to pay after hedging, based on market
rates as of the date of this prospectus), the Fund would need to achieve an
annual return on its total assets (net of expenses) of 0.75% in order to cover
such dividend payments on the preferred shares. Of course, these numbers are
merely estimates, used for illustration. Actual preferred share dividend rates
will vary frequently and may be significantly higher or lower than the rate
identified above.

The following table illustrates the hypothetical effect on the return to a
holder of the Fund's common shares of the leverage obtained by issuing preferred
shares with a liquidation value equal to 35% of the Fund's total assets,
assuming hypothetical annual returns of the Fund's portfolio of minus 10% to
plus 10%. As the table shows, leverage generally increases the return to
shareholders when portfolio return is positive and greater than the cost of
leverage and decreases the return when the portfolio return is negative or less
than the cost of leverage. The figures appearing in the table are hypothetical
and actual returns may be greater or less than those appearing in the table.

Assumed portfolio return (net of expenses) (10.00)% (5.00) % 0.00% 5.00 % 10.00%
Corresponding common share return (16.53)% (8.84) % (1.15)% 6.55 % 14.24%

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

RISK FACTORS

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

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

Investment Risk. An investment in the Fund is subject to investment risk,
including the possible loss of the entire principal amount that you invest. Your
investment in the Fund represents an indirect investment in the securities owned
by the Fund. The value of these securities may increase or decrease, at times
rapidly and unexpectedly. Your investment in the Fund may at any point in the
future be worth less than your original investment even after taking into
account the reinvestment of dividends and distributions.

Concentration Risk. An investment in a fund that concentrates its
investments in a single sector or industry entails greater risk than an
investment in a fund that invests its assets in numerous sectors or industries.
A Fund may be vulnerable to any financial, economic, political or other
development in its concentration sector or industry that may weaken the sector
or industry. As a result, the Fund's shares may fluctuate more widely in value
than those of a fund investing in a number of different sectors or industries.

Non-Diversification Risk. The Fund will invest primarily in securities of
utilities (including telecommunications) companies. An investment in a fund that
is non-diversified entails greater risk than an investment in a diversified
fund. When a fund is non-diversified, it may invest a greater percentage of
assets in a single issuer than may be invested by a diversified fund. A higher
percentage of investments among fewer issuers may result in greater fluctuation
in the total market value of the Fund's portfolio as compared to a fund which
invests in numerous issuers.

Utility Securities Risk. Investments in utility sectors include the unique
risks associated with decreases in the demand for utility company products and
services, increased competition resulting from deregulation, and rising energy
costs, among others. Such developments also could cause utility companies such
as water, gas and electric companies, to reduce the dividends they pay on their
stock, potentially decreasing the dividends you receive from the Fund.
Telecommunications, similar to technology, is highly dependent on innovation and
expansion of existing technologies, such as internet communications and the
ability to access the internet through cellular phones, as well as intense
pricing competition and industry consolidation. Water, gas and electric
companies typically borrow heavily to support continuing operations. Increases
in interest rates could increase these utility companies' borrowing costs, which
could adversely impact their financial results and stock price, and ultimately
the value of and total return on your Fund shares.

Stock Market Risk. Your investment in the Fund will be affected by general
economic conditions such as prevailing economic growth, inflation and interest
rates. When economic growth slows, or interest or inflation rates increase,
equity securities tend to decline in value. Such events could also cause
companies to decrease the dividends they pay. If these events were to occur, the
dividend yield, total return earned on and the value of your investment would
likely decline. Even if general economic conditions do not change, the dividend
yield, total return earned on and the value of your investment could decline if
the particular industries, companies or sectors in which a Fund invests do not
perform well.

Market Capitalization Risk. The Fund may invest the portion of its assets
invested in utilities securities in securities of companies of all market
capitalizations. Stocks fall into three broad market capitalization
categories--large, medium and small. Investing primarily in one category carries
the risk that due to current market conditions that category may be out of favor
with investors. If valuations of large capitalization companies appear to be
greatly out of proportion to the valuations of small or medium capitalization
companies, investors may migrate to the stocks of small- and mid-sized companies
causing a fund that invests in these companies to increase in value more rapidly
than a fund that invests in larger, fully-valued companies. Investing in medium
and small capitalization companies may be subject to special risks associated
with narrower product lines, more limited financial resources, smaller
management groups or greater dependence on a few key employees, and a more
limited trading market for their stocks as compared to larger capitalization
companies. As a result, stocks of small and medium capitalization companies may
decline significantly in market downturns or their value may fluctuate more
sharply than other securities.

Preferred Stock Risk. The Fund may purchase preferred stock. Preferred
stock, unlike common stock, has a stated dividend rate payable from the
corporation's earnings. Preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. "Cumulative" dividend provisions
require all or a portion of prior unpaid dividends to be paid. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, which
can be a negative feature when interest rates decline. The rights of preferred
stock on distribution of a corporation's assets in the event of a liquidation
are generally subordinate to the rights associated with a corporation's debt
securities.

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

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

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

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

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

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

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

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

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

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

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

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

Adverse changes in economic conditions are more likely to cause a high
yield issuer to default on principal and interest payments than an investment
grade issuer. The principal amount of high yield securities outstanding has
proliferated in the past decade as an increasing number of issuers have used
high yield securities for corporate financing. An economic downturn could
severely affect the ability of highly leveraged issuers to service their debt
obligations or to repay their obligations upon maturity. If the national economy
enters into a deeper recessionary phase during 2004 or interest rates rise
sharply, the number of defaults by high yield issuers is likely to increase.
Similarly, down-turns in profitability in specific industries could adversely
affect the ability of high yield issuers in those industries to meet their
obligations. The market values of lower rated debt securities tend to reflect
individual developments of the issuer to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Factors having an adverse impact on the market value of lower
quality securities may have an adverse effect on the Fund's net asset value and
the market value of its common shares. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings. In certain
circumstances, the Fund may be required to foreclose on an issuer's assets and
take possession of its property or operations. In such circumstances, the Fund
would incur additional costs in disposing of such assets and potential
liabilities from operating any business acquired.

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

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

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

If the Fund owns high yield securities that are rated CCC or below or if
unrated, the equivalent thereof, the Fund will incur significant risk in
addition to the risks associated with investments in high yield securities and
corporate loans. However, the Fund would limit these types of securities to 10%
of the portion of the Fund that invests in high yield securities. Distressed
securities frequently do not produce income while they are outstanding. The Fund
may purchase distressed securities that are in default or the issuers of which
are in bankruptcy. The Fund may be required to bear certain extraordinary
expenses in order to protect and recover its investment in these securities.

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

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

Foreign (Non-U.S.) Investment Risk. Investing in foreign issuers, including
emerging market issuers, may involve unique risks compared to investing in the
securities of U.S. issuers. Some of these risks do not apply to issuers located
in larger, more developed countries. These risks are more pronounced if the Fund
invests significantly in emerging market countries or in one country. For
example, political turmoil and economic instability in the countries in which a
Fund invests could adversely affect the dividend yield, total return earned on
and the value of your investment. Less information about non-U.S. issuers or
markets may be available due to less rigorous disclosure and accounting
standards or regulatory practices. This may make it harder to get accurate
information about a security or company, and increase the likelihood that an
investment will not perform as well as expected. Many non-U.S. markets are
smaller, less liquid and more volatile than U.S. markets. In a changing market,
the Advisor may not be able to sell the Fund's portfolio securities in amounts
and at prices the Advisor considers reasonable. Economic, political and social
developments may significantly disrupt the financial markets or interfere with
the Fund's ability to enforce its rights against foreign government issuers. The
value of securities denominated in foreign currencies may fluctuate based on
changes in the value of those currencies relative to the U.S. dollar, and a
decline in applicable foreign exchange rates could reduce the value of such
securities held by the Fund. Foreign settlement procedures also may involve
additional risks.

The ability of a foreign sovereign issuer to make timely and ultimate
payments on its debt obligations will also be strongly influenced by the
sovereign issuer's balance of payments, including export performance, its access
to international credits and investments, fluctuations of interest rates and the
extent of its foreign reserves. A country whose exports are concentrated in a
few commodities or whose economy depends on certain strategic imports could be
vulnerable to fluctuations in international prices of these commodities or
imports. To the extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments denominated in
dollars could be adversely affected. If a sovereign issuer cannot generate
sufficient earnings from foreign trade to service its external debt, it may need
to depend on continuing loans and aid from foreign governments, commercial banks
and multinational organizations.

Additional factors that may influence the ability or willingness to service
debt include, but are not limited to, a country's cash flow situation, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of its debt service burden to the economy as a whole, and its
government's policy towards the International Monetary Fund ("IMF"), the World
Bank and other international agencies to which a government debtor may be
subject. The cost of servicing external debt will also generally be adversely
affected by rising international interest rates because many external debt
obligations bear interest at rates which are adjusted based upon international
interest rates.

There may be less publicly available information about a foreign company
than about a U.S. company, and foreign countries may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. In addition, if a
deterioration occurs in the country's balance of payments, if could impose
temporary restrictions on foreign capital remittances. Investing in local
markets in foreign countries may require the Fund to adopt special procedures,
seek local governmental approvals or take other actions, each of which may
involve additional costs to the Fund. Moreover, brokerage commissions and other
transaction costs on foreign securities exchanges are generally higher than in
the United States.

Currency Devaluations and Fluctuations Risk. The Fund may invest in
non-dollar-denominated investments. The Fund may be limited in its ability to
hedge the value of its non-dollar-denominated investments against currency
fluctuations. As a result, a decline in the value of currencies in which the
Fund's investments are denominated against the dollar will result in a
corresponding decline in the dollar value of the Fund's assets. These declines
will in turn affect the Fund's income and net asset value. The Fund will compute
its income on the date of its receipt by the Fund at the exchange rate in effect
with respect to the relevant currency on that date. If the value of the currency
declines relative to the dollar between the date income is accrued and the date
the Fund makes a distribution, the amount available for distribution to the
Fund's shareholders would be reduced. If the exchange rate against the dollar of
a currency in which a portfolio security of the Fund is denominated declines
between the time the Fund accrues expenses in dollars and the time expenses are
paid, the amount of the currency required to be converted into dollars in order
to pay expenses in dollars will be greater than the equivalent amount in the
currency of the expenses at the time they are incurred. A decline in the value
of non-U.S. currencies relative to the dollar may also result in foreign
currency losses that will reduce distributable net investment income.

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

Convertible Securities Risk. The Fund may invest up to 35% of its total
assets in convertible securities. Convertible fixed income securities generally
offer lower interest or dividend yields than non-convertible securities of
similar quality. As with all fixed income securities, the market values of
convertible securities tend to decline as interest rates increase and,
conversely, to increase as interest rates decline. However, when the market
price of the common stock underlying a convertible security exceeds the
conversion price, the convertible security tends to reflect the market price of
the underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis
and thus may not decline in price to the same extent as the underlying common
stock.

Corporate Loans Risk. The Fund may acquire interests in loans made by banks
or other financial institutions to corporate issuers or participation interests
in such loans (up to 10% of the Fund's total assets). By purchasing a
participation interest in a loan, the Fund acquires some or all of the interest
of a bank or other lending institution in a loan to a corporate or government
borrower. The participations typically will result in the Fund having a
contractual relationship only with the lender, not the borrower. The Fund will
have the right to receive payments of principal, interest and any fees to which
it is entitled only from the lender selling the participation and only upon
receipt by the lender of the payments from the borrower.

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

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

Leverage Risk. The Fund initially intends to issue preferred shares
representing approximately 35% of the Fund's capital immediately after their
issuance. The Fund may also borrow money from banks or other financial
institutions or issue debt securities with a liquidation preference or principal
amount up to the maximum extent permitted by the 1940 Act. The Fund will not
issue preferred shares or borrow money if, immediately after such issuance or
borrowing, total leverage for the Fund exceeds 38% of the Fund's total assets
immediately after such issuance or borrowing. Leverage creates risks which may
adversely affect the return for the holders of common shares, including:

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

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

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

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

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

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

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

Market Disruption and Geopolitical Risk. The war with Iraq, its aftermath
and the continuing occupation of Iraq are likely to have a substantial impact on
the U.S. and the world economies and securities markets. The nature, scope and
duration of the occupation cannot be predicted with any certainty. Terrorist
attacks on the World Trade Center and Pentagon on September 11, 2001 closed some
of the U.S. securities markets for a four-day period and the occurrence of
similar events in the future cannot be ruled out. The war and occupation,
terrorism and related geopolitical risks have led, and may in the future lead,
to increased short-term market volatility and may have adverse long-term effects
on the U.S. and world economies and markets generally. Those events could also
have an acute effect on individual issuers or related groups of issuers,
securities markets, interest rates, auctions, secondary trading, ratings, credit
risk, inflation and other factors relating to the common shares. Inflation Risk.
Inflation risk is the risk that the value of assets or income from the Fund's
investments will be worth less in the future as inflation decreases the value of
money. As inflation increases, the real, or inflation-adjusted, value of the
common shares and distributions can decline and the dividend payments on the
Fund's preferred shares, if any, or interest payments on Fund borrowings, if
any, may increase. Market Discount Risk. Shares of closed-end funds frequently
trade at prices lower than their net asset value. This is commonly referred to
as "trading at a discount." This characteristic of shares of closed-end funds is
a risk separate and distinct from the risk that the Fund's net asset value may
decrease. Investors who sell their shares within a relatively short period after
completion of the public offering are likely to be exposed to this risk.
Accordingly, the Fund is designed primarily for long-term investors and should
not be considered a vehicle for trading purposes. Net asset value will be
reduced following the offering by the underwriting discount and the amount of
offering expenses paid by the Fund.

Tender Offers (Evergreen Enhanced Liquidity Plan) Risk. The Fund's
potential quarterly tender offers for common shares may prevent the Fund from
taking advantage of attractive investment opportunities. Moreover, if the Fund
does not generate sufficient cash flow from operations, it may be forced to sell
investments at disadvantageous times, and in amounts that the Advisor would not
otherwise contemplate, or to borrow money, in order to make such tender offers.
If the Fund borrows money, rather than liquidate investments, to fund a tender
offer, it is subject to the risk that investment return on the common shares
will be reduced to the extent the cost of borrowings exceeds income on the
retained investments.

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

Other Regulatory Matters Risk. Governmental and self-regulatory authorities
have instituted numerous ongoing investigations of various practices in the
securities and mutual fund industries, including those relating to market-timing
and late trading. The investigations cover advisory companies to mutual funds
(including the Advisor), broker-dealers, hedge funds and others. Wachovia
Corporation (the Advisor's parent) and/or certain of its subsidiaries (including
the Advisor) have received subpoenas and/or other requests for documents and
testimony relating to the investigations, are attempting to comply with those
requests, and are cooperating with the investigations. Wachovia Corporation and
its subsidiaries, including the Advisor, are continuing their own internal
review of policies, practices, procedures and personnel, and are taking remedial
actions where appropriate. Wachovia Corporation also is cooperating with
governmental and self-regulatory authorities in matters relating to the
brokerage operations of Prudential that were included in Wachovia Corporation's
retail brokerage combination with Prudential. Under the terms of that
transaction, Wachovia Corporation is indemnified by Prudential for liabilities
relating to those matters.

Based on information currently available, advice of counsel, available
insurance coverage and established reserves, Wachovia Corporation believes that
the eventual outcome of the actions against Wachovia Corporation and/or its
subsidiaries, including the matters described above, will not, individually or
in the aggregate, have a material adverse effect on Wachovia Corporation's
consolidated financial position or results of operations or on its subsidiaries,
including the Advisor. However, in the event of unexpected future developments,
it is possible that the ultimate resolution of those matters, if unfavorable,
may be material to Wachovia Corporation's results of operations for any
particular period, including for that of the Advisor.

MANAGEMENT OF THE FUND

Trustees and Officers
The Fund's Board of Trustees provides broad supervision over the affairs of
the Fund. The officers of the Fund are responsible for the Fund's operations.
The Trustees and officers of the Fund, together with their principal occupations
during the past five years, are listed in the Statement of Additional
Information. Each of the Trustees serves as a Trustee of each of the 94 U.S.
registered investment portfolios for which the Advisor serves as investment
adviser.

Investment Adviser
Evergreen Investment Management Company, LLC (previously defined as the
"Advisor") will act as the Fund's investment adviser. The Advisor has been
managing mutual funds and private accounts since 1932 and, with its affiliates,
managed over $247 billion in assets as of December 31, 2003. The Advisor is
located at 200 Berkeley Street, Boston, Massachusetts 02116-5034. The Advisor is
a wholly owned subsidiary of Wachovia Bank, N.A. Wachovia Bank, N.A., located at
201 South College Street, Charlotte, North Carolina 28288-0630, is a subsidiary
of Wachovia Corporation, formerly First Union Corporation.

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

Compensation and Expenses
Under the management contract, the Fund will pay to the Advisor monthly, as
compensation for the services rendered and expenses paid by it, an annual fee
equal to 0.60% of the Fund's average daily Total Assets. Because the fee paid to
the Advisor is determined on the basis of the Fund's Total Assets, the Advisor's
interest in determining whether to leverage the Fund may differ from the
interests of the Fund.

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

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

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

Portfolio Manager
Day-to-day management of the portion of the Fund's portfolio that is
described as the utility and telecommunications portion under "Investment
Objective and Principal Investment Strategies - Principal Investment Strategies
- Utility Securities" above is the responsibility of a team of portfolio
management professionals from the Advisor's Value Equity team. Together the team
managed more than $250 billion in assets under management as of December 31,
2003. The team is led by Timothy O'Brien, who has more than 19 years of
investment experience. Mr. O'Brien has been with the Advisor since April 2002
and currently serves as a managing director and senior portfolio manager.

Day-to-day management of the portion of the Fund's portfolio that is
described as the U.S. high yield debt securities portion under "Investment
Objective and Principal Investment Strategies - Principal Investment Strategies
- U.S. High Yield Debt Securities" is the responsibility of a team of portfolio
management professionals from the Advisor's Select High Yield Bond team, which
includes specialized industry analysts responsible for various sectors. Among
the portfolios the team manages is the open-end Evergreen Select High Yield Bond
Fund. The Select High Yield team is led by Richard Cryan, who has more than 25
years of fixed income investment experience. Mr. Cryan has been a senior
portfolio manager with the Advisor since 1992. Mr. Cryan is part of the team
that manages the closed-end Evergreen Income Advantage Fund and a portion of the
closed-end Evergreen Managed Income Fund. Together the team managed more than
$4.5 billion in high yield securities as of December 31, 2003.

DIVIDENDS AND DISTRIBUTIONS

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

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

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

While any preferred shares are outstanding, the Fund may not declare any
cash dividend or other distribution on its common shares, unless at the time of
such declaration, (1) all accumulated preferred dividends have been paid and (2)
the net asset value of the Fund's portfolio (determined after deducting the
amount of such dividend or other distribution) is at least 200% of the
liquidation value of the outstanding preferred shares (expected to be equal to
the original purchase price per share plus any accumulated and unpaid dividends
thereon).

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

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

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

AUTOMATIC DIVIDEND REINVESTMENT PLAN

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

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

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

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

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

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

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

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

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

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

CLOSED-END FUND STRUCTURE

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

Shares of closed-end funds frequently trade at a discount to their net
asset value. Common shares of closed-end investment companies have in the past
during some periods traded at prices higher than their net asset value (at a
"premium") and during other periods traded at prices lower than their net asset
value (at a "discount"). This is in part because the market price reflects the
dividend yield on the common shares. When the yield on the net asset value per
share is higher than yields generally available in the market for comparable
securities, the market price will tend to reflect this by trading higher than
the net asset value per share to adjust the yield to a comparable market rate.
The Board of Trustees has determined that it would be in the best interests of
shareholders of the Fund to take action to attempt to reduce or eliminate a
market value discount from net asset value. To that end, the Board of Trustees
has determined that quarterly tender offers may help reduce any market discount
that may develop. Accordingly, the Board of Trustees is committed to make tender
offers for the Fund's common shares under certain circumstances and subject to
certain conditions described below under "Tender Offers". In addition, the Board
of Trustees may consider from time to time open market purchases of the Fund's
outstanding common shares.

U.S. FEDERAL INCOME TAX MATTERS

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

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

Unless a shareholder is ineligible to participate or elects otherwise, cash
distributions will be automatically reinvested in additional common shares of
the Fund pursuant to the Plan. For U.S. federal income tax purposes, assuming
the Fund has sufficient current or accumulated earnings and profits, such
distributions generally are taxable whether a shareholder takes them in cash or
shares or they are reinvested pursuant to the Plan in additional shares of the
Fund. In general, dividends from investment company taxable income are taxable
as ordinary income, and designated dividends from net capital gain, if any, are
taxable as long-term capital gains for U.S. federal income tax purposes without
regard to the length of time the shareholder has held shares of the Fund. For
taxable years beginning on or before December 31, 2008, however, dividends that
are designated by the Fund as derived from qualified dividend income will be
taxable to individuals at a maximum federal income tax rate of 15%, provided
holding period and other requirements are satisfied. A distribution of an amount
in excess of the Fund's current or accumulated earnings and profits will be
treated by a shareholder as a return of capital to the extent of (and in
reduction of) the shareholder's tax basis in its shares, and any such amount in
excess of that basis will be treated as gain from the sale of the shares as
discussed below. The U.S. federal income tax status of all distributions will be
reported to shareholders annually.

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

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

Federal law requires that the Fund withhold (as "backup withholding") at a
current rate of 28% on reportable payments, including dividends and capital gain
distributions paid to certain shareholders who have not complied with IRS
regulations. In order to avoid this withholding requirement, shareholders must
certify on their account applications, or on separate IRS Forms W-9, that the
Social Security Number or other Taxpayer Identification Number they provide is
their correct number and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding. The Fund may
nevertheless be required to withhold if it receives notice from the IRS that the
number provided is incorrect or backup withholding is applicable as a result of
previous underreporting of income. Similar backup withholding rules may apply to
a shareholder's broker with respect to the proceeds of sales or other
dispositions of the Fund's shares by such shareholder. Backup withholding is not
an additional tax. Any amounts withheld from payments made to a shareholder may
be refunded or credited against such shareholder's U.S. federal income tax
liability, if any, provided that the required information is provided to the
IRS.

The tender offer of the Fund's common shares may result in a taxable gain
or loss to the tendering shareholder, depending on whether the amount received
is greater or less than such shareholder's adjusted tax basis in the shares.
Different tax consequences may apply for tendering and nontendering shareholders
in connection with a tender offer, and these consequences are disclosed in the
Statement of Additional Information. For example, if a shareholder tenders fewer
than all of his or her common shares, such repurchase may not be treated as an
exchange for federal income tax purposes and may result in deemed distributions
to non-tendering shareholders. On the other hand, shareholders who tender all of
their common shares (including common shares deemed owned by shareholders under
constructive ownership rules) will be treated as having sold their common shares
and generally will realize a capital gain or loss.

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

NET ASSET VALUE

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

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

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

TENDER OFFERS (EVERGREEN ENHANCED LIQUIDITY PLAN)

The market price per common share may be greater or less than net asset
value per common share. Common shares of closed-end investment companies, in
some cases trade at a premium, but frequently trade at a discount from net asset
value. This characteristic of common shares of closed-end funds is a risk
separate and distinct from the risk that the Fund's net asset value may
decrease. The market price of the Fund's common shares also may be affected by
trading volume of the common shares, general market and economic conditions and
other factors beyond the control of the Fund.

The Board of Trustees has determined that it would be in the best interests
of shareholders of the Fund to take action to attempt to reduce or eliminate a
market value discount from net asset value. To that end, the Board of Trustees
has determined that quarterly tender offers may help reduce any market discount
that may develop.

Accordingly, the Board of Trustees has committed to make tender offers for
the Fund's common shares under certain circumstances and subject to certain
conditions. Beginning six to eight months after the Fund's commencement of
operations (for a total of eight consecutive calendar quarters), in the event
that the common shares trade at a discount to net asset value of greater than 5%
for fifteen of twenty days during a specific measurement period (initially the
twenty-first through fortieth trading days of a quarter) (the "measurement
period"), the Fund, under normal circumstances, will make offers to purchase up
to 5% of its outstanding common shares at their net asset value from all
beneficial shareholders. The Fund will not undertake a tender offer if the
Fund's common shares are not trading at a discount. The Fund will make its first
tender offer within the first six to eight months of the commencement of the
Fund's operations and for the following seven quarters after such initial tender
offer if the discount exists during the measurement period for the number of
days specified above. The Board of Trustees reserves the right to modify the
conditions described in this paragraph in light of experience. In addition, the
Board of Trustees may consider from time to time open market repurchases of the
Fund's outstanding common shares.

Under certain circumstances described below, the Board of Trustees may
determine not to undertake a tender offer even if the conditions described in
the preceding paragraph are met. Moreover, there can be no assurance that any
such tender offers would cause the common shares to trade at a price equal to
their net asset value or reduce the spread between the market price and the net
asset value per common share. Although the Board of Trustees generally believes
that tender offers are in the best interests of shareholders, the acquisition of
common shares by the Fund will decrease the total assets of the Fund and,
therefore, will have the effect of increasing the Fund's expense ratio.

The Fund will purchase all outstanding common shares tendered in accordance
with the terms of the offer unless the Board of Trustees determined to accept
none of them (based upon the circumstances set forth below). If more common
shares are tendered for repurchase than the Fund has offered to repurchase,
common shares will be repurchased on a pro-rata basis. If authorized by the
Commission, the Fund may make as a condition of each tender offer that no one
shareholder may receive more than 10% of the amount purchased by the Fund in the
tender offer. There can be no assurance that the Commission will approve this
condition. Thus, shareholders may be unable to liquidate all or a given
percentage of their common shares and some shareholders may tender more shares
than they wish to have repurchased in order to ensure repurchase of at least a
specific number of common shares. Shareholders may withdraw tendered common
shares at any time prior to the tender offer deadline.

Tender offers and the need to fund repurchase obligations may affect the
ability of the Fund to be fully invested, which may reduce returns. Moreover,
diminution in the size of the Fund through repurchases without offsetting new
sales of common shares may result in untimely sales of portfolio securities and
a higher expense ratio, and may limit the ability of the Fund to participate in
new investment opportunities. Repurchases resulting in portfolio turnover will
result in additional expenses being borne by the Fund. The Fund may borrow to
meet repurchase obligations, which entails certain risks and costs. See "Risk
Factors- Tender Offers (Evergreen Enhanced Liquidity Plan)."

Although the Board of Trustees has committed to conduct quarterly tender
offers beginning in the Fund's first six to eight months of operations if the
conditions described above are met, it is the policy of the Board of Trustees
(which may be changed by the Board), not to cause the Fund to purchase shares
pursuant to a tender offer if (1) such purchases would impair the Fund's status
as a regulated investment company under the Federal tax laws; (2) the Fund would
not be able to liquidate portfolio securities in a manner that is orderly and
consistent with the Fund's investment objective and policies in order to
purchase tendered common shares; (3) such action would result in the Fund
failing to satisfy the American Stock Exchange's minimum listing requirements;
or (4) there is, in the judgment of the Board of Trustees, any (a) legal action
or proceeding instituted or threatened challenging the tender offer or otherwise
materially adversely affecting the Fund, (b) declaration of a banking moratorium
by Federal or state authorities or any suspension of payment by banks in the
United States, which is material to the Fund, (c) limitation imposed by Federal
or state authorities on the extension of credit by lending institutions, (d)
commencement of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States which is material to
the Fund, or (e) other event or condition that would have a material adverse
effect on the Fund or its shareholders if tendered common shares were purchased.
Thus, there can be no assurance that the Board of Trustees will proceed with any
tender offer. The Board of Trustees may modify these conditions in light of
circumstances existing at the time.

If the Fund's common shares are purchased pursuant to a tender offer, such
purchases could reduce significantly the asset coverage of any borrowing or
outstanding senior securities. The Fund may not purchase common shares to the
extent such purchases would result in the asset coverage with respect to such
borrowing or senior securities being reduced below the asset coverage
requirement set forth in the 1940 Act. Accordingly, in order to purchase all
common shares tendered, the Fund may have to repay all or part of any then
outstanding borrowing or redeem all or part of any then outstanding senior
securities to maintain the required asset coverage. In addition, the amount of
common shares for which the Fund makes any particular tender offer may be
limited for the reasons set forth above or in respect of other concerns related
to liquidity of the Fund's portfolio.

Any tender offer will be made and shareholders will be notified in
accordance with the requirements of the Securities Exchange Act of 1934 and the
1940 Act, either by publication or mailing or both. The offering documents will
contain information prescribed by such laws and the rules thereunder. The
repurchase of tendered shares by the Fund will be a taxable event. See "U.S.
Federal Income Tax Matters." The Fund will pay all costs and expenses associated
with the making of any tender offer.

DESCRIPTION OF SHARES

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

Common Shares

Common shares, when issued and outstanding, will be fully paid and
non-assessable and will have no pre-emptive rights or conversion rights or
rights to cumulative voting. Shareholders are entitled to share pro rata in the
net assets of the Fund available for distribution to common shareholders upon
liquidation of the Fund. Common shareholders are entitled to one vote for each
share held. The common shares are expected to be listed on the American Stock
Exchange, and the Fund will hold annual meetings so long as required by the
American Stock Exchange.

In the event that the Fund issues preferred shares and so long as any
shares of the Fund's preferred shares are outstanding, holders of common shares
will not be entitled to receive any net income of or other distributions from
the Fund unless all accumulated dividends on preferred shares have been paid,
and unless asset coverage (as defined in the 1940 Act) with respect to preferred
shares would be at least 200% after giving effect to such distributions. See
"Leverage."

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

As of March 15, 2004, Evergreen Financing Company, LLC, an affiliate of the
Advisor, provided the initial capital for the Fund by purchasing 5,000 common
shares of the Fund for $100,000. As of the date of this prospectus, Evergreen
Financing Company, LLC owned 100% of the outstanding common shares. Evergreen
Financing Company, LLC may be deemed to control the Fund until such time as it
owns less than 25% of the outstanding shares of the Fund or until the public
offering of the shares is completed.

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

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

The 1940 Act requires that the holders of any preferred shares, voting
separately as a single class, have the right to elect at least two Trustees at
all times. The remaining Trustees will be elected by holders of common shares
and preferred shares, voting together as a single class. In addition, subject to
the prior rights, if any, of the holders of any other class of senior securities
outstanding, the holders of any preferred shares have the right to elect a
majority of the Trustees at any time two years' dividends on any preferred
shares are unpaid. The 1940 Act also requires that, in addition to any approval
by shareholders that might otherwise be required, the approval of the holders of
a majority of any outstanding preferred shares, voting separately as a class,
would be required to (1) adopt any plan of reorganization that would adversely
affect the preferred shares, and (2) take any action requiring a vote of
security holders under Section 13(a) of the 1940 Act, including, among other
things, changes in the Fund's subclassification as a closed-end investment
company or changes in its fundamental investment restrictions. See
"Anti-takeover Provisions in the Agreement and Declaration of Trust and
By-laws." As a result of these voting rights, the Fund's ability to take any
such actions may be impeded to the extent that there are any preferred shares
outstanding. The Board of Trustees presently intends that, except as otherwise
indicated in this prospectus and except as otherwise required by applicable law,
holders of preferred shares will have equal voting rights with holders of common
shares (one vote per share, unless otherwise required by the 1940 Act) and will
vote together with holders of common shares as a single class.

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

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

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

ANTI-TAKEOVER PROVISIONS OF THE AGREEMENT AND DECLARATION OF TRUST AND BY-LAWS

The Fund's Agreement and Declaration of Trust includes provisions that
could have the effect of limiting the ability of other entities or persons to
acquire control of the Fund or to change the composition of its Board of
Trustees and could have the effect of depriving shareholders of an opportunity
to sell their shares at a premium over prevailing market prices by discouraging
a third party from seeking to obtain control of the Fund.

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

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

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

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

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

o a liquidation or dissolution of the Fund

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

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

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

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

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

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

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

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

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

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

UNDERWRITING

Citigroup Global Markets Inc., A.G. Edwards & Sons, Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Wachovia Capital Markets, LLC, Advest,
Inc., Ferris, Baker Watts, Incorporated, Janney Montgomery Scott LLC, KeyBanc
Capital Markets, A Division of McDonald Investments Inc., Quick & Reilly, Inc. A
FleetBoston Financial Company and Wells Fargo Securities, LLC are acting as
representatives of the underwriters. Subject to the terms and conditions stated
in the underwriting agreement dated as of the date hereof, each underwriter
named below has severally agreed to purchase, and the Fund has agreed to sell to
such underwriter, the number of common shares set forth opposite the name of
such underwriter.

Number
Underwriter of Shares
---------- --------------

Citigroup Global Markets Inc........................ _

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

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

Wachovia Capital Markets, LLC....................... _

Advest, Inc......................................... _

Ferris, Baker Watts, Incorporated................... _

Janney Montgomery Scott LLC ....................... _

KeyBanc Capital Markets, A Division of McDonald Investments
Inc.

Quick & Reilly, Inc. A FleetBoston Financial Company

Wells Fargo Securities, LLC......................... _

----------
Total................................ _
==========

The underwriting agreement provides that the obligations of the several
underwriters to purchase the common shares included in this offering are subject
to approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the common shares (other than
those covered by the over-allotment option described below) if they purchase any
of the common shares.

The underwriters propose to offer some of the common shares directly to the
public at the offering price set forth on the cover page of this prospectus and
some of the common shares to certain dealers at the public offering price less a
concession not to exceed $__________ per common share. The sales load the Fund
will pay of $__________ per share is equal to ______% of the initial offering
price. The underwriters may allow, and such dealers may reallow, a concession
not to exceed $_______ per common share on sales to certain other dealers. If
all of the common shares are not sold at the initial offering price, the
representatives may change the public offering price and other selling terms.
Investors must pay for any common shares purchased on or before ___________,
2004. The representatives have advised the Fund that the underwriters do not
intend to confirm any sales to any accounts over which they exercise
discretionary authority.

The Advisor (and not the Fund) has agreed to pay certain underwriters a Fee
at an annual rate of up to 0.15% of the Fund's managed assets attributable
to common shares sold by such underwriter. This fee and any reimbursement
of expenses paid to these underwriters in connection therewith will not
exceed ____% of the total initial price to the public of the common shares
offered hereby and will be payable in arrears at the end of each calendar
quarter during the continuance of the investment management agreement or
other advisory agreement between the Advisor and the Fund. In return for
such fee these underwriters have agreed (i) to provide services related to
the sale and distribution of the common shares, (ii) to provide certain
after-market support services designed to maintain the visibility of the
Fund on an ongoing basis, (iii) to provide relevant information, studies or
reports regarding general trends in the closed-end investment company and
asset management industries, if reasonably obtainable, and to consult with
representatives of the Advisor in connection therewith and (iv) to provide
information to and consult with the Advisor with respect to applicable
strategies designed to address market value discounts, if any.
Additionally, within 60 days of closing, the Advisor will pay to Citigroup
Global Markets Inc. from its own resources a structuring fee for advice
relating to the structure and design of the Fund and organization of the
Fund as well as services related to the sale and distribution of the Fund's
common shares in an amount equal to _____________, which in the aggregate
is _____% of the total initial price to the public of the common shares
offered hereby, including reimbursement of expenses in connection
therewith. In addition, the Fund has agreed to reimburse certain
underwriter expenses in an amount equal to $0.0067 per common share, which
amount, along with the reimbursement of expenses pursuant t tot he
structuring fee agreement and the additional compensation agreements will
not exceed ___________, or _____% of the total initial price to the public
of the common shares offered hereby. The sum of the structuring fee paid to
Citigroup Global Markets Inc, the fees paid to certain other underwriters,
the amounts paid by the Fund to reimburse certain underwriter and other
expenses and the sales load to be paid by the Fund will not exceed 9.00% of
the total price to the public of the common shares offered hereby.

The Fund has granted to the underwriters an option, exercisable for 45 days
from the date of this prospectus, to purchase up to additional common
shares at the public offering price less the sales load. The underwriters may
exercise such option solely for the purpose of covering over-allotments, if any,
in connection with this offering. To the extent such option is exercised, each
underwriter will be obligated, subject to certain conditions, to purchase a
number of additional common shares approximately proportionate to such
underwriter's initial purchase commitment.

The Fund and the Advisor have agreed that, for a period of 180 days from
the date of this prospectus, they will not, without the prior written consent of
Citigroup Global Markets Inc., on behalf of the underwriters, dispose of or
hedge any common shares or any securities convertible into or exchangeable for
common shares. Citigroup Global Markets Inc., in its sole discretion, may
release any of the securities subject to these agreements at any time without
notice.

Prior to the offering, there has been no public market for the common
shares. Consequently, the initial public offering price for the common shares
was determined by negotiation among the Fund, the Advisor and the
representatives. There can be no assurance, however, that the price at which the
common shares will sell in the public market 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. We expect the common shares to be approved for listing on the American
Stock Exchange under the symbol "ERH," subject to notice of issuance.

The following table shows the sales load that the Fund is to pay to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional common shares: _

Paid by the Fund
No Exercise Full Exercise
---------------------------
Per Share....................... $ $
Total........................... $ $
----

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

The Advisor has agreed to pay (i) all organization expenses and (ii)
offering costs (other than sales load) that exceed $ per share. In addition, the
Fund has agreed to reimburse the underwriters for certain expenses incurred by
the underwriters in the offering.

Certain underwriters may make a market in the common shares after trading
in the common shares has commenced on the American Stock Exchange. No
underwriter is, however, obligated to conduct market-making activities and any
such activities may be discontinued at any time without notice, at the sole
discretion of the underwriter. No assurance can be given as to the liquidity of,
or the trading market for, the common shares as a result of any market-making
activities undertaken by any underwriter. This prospectus is to be used by any
underwriter in connection with the offering and, during the period in which a
prospectus must be delivered, with offers and sales of the common shares in
market-making transactions in the over-the-counter market at negotiated prices
related to prevailing market prices at the time of the sale.

The underwriters have advised the Fund that, pursuant to Regulation M under
the Securities Exchange Act of 1934, as amended, certain persons participating
in the offering may engage in transactions, including stabilizing bids, covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the common shares on the American
Stock Exchange at a level above that which might otherwise prevail in the open
market. A "stabilizing bid" is a bid for or purchase of the common shares on
behalf of an underwriter for the purposes of fixing or maintaining the price of
the common shares. A "covering transaction" is a bid for or purchase of the
common shares on behalf of an underwriter to reduce a short position incurred by
the underwriters in connection with the offering. A "penalty bid" is a
contractual arrangement whereby if, during a specified period after the issuance
of the common shares, the underwriters purchase common shares in the open market
for the account of the underwriting syndicate and the common shares purchased
can be traced to a particular underwriter or member of the selling group, the
underwriting syndicate may require the underwriter or selling group member in
question to purchase the common shares in question at the cost price to the
syndicate or may recover from (or decline to pay to) the underwriter or selling
group member in question any or all compensation (including, with respect to a
representative, the applicable syndicate management fee) applicable to the
common shares in question. As a result, an underwriter or selling group member
and, in turn, brokers may lose the fees that they otherwise would have earned
from a sale of the common shares if their customer resells the common shares
while the penalty bid is in effect. The underwriters are not required to engage
in any of these activities, and any such activities, if commenced, may be
discontinued at any time.

The underwriting agreement provides that it may be terminated in the
absolute discretion of the representatives without liability on the part of the
underwriters to the Fund or the Advisor if, prior to the delivery of and payment
for the common shares, (i) trading in the Fund's common shares shall have been
suspended by the Securities and Exchange Commission or the American Stock
Exchange or trading in securities generally on the American Stock Exchange shall
have been suspended or limited or minimum prices for trading in securities
generally shall have been established on the American Stock Exchange, (ii) a
commercial banking moratorium shall have been declared by either federal or New
York state authorities or (iii) there shall have occurred any outbreak or
escalation of hostilities, declaration by the United States of a national
emergency or war, or other calamity or crisis the effect of which on financial
markets in the United States is such as to make it, in the sole judgment of the
representatives, impracticable or inadvisable to proceed with the offering or
delivery of the common shares as contemplated by the prospectus (exclusive of
any supplement thereto).

A prospectus in electronic format may be available on the website
maintained by one or more of the underwriters. The representatives may agree to
allocate a number of common shares to the underwriters for sale to their online
brokerage account holders. The representatives will allocate common shares to
the underwriters that may make internet distributions on the same basis as other
allocations. In addition, common shares may be sold by the underwriters to
securities dealers who resell common shares to online brokerage account holders.

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

The underwriters have performed investment banking and advisory services
for the Advisor and its affiliates from time to time, for which they have
received customary fees and expenses. The underwriters may, from time to time,
engage in transactions with or perform services for the Advisor in the ordinary
course of business.

Prior to the public offering of common shares, the Advisor purchased common
shares from the Fund in an amount satisfying the net worth requirements of
Section 14(a) of the Investment Company Act.

The principal business address of Citigroup Global Markets Inc. is 388
Greenwich Street, New York, New York 10013.

CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

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

VALIDITY OF COMMON SHARES

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

TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION

Page
---

Fund History............................................................ 3
Use of Proceeds......................................................... 3
Investment Objective and Policies....................................... 3
Investment Restrictions................................................. 20
Management of the Fund.................................................. 23
The Advisor, Administrator and Transfer Agent........................... 31
Portfolio Transactions.................................................. 35
Tender Offers........................................................... 36
U.S. Federal Income Tax Matters......................................... 39
Performance-Related, Comparative and Other Information.................. 46
Experts................................................................. 50
Additional Information.................................................. 50
Financial Statements and Independent Auditors' Report................... 51
Appendix A--Description of Ratings...................................... A-1
Appendix B--Proxy Voting Policy and Procedures.......................... B-1

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

____________ Shares

Evergreen Utilities and High
Income Fund

Common Shares

[EVERGREEN LOGO]
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PROSPECTUS

, 2004
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Citigroup
A.G. Edwards & Sons, Inc.
Merrill Lynch & Co.
Wachovia Securities
Advest, Inc.
Ferris, Baker Watts
Incorporated
Janney Montgomery Scott LLC

KeyBanc Capital Markets

Quick & Reilly, Inc.
Wells Fargo Securities, LLC

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EVERGREEN UTILITIES AND HIGH INCOME FUND

STATEMENT OF ADDITIONAL INFORMATION

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

Evergreen Utilities and High Income Fund (the "Fund") is a newly organized,
non-diversified, closed-end management investment company. This Statement of
Additional Information relating to common shares does not constitute a
prospectus, but should be read in conjunction with the prospectus relating
thereto dated ________, 2004. This Statement of Additional Information does not
include all information that a prospective investor should consider before
purchasing common shares, and investors should obtain and read the prospectus
prior to purchasing such shares. A copy of the prospectus may be obtained
without charge by calling 1-800-730-6001.

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

TABLE OF CONTENTS

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

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

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

Investment Restrictions.............................................20

Management of the Fund..............................................23

The Advisor, Administrator and Transfer Agent.......................31

Portfolio Transactions ...........................................35

Tender Offers.......................................................36

U.S. Federal Income Tax Matters.....................................39

Performance-Related, Comparative and Other Information..............46

Experts.............................................................50

Additional Information..............................................50

Financial Statement and Independent Auditors' Report................51
.

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

Appendix B--Proxy Voting Policy and Procedures.....................B-1

This Statement of Additional Information is dated ______________, 2004.

SUBJECT TO COMPLETION, DATED APRIL 19, 2004.

FUND HISTORY

The Fund is a non-diversified, closed-end management investment company
organized as a statutory trust under the laws of Delaware on February 4, 2004
and registered under the Investment Company Act of 1940, as amended (the "1940
Act"). Much of the information contained in this statement of additional
information expands on subjects discussed in the prospectus. Unless otherwise
defined herein, capitalized terms used in this document have the same meanings
given them in the prospectus.

USE OF PROCEEDS

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

INVESTMENT OBJECTIVE AND POLICIES

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

Restrictions or policies stated as a maximum percentage of the Fund's
assets are only applied immediately after a portfolio investment to which the
policy or restriction is applicable (other than the limitations on borrowing or
the asset coverage requirements of the 1940 Act for senior securities).
Accordingly, any later increase or decrease resulting from a change in values,
net assets or other circumstances will not be considered in determining whether
the investment complies with the Fund's restrictions and policies.

Primary Investments

Under normal market conditions, the Fund will invest at least 80% of its
net assets (defined as net assets plus the amount of any borrowing for
investment purposes) in securities of utilities companies (water, gas, electric
and telecommunications companies) and in U.S. dollar-denominated non-investment
grade debt securities. The Fund allocates its assets between two separate
investment strategies. Under normal market conditions, the Fund allocates
approximately 70% of its total assets to an investment strategy that focuses on
common, preferred and convertible preferred stocks and convertible debentures of
utility companies (water, gas, electric and telecommunications companies), and
approximately 30% of its total assets to an investment strategy that focuses on
U.S. dollar-denominated non-investment grade bonds, debentures, and other income
obligations. The Fund's investment adviser reserves the discretion based upon
market conditions to reallocate the proportions of total assets invested in each
investment strategy. Shareholders will be provided with at least 60-days prior
written notice of any changes in the 80% investment policy. The utilities
portion of the Fund may invest up to 5% of its assets in the securities of oil
companies such as oil pipeline companies.

Securities

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

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

ADRs are denominated in U.S. dollars and represent an interest in the right
to receive securities of non-U.S. issuers deposited in a U.S. bank or
correspondent bank. ADRs do not eliminate all the risk inherent in investing in
the securities of non-U.S. issuers. However, by investing in ADRs rather than
directly in equity securities of non-U.S. issuers, the Fund will avoid currency
risks during the settlement period for either purchases or sales. The Fund does
not count investments in ADRs towards the Fund's 25% limit in foreign
securities. However, it does limit its overall investment in ADRs to 10%. EDRs
and GDRs are not necessarily denominated in the same currency as the underlying
securities which they represent. Investments in EDRs and GDRs will be subject to
the Fund's 25% limit in foreign securities.

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

CORPORATE LOANS AND PARTICIPATIONS. The Fund may invest directly or through
a private investment fund in corporate loans or participations in corporate
loans (collectively, "corporate loans"). The Fund may invest up to 10% of its
total assets in corporate loans. Corporate loans are generally subject to
liquidity risks because they are traded in an over-the-counter market.

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

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

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

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

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

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

There is no minimum rating or other independent evaluation of a borrower or
its securities limiting the Fund's investments, except that, with respect to the
portion of the Fund's assets that are invested in high yield securities, the
Fund may not purchase securities with a rating of CCC or below. However, the
Fund may hold such securities as a result of a downgrade in ratings subsequent
to their purchase, although no more than 10% of that portion of the Fund's
assets may be invested in securities that are unrated or rated CCC. Although a
corporate loan often is not rated by any rating agency at the time the Fund
purchases the corporate loan, rating agencies have become more active in rating
an increasing number of corporate loans and at any given time a substantial
portion of the corporate loans in the Fund's portfolio may be rated. Although
the Advisor may consider such ratings when evaluating a corporate loan, it does
not view such ratings as a determinative factor in its investment decisions. The
lack of a rating may not necessarily imply that a corporate loan is of lesser
investment quality. The Fund may invest its assets in corporate loans rated
below investment grade or that are unrated but of comparable quality.

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

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

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

OTHER INVESTMENT COMPANIES. The Fund may invest in the securities of other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act, the Fund
may not acquire the securities of other domestic or non-U.S. investment
companies if, as a result, (i) more than 10% of the Fund's total assets would be
invested in securities of other investment companies, (ii) such purchase would
result in more than 3% of the total outstanding voting securities of any one
investment company being held by the Fund, or (iii) more than 5% of the Fund's
total assets would be invested in any one investment company. These limitations
do not apply to the purchase of shares of any investment company in connection
with a merger, consolidation, reorganization or acquisition of substantially all
the assets of another investment company. Notwithstanding the foregoing, subject
to receiving no-action assurance from the Commission, the Fund may invest cash
balances in shares of other money market funds advised by the Fund's Advisor or
its affiliates in amounts up to 25% of the Fund's total assets.

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

PAYMENT-IN-KIND SECURITIES. The Fund may invest in payment-in-kind (PIK)
securities. PIK securities are debt obligations which provide that the issuer
may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations, for a specified period of time. Such investments
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash.

The issuer's option to pay in additional securities typically ranges from
one to six years, compared to an average maturity for all PIK securities of
eleven years. Call protection and sinking fund features are comparable to those
offered on traditional debt issues.

PIKs, like zero coupon bonds, are designed to give an issuer flexibility in
managing cash flow. Some PIKs are senior debt. In other cases, where PIKs are
subordinated, most senior lenders view them as equity equivalents.

An advantage of PIKs for the issuer -- as with zero coupon securities -- is
that interest payments are automatically compounded (reinvested) at the stated
coupon rate, which is not the case with cash-paying securities. However, PIKs
are gaining popularity over zero coupon bonds since interest payments in
additional securities can be monetized and are more tangible than accretion of a
discount.

Generally, PIK bonds trade without accrued interest. Their price is
expected to reflect an amount representing accreted interest since the last
payment. PIKs generally trade at higher yields than comparable cash-paying
securities of the same issuer. Their premium yield is usually the result of the
lesser desirability of non-cash interest, the more limited audience for non-cash
paying securities and the fact that many PIKs have been issued to equity
investors who do not normally own or hold such securities.

Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security is trading at a premium or a discount because the
realizable value of additional payments is equal to the current market value of
the underlying security, not par.

Regardless of whether PIK securities are senior or deeply subordinated,
issuers are generally highly motivated to retire them because they are usually
their most costly form of capital.

Derivatives

INTEREST RATE TRANSACTIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FOREIGN CURRENCY TRANSACTIONS.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Asset Segregation

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

Downgrades in Fixed Income Debt Securities

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

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

The Advisor's Investment Process

The Fund combines investments in high yield debt securities with common,
preferred and convertible preferred stocks and convertible debentures of
utilities companies. Each of these sectors has its own distinct attributes that
the Advisor believes could contribute to the potential for the Fund to achieve
its investment objective. There is no guarantee that the Fund will obtain its
investment objective.

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

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

Utilities Securities. The value equity team considers a number of factors
when selecting utility company stocks, which include among others: a history of
high dividends and profits; the size of the company's market and market share;
competitive or technological advantages that may help it in the future;
potential merger activity; and the projected volatility of the company or
industry. The team's stock selection is based on a blended style of equity
management that allows it to invest in both value- and growth-oriented equity
securities.

Proxy Voting Policy and Procedures

The Fund has adopted Proxy Voting Policies and Procedures which the Advisor
uses to determine how to vote proxies relating to the Fund's portfolio
securities. A copy of the Fund's Proxy Voting Policy and Procedures are attached
as Appendix B to this Statement of Additional Information.

INVESTMENT RESTRICTIONS

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

1. Non-Diversification

The Fund is a non-diversified investment company under the 1940 Act.

Further Explanation of Non-Diversification Policy:

A non-diversified investment company is not limited by the 1940 Act as to
the amount of assets that may be invested in any one issuer. However, in order
to qualify as a regulated investment company for tax purposes, the Fund may have
no more that 25% of its total assets invested in the securities (other than
securities of the U.S. government, its agencies or instrumentalities, or the
shares of other regulated investment companies) of any one issuer. In addition,
with respect to 50% of its total assets, the Fund may not invest more than 5% of
its total assets, determined at market or other fair value at the time of
purchase, in the securities (other than securities issued by the U.S.
government, its agencies or instrumentalities) of any one issuer, or invest in
more than 10% of the voting securities (other than securities issued by the U.S.
government, its agencies or instrumentalities) of any one issuer, determined at
the time of purchase.

2. Concentration

The Fund will concentrate its investments (invests 25% or more of its
assets) in the securities of issuers engaged in the utility (water, gas,
electric and telecommunications) sector. The Fund will not concentrate in any
other industries.

3. Issuing Senior Securities

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

Further Explanation of Senior Securities Policy:

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

4. Borrowing

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

Further Explanation of Borrowing Policy:

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

5. Underwriting

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

6. Real Estate

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

7. Commodities

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

8. Lending

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

Further Explanation of Lending Policy:

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

When the Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
The risk in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral, or in the
recovery of the securities or possible loss of rights in their collateral should
the borrower fail financially.

All other investment policies of the Fund in the prospectus under the
heading "Investment Objective and Principal Investment Strategies" and in this
statement of additional information under the heading "Investment Objective and
Policies" are considered non-fundamental and may be changed by the Board of
Trustees without prior approval of the Fund's outstanding voting shares provided
they are given at least 60 days prior written notice.

Under the 1940 Act, the Fund may invest up to 10% of its total assets in
the aggregate in shares of other investment companies and up to 5% of its total
assets in any one investment company, provided the investment does not represent
more than 3% of the voting stock of the acquired investment company at the time
such shares are purchased. As a shareholder in any investment company, the Fund
will bear its ratable share of that investment company's expenses, and would
remain subject to payment of the Fund's advisory fees and other expenses with
respect to assets so invested. Holders of common shares would therefore be
subject to duplicative expenses to the extent the Fund invests in other
investment companies. In addition, the securities of other investment companies
may also be leveraged and will therefore be subject to the same leverage risks
described herein and in the prospectus. As described in the prospectus in the
section entitled "Risks," the net asset value and market value of leveraged
shares will be more volatile and the yield to shareholders will tend to
fluctuate more than the yield generated by unleveraged shares.

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

MANAGEMENT OF THE FUND

Trustees of the Fund

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

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

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

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

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

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

Disinterested Trustees:

-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
Number of Other
Name and Portfolios Trusteeships
Position Beginning Overseen in held outside
Date of Birth with Year of Term Principal Occupations for Last Five Evergreen of Evergreen
Fund of Office* Years Funds complex Funds complex
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
Charles A. Austin III Trustee 2004 Investment Counselor, Anchor Capital 94 None
Advisors, Inc. (investment advice);
Director, The Andover Companies
(insurance); Trustee, Arthritis
Foundation of New England; Director,
The Francis Ouimet Society; Former
Investment Counselor, Appleton
DOB: 10/23/34 Partners, Inc. (investment advice);
Former Director, Health Development
Corp. (fitness-wellness centers);
Former Director, Mentor Income Fund,
Inc.; Former Trustee, Mentor Funds and
Cash Resource Trust.
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
Shirley L. Fulton Trustee 2004 Partner, Helms, Henderson & Fulton, 94 None
P.A. (2003-Present); Senior Resident
DOB: 1/10/52 Superior Court Judge, Charlotte, North
Carolina (1997-2003).
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
Chairman and President, Oldways
Preservation and Exchange Trust
(education); Trustee, Treasurer and
Chairman of the Finance Committee,
Cambridge College; Former Managing
Partner, Roscommon Capital Corp.;
K. Dun Gifford Former Chairman of the Board, Director,
DOB: 10/23/38 Trustee 2004 and Executive Vice President, The 94 None
London Harness Company (leather goods
purveyor); Former Chairman, Gifford,
Drescher & Associates (environmental
consulting); Former Director, Mentor
Income Fund, Inc.; Former Trustee,
Mentor Funds and Cash Resource Trust.
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
Partner, Stonington Partners, Inc.
(private investment firm); Trustee of
Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix
Big Edge Series Fund; Former Chairman Trustee, Phoenix
of the Board and Chief Executive Series Fund,
Officer, Carson Products Company Phoenix
Leroy Keith, Jr. Trustee 2004 (manufacturing); Former Director of 94 Multi-Portfolio
DOB: 2/14/39 Phoenix Total Return Fund and Equifax, Fund, and The
Inc. (worldwide information Phoenix Big Edge
management); Former President, Series Fund
Morehouse College; Former Director,
Mentor Income Fund, Inc.; Former
Trustee, Mentor Funds and Cash Resource
Trust.
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
Sales Manager, SMI STEEL - South
Carolina (steel producer); Former Sales
Gerald M. McDonnell and Marketing Management, Nucor Steel
DOB: 7/14/39 Trustee 2004 Company; Former Director, Mentor Income 94 None
Fund, Inc.; Former Trustee, Mentor
Funds and Cash Resource Trust.
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
Partner and Vice President in the law
firm of Kellam & Pettit, P.A.; Former
William Walt Pettit Trustee 2004 Director, Mentor Income Fund, Inc.; 94 None
DOB: 8/26/55 Former Trustee, Mentor Funds and Cash
Resource Trust.
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
President, Richardson, Runden & Company
(new business development/consulting
company); Managing Director, Kennedy
Information, Inc. (executive
recruitment information and research
company); Trustee, NDI Technologies,
LLP (communications); Director, J&M
David M. Richardson Trustee 2004 Cumming Paper Co. (paper 94 None
DOB: 9/19/41 merchandising); Columnist, Commerce and
Industry Association of New Jersey;
Former Vice Chairman, DHR
International, Inc. (executive
recruitment); Former Director, Mentor
Income Fund, Inc.; Former Trustee,
Mentor Funds and Cash Resource Trust.
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
President/CEO, AccessOne MedCard;
Former Medical Director, Healthcare
Resource Associates, Inc.; Former
Russell A. Salton, III MD Medical Director, U.S. Health
DOB: 6/2/47 Trustee 2004 Care/Aetna Health Services; Former 94 None
Director, Mentor Income Fund, Inc.;
Former Trustee, Mentor Funds and Cash
Resource Trust.
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------

-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
Attorney, Law Offices of Michael S.
Michael S. Scofield Scofield; Former Director, Mentor
DOB: 2/20/43 Trustee 2004 Income Fund, Inc.; Former Trustee, 94 None
Mentor Funds and Cash Resource Trust.
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------
Richard J. Shima Trustee 2004 Independent Consultant; Director, Trust 94 None
Company of CT; Trustee, Saint Joseph
College (CT); Director of Hartford
Hospital, Old State House Association;
Trustee, Greater Hartford YMCA; Former
Director of Enhance Financial Services,
DOB: 8/11/39 Inc.; Former Director of CTG Resources,
Inc. (natural gas); Former Director
Middlesex Mutual Assurance Company;
Former Director, Mentor Income Fund,
Inc.; Former Trustee, Mentor Funds and
Cash Resource Trust.
-------------------------- ------------ -------------- ----------------------------------------- --------------- ------------------

Interested Trustee:

------------------------ -------------- ----------- -------------------------------------------- --------------- ------------------
Richard K. Wagoner, Trustee 2004 Member and Former President, North 94 None
Carolina Securities Traders Association;
Member, Financial Analysts Society; Former
Chief Investment Officer, Executive Vice
President and Head of Capital Management
CFA** Group, First Union National Bank; Former
DOB: 12/12/37 Consultant to the Boards of Trustees of
the Evergreen funds; Former Member, New
York Stock Exchange; Former Trustee,
Mentor Funds and Cash Resource Trust.
------------------------ -------------- ----------- -------------------------------------------- --------------- ------------------

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

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

Trustee Ownership of Evergreen Funds Shares

Set forth below is the dollar range of the Trustees' investment in the Fund
and the aggregate dollar range of their investment in the Evergreen fund
complex, as of December 31, 2003. As of December 31, 2003, the Fund had not been
formed and therefore had not issued any shares.

------------------------------ -------------------- ------------------------
Aggregate Dollar Range
Trustees Dollar Range of of Investment in Fund
Investment in Fund Complex
------------------------------ -------------------- ------------------------
============================== ==================== ========================
Charles A. Austin, III* $0 Over $100,000
============================== ==================== ========================
============================== ==================== ========================

Shirley L. Fulton $0 $0**

============================== ==================== ========================
============================== ==================== ========================
K. Dun Gifford $0 $10,001-$50,000
============================== ==================== ========================
============================== ==================== ========================
Dr. Leroy Keith, Jr. $0 $1-$10,000
============================== ==================== ========================
============================== ==================== ========================
Gerald M. McDonnell* $0 $10,001-$50,000
============================== ==================== ========================
============================== ==================== ========================
William Walt Pettit* $0 $10,001-$50,000
============================== ==================== ========================
============================== ==================== ========================
David M. Richardson $0 $50,001-$100,000
============================== ==================== ========================
============================== ==================== ========================
Dr. Russell A. Salton, III* $0 $0
============================== ==================== ========================
============================== ==================== ========================
Michael S. Scofield* $0 Over $100,000
============================== ==================== ========================
============================== ==================== ========================
Richard J. Shima* $0 Over $100,000
============================== ==================== ========================
============================== ==================== ========================
Richard K. Wagoner $0 Over $100,000
============================== ==================== ========================

* In addition to the above investment amounts, the Trustee has over
$100,000 indirectly invested in certain of the Evergreen funds through Deferred
Compensation Plans, with the exception of Mr. Shima who has over $50,000
indirectly invested.

** Ms. Fulton became a Trustee in 2004.

Officers of the Fund

Set forth below are the officers of the Fund.

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

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

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

President President and Chief Investment Officer, Evergreen
Dennis H. Ferro Investment Management Company, LLC and Executive Vice
401 S. Tryon, President, Wachovia Bank, N.A.
12th Floor
Charlotte, NC 28288
DOB: 6/20/45

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

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

Trustees Compensation

Listed below is the Trustee compensation estimated to be paid by the Fund
individually for the period beginning ____, 2004 and ending on December 31, 2004
and by the Fund and the ten trusts and one other limited liability company in
the Evergreen fund complex for the twelve months ended December 31, 2003. As of
December 31, 2003, the Fund had not been formed and therefore did not pay
compensation to the Trustees. The Trustees do not receive pension or retirement
benefits from the Fund.

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

Charles A. Austin, III $ $153,000
=======

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

Shirley L. Fulton $ $0**
===

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

K. Dun Gifford $ $178,500
=======

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

Leroy Keith, Jr. $ $153,000
=======

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

Gerald M. McDonnell $ $153,000
=======

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

William Walt Pettit $ $153,000
=======

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

David M. Richardson $ $153,000
=======

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

Russell A. Salton, III $ $163,500
=======

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

Michael S. Scofield $ $193,500
=======

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

Richard J. Shima $ $168,000
=======

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

Richard K. Wagoner $ $153,000
=======

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

*Certain Trustees have elected to defer all or part of their total
compensation for the twelve months ended December 31, 2003. The amounts listed
below will be payable in later years to the respective Trustees:

Austin $91,800
==================================
Pettit $153,000
===================================
Shima $58,800
==================================

** Ms. Fulton became a Trustee in 2004.

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

Limitation of Trustees' Liability

The Agreement and Declaration of Trust provides that a Trustee will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Agreement and Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his duties involved in the conduct of
his office or the discharge of his functions.

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

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

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

THE ADVISOR, ADMINISTRATOR AND TRANSFER AGENT

Advisor

Evergreen Investment Management Company, LLC (previously defined as the
"Advisor"), a wholly owned subsidiary of Wachovia Bank, N.A., is the investment
adviser to the Fund. Wachovia Bank, N.A., located at 201 South College Street,
Charlotte, North Carolina 28288-0630, is a subsidiary of Wachovia Corporation,
formerly First Union Corporation. As of December 31, 2003, the Advisor, with its
affiliates, had more than $247 billion in assets under management. The Advisor
has a 70-year history of money management and is the 15th largest mutual fund
company in the United States, according to FRC Financial Research Corp (open-end
funds only). The Advisor employs over 350 investment professionals and has more
than 5 million individual and institutional clients.

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

Day-to-day management of the portion of the Fund's portfolio that is
described as the utility and telecommunications portion under "Investment
Objectives and Principal Investment Strategies - Principal Investment Strategies
- Utility Securities" in the Prospectus is the responsibility of a team of
portfolio management professionals from the Advisor's Value Equity team.
Together the team managed more than $250 billion in assets under management as
of December 31, 2003. The team is led by Timothy O'Brien, who has more than 19
years of investment experience. Mr. O'Brien has been with the Advisor since
April 2002 and currently serves as a managing director and senior portfolio
manager.

Day-to-day management of the portion of the Fund's portfolio that is
described as the U.S. high yield debt securities portion under "Investment
Objective and Principal Investment Strategies - Principal Investment Strategies-
U.S. High Yield Debt Securities" in the Prospectus is the responsibility of a
team of portfolio management professionals from the Advisor's Select High Yield
Bond team, which includes specialized industry analysts responsible for various
sectors. Also, the open-end Evergreen Select High Yield Bond is among the
portfolios the team manages. The Select High Yield team is led by Richard Cryan,
who has more than 25 years of fixed income investment experience. Mr. Cryan has
been a senior portfolio manager with the Advisor since 1992. Mr. Cryan is part
of the team that manages the closed-end Evergreen Income Advantage Fund and a
portion of the closed-end Evergreen Managed Income Fund. Together the team
managed more than $4.5 billion in high yield securities as of December 31, 2003.

Investment Management Contract

The Board of Trustees, including a majority of the Disinterested Trustees,
has the responsibility under the 1940 Act to approve the Fund's management
contract for its initial term and annually thereafter at a meeting called for
the purpose of voting on such matters. The Fund's Board of Trustees, including
the Disinterested Trustees, approved the management contract for an initial
two-year term on March 18, 2004. In approving the management contract, the
Trustees reviewed materials provided by the Advisor and considered the
following: (1) the level of the management fees and estimated expense ratio of
the Fund as compared to competitive funds of a comparable size; (2) the nature
and quality of the services rendered by the Advisor to the Fund, (3) the costs
of providing services to the Fund, and (4) the anticipated profitability of the
Fund to the Advisor. In particular, the Trustees considered the risk-adjusted
historical performance records of the Advisor's portfolio management teams
responsible for managing high-yield bond portfolios and for managing the
Advisor's open-end utilities fund. The Trustees also noted that the proposed
management fee was competitive with (and generally lower than) those of other
comparable leveraged closed-end funds. Prior to the commencement of the Fund's
operations, the management contract will also be considered for approval by the
Fund's sole shareholder.

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

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

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

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

The management contract provides that the Fund shall pay to the Advisor a
fee for its services which is equal to the annual rate of 0.60% of the Fund's
average daily Total Assets. The advisory fee will be payable monthly.

Administrator

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

Transfer Agent

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

Code of Ethics

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

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

Potential Conflicts of Interest

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

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

PORTFOLIO TRANSACTIONS

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

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

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

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

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

TENDER OFFERS

The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Fund's common shares will trade in the open market at a price that will be a
function of several factors, including among others, dividend levels (which are
in turn affected by expenses), net asset value, call protection, dividend
stability, relative demand for and supply of such shares in the market, general
market and economic conditions and other factors. Shares of closed-end funds
frequently trade at a discount to their net asset value. Common shares of
closed-end investment companies like the Fund have during some periods traded at
prices higher than their net asset value (at a "premium") and during other
periods traded at prices lower than their net asset value (at a "discount").
This is in part because the market price reflects the dividend yield on the
common shares. When the yield on the net asset value per share is higher than
yields generally available in the market for comparable securities, the market
price will tend to reflect this by trading higher than the net asset value per
share to adjust the yield to a comparable market rate.

The market price per common share may be greater or less than net asset
value per common share. Common shares of closed-end investment companies
frequently trade at a discount from net asset value, but in some cases trade at
a premium. This characteristic of common shares of closed-end funds is a risk
separate and distinct from the risk that the Fund's net asset value may
decrease. The market price of the Fund's common shares also may be affected by
trading volume of the common shares, general market and economic conditions and
other factors beyond the control of the Fund.

Accordingly, the Board of Trustees has committed to make tender offers for
the Fund's common shares under certain circumstances and subject to certain
conditions. Beginning six to eight months after the Fund's commencement of
operations (for a total of eight consecutive calendar quarters), in the event
that the common shares trade at a discount to net asset value of greater than 5%
for fifteen of twenty days during a specific measurement period (initially the
twenty-first through fortieth trading days of a quarter)(the "measurement
period"), the Fund, under normal circumstances, will make offers to purchase up
to 5% of its outstanding common shares at their net asset value from all
beneficial shareholders. The Fund will not undertake a tender offer if the
Fund's common shares are not trading at a discount. The Fund will make its first
tender offer within the first six to eight months of the commencement of the
Fund's operations and for the following seven quarters after such initial tender
offer evaluation if the discount exists during the measurement period for the
number of days specified above. The Board of Trustees reserves the right to
modify the conditions described in this paragraph in light of experience. In
addition, the Board of Trustees may consider from time to time open market
repurchases of the Fund's outstanding common shares.

The Fund will purchase all outstanding common shares tendered in accordance
with the terms of the offer unless the Board of Trustees determined to accept
none of them (based upon the circumstances set forth below). If more common
shares are tendered for repurchase than the Fund has offered to repurchase,
common shares will be repurchased on a pro-rata basis. If authorized by the
Commission, the Fund may make it a condition of each tender offer that no one
shareholder may receive more than 10% of the amount purchased by the Fund in the
tender offer. There can be no assurance that the Commission will approve this
condition. Thus, shareholders may be unable to liquidate all or a given
percentage of their common shares and some shareholders may tender more shares
than they wish to have repurchased in order to ensure repurchase of at least a
specific number of common shares. Shareholders may withdraw tendered common
shares at any time prior to the tender offer deadline.

At any time when the Fund's preferred shares are outstanding, the Fund may
not purchase, redeem or otherwise acquire any of its common shares unless (1)
all accrued preferred shares dividends have been paid and (2) at the time of
such purchase, redemption or acquisition, the net asset value of the Fund's
portfolio (determined after deducting the acquisition price of the common
shares) is at least 200% of the liquidation value of the outstanding preferred
shares (expected to equal the original purchase price per share plus any accrued
and unpaid dividends thereon). Any service fees incurred in connection with any
tender offer made by the Fund will be borne by the Fund and will not reduce the
stated consideration to be paid to tendering shareholders.

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

U.S. FEDERAL INCOME TAX MATTERS

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

The Fund intends to elect be treated and to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") and to comply with applicable distribution
requirements so that it generally will not pay U.S. federal income tax on income
and capital gains distributed to shareholders. In order to qualify as a
regulated investment company under Subchapter M of the Code, which this
discussion assumes, the Fund must, among other things, (i) derive at least 90%
of its gross income for each taxable year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock, securities or foreign currencies, or other income (including gains from
options, futures and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% income test") and
(ii) diversify its holdings so that, at the end of each quarter of its taxable
year, (x) at least 50% of the value of its total assets is represented by cash,
United States government securities, securities of other regulated investment
companies and other securities, with such other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and that does not represent more than 10% of the issuer's
outstanding voting securities and (y) not more than 25% of the value of its
total assets is invested in the securities (other than United States government
securities or the securities of other regulated investment companies) of any one
issuer, or of two or more issuers controlled by the Fund and engaged in the
same, similar or related trades or businesses. For purposes of the 90% income
test, the character of income earned by certain entities in which the Fund
invests that are not treated as corporations (e.g., partnerships or trusts) for
U.S. federal income tax purposes will generally pass through to the Fund.
Consequently, the Fund may be required to limit its equity investments in such
entities that earn fee income, rental income or other nonqualifying income.

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

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

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

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

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

Recently enacted legislation reduces the federal income tax rate for
individuals on certain dividend income and net capital gain to a maximum of 15%
for taxable years beginning on or before December 31, 2008. Capital gain
dividends and a portion of ordinary income distributions (allocable to qualified
dividend income received by the Fund) received by individual shareholders of the
Fund may be subject to the reduced tax rate. Qualified dividend income generally
includes dividends from domestic corporations and dividends from foreign
corporations that meet certain specified criteria. Certain holding period and
other requirements must be satisfied in order for the reduced tax rate to apply
to dividends which would otherwise be qualified dividend income. The Fund will
annually inform shareholders of the portion, if any, of ordinary dividends paid
by the Fund which qualify for the new reduced federal income tax rate available
for such dividends.

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

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

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

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

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

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

The Fund's transactions in foreign currencies, foreign currency denominated
debt securities and certain foreign currency options and contracts may give rise
to ordinary income or loss under Section 988 of the Code to the extent the
income or loss results from fluctuations in the value of the relevant foreign
currency.

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

The Fund's distributions to its corporate shareholders would potentially
qualify in their hands for the corporate dividends-received deduction subject to
certain holding period requirements and limitations on debt financings under the
Code, but only to the extent the Fund earned dividend income from stock
investments in U.S. domestic corporations and certain other requirements are
satisfied. The Fund is permitted to acquire stocks of U.S. domestic
corporations, and it is therefore possible that a portion of the Fund's
distributions, from the dividends attributable to such stocks, may qualify for
the dividends-received deduction.

The IRS has taken the position that if a regulated investment company has
two classes of shares, it must designate distributions made to each class in any
year as consisting of no more than such class's proportionate share of
particular types of income, including dividends qualifying for the corporate
dividends-received deduction (if any) and net capital gains. A class's
proportionate share of a particular type of income is determined according to
the percentage of total dividends paid by the regulated investment company
during the year to such class. Consequently, if both common shares and preferred
shares are outstanding, the Fund intends to designate distributions made to the
classes of particular types of income in accordance with the classes'
proportionate shares of such income. Thus, the Fund will designate dividends
qualifying for the corporate dividends-received deduction (if any),
distributions of qualified dividend income eligible for reduced tax rates for
individual shareholders and net capital gains in a manner that allocates such
income between the holders of common shares and preferred shares in proportion
to the total dividends paid to each class during or for the taxable year, or
otherwise as required by applicable law.

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

Federal law requires that the Fund withhold (as "backup withholding") tax
at a current rate of 28% on reportable payments, including dividends and capital
gain distributions paid to certain shareholders who have not complied with IRS
regulations. Corporations are generally exempt from backup withholding. In order
to avoid this withholding requirement, shareholders must certify on their
account applications, or on separate IRS Forms W-9, that the Social Security
Number or other Taxpayer Identification Number they provide is their correct
number and that they are not currently subject to backup withholding, or that
they are exempt from backup withholding. The Fund may nevertheless be required
to withhold if it receives notice from the IRS that the number provided is
incorrect or backup withholding is applicable as a result of previous
underreporting of income. Similar backup withholding rules may apply to a
shareholder's broker with respect to the proceeds of sales or other dispositions
of the Fund's shares by such shareholder. Backup withholding is not an
additional tax. Any amounts withheld from payments made to a shareholder may be
refunded or credited against such shareholder's U.S. federal income tax
liability, if any, provided that the required information is provided to the
IRS.

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

Shareholders should consult their tax advisers regarding the specific tax
consequences, including state and local tax consequences, of participating in a
tender offer of common shares. A tender of common shares pursuant to a tender
offer will be treated as a taxable sale or exchange of the common shares if,
taking into account common shares the tendering shareholder actually owns and
common shares the shareholder is treated as owning under constructive ownership
rules, the tender (i) completely terminates the shareholder's interest in the
Fund, (ii) is treated as a distribution that is "substantially disproportionate"
or (iii) is treated as a distribution that is "not essentially equivalent to a
dividend". A "substantially disproportionate" distribution generally requires a
reduction of more than 20% in the shareholder's proportionate interest in the
Fund after all shares are tendered. A distribution "not essentially equivalent
to a dividend" requires that there be a "meaningful reduction" in the
shareholder's interest, which should be the case if the shareholder has a
minimal interest in the Fund, exercises no control over Fund affairs and suffers
a reduction in his or her proportionate interest.

The Fund intends to take the position that tendering shareholders will
qualify for sale or exchange treatment. If the transaction is treated as a sale
or exchange for tax purposes, any gain or loss recognized will be treated as a
capital gain or loss by shareholders who hold their common shares as a capital
asset and as a long-term capital gain or loss if such common shares have been
held for more than 12 months. If the transaction is not treated as a sale or
exchange, the amount received upon a sale of common shares may consist in whole
or in part of ordinary dividend income, a return of capital or capital gain,
depending on the Fund's earnings and profits and the shareholder's tax basis in
the common shares. In addition, if any amounts received are treated as a
dividend to tendering shareholders, non-tendering shareholders whose
proportionate interest in the Fund has been increased as a result of the tender
offer might be treated as receiving a constructive dividend.

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

PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION

Performance-Related Information

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

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

Past performance is not indicative of future results. At the time common
shareholders sell their shares, they may be worth more or less than their
original investment. At any time in the future, yields and total return may be
higher or lower than past yields and total return, and there can be no assurance
that any historical results will continue.

The Advisor

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

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

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

Comparative Information

From time to time, the Fund's advertisements or information furnished to
present or prospective shareholders may refer to the returns and yields offered
by various types of investments, as well as the yield spreads on such
investments. For instance, such advertisements may refer to the spread in
corporate bond yield and government bond yield, or the yield of other types of
investments. For purposes of advertisements or related materials, yields and
returns may be measured by various indices such as the S & P 500 Index or other
such indices. Advertisements and related materials may also note the Advisor's
belief that yields on short-term, intermediate- and long-term bonds offer
attractive current yields and set forth yields on other investments, including
without limitation, 3-month T-Bills, 10-year Treasury bonds and 30-year Treasury
bonds.

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

The Fund

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

The Fund, in its advertisements, may refer to pending legislation from time
to time and the possible impact of such legislation on investors, investment
strategy and related matters. The Fund may be a suitable investment for a
shareholder who is thinking of adding bond investments to his portfolio to
balance the appreciated stocks that the shareholder is holding.

Performance Calculations

Average Annual Total Return

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

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

P(1+T)n = ERV

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

Yield

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

30-Day Yield

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

Yield = 2[(a-b +1)6-1]
___
cd

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

7-Day Current and Effective Yield

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

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

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

Effective Yield = [(base period return)]+ 1) 365/7]-1

Tax Equivalent Yield

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

Tax Equivalent Yield = Yield
_________________
1-Income Tax Rate

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

Non-Standardized Performance

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

EXPERTS

The statement of assets and liabilities of the Fund as of March 15, 2004
appearing in this statement of additional information has been audited by KPMG
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and is included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. KPMG LLP, located
at 99 High Street, Boston, Massachusetts 02110, provides accounting and auditing
services to the Fund.

ADDITIONAL INFORMATION

A Registration Statement on Form N-2, including amendments thereto,
relating to the shares offered hereby, has been filed by the Fund with the
Commission, Washington, D.C. The prospectus and this statement of additional
information do not contain all of the information set forth in the Registration
Statement, including any exhibits and schedules thereto. For further information
with respect to the Fund and the shares offered hereby, reference is made to the
Registration Statement. Statements contained in the prospectus and this
statement of additional information as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. A copy of the Registration Statement may be inspected without
charge at the Commission's principal office in Washington, D.C., and copies of
all or any part thereof may be obtained from the Commission upon the payment of
certain fees prescribed by the Commission.

FINANCIAL STATEMENT AND INDEPENDENT AUDITORS' REPORT

EVERGREEN UTILITIES AND HIGH INCOME FUND

Statement of Assets and Liabilities

March 15, 2004

(With Independent Auditors' Report Thereon)

Independent Auditors' Report

The Board of Trustees and Shareholders
Evergreen Utilities and High Income Fund:

We have audited the accompanying statement of assets and liabilities of
Evergreen Utilities and High Income Fund ("the Fund"), as of March 15, 2004.
This statement of assets and liabilities is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.

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

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Evergreen
Utilities and High Income Fund as of March 15, 2004, in conformity with
accounting principles generally accepted in the United States of America.

KPMG LLP
/s/ KPMG LLP

Boston, Massachusetts
March 16, 2004

EVERGREEN UTILITIES AND HIGH INCOME FUND
Statement of Assets and Liabilities
March 15, 2004

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

ASSETS

Cash $ 100,000

Deferred Offering
Costs 500,000

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

Total Assets 600,000

LIABILITIES

Payable for offering costs 500,000

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

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

Shares Outstanding 5,000

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

Net asset value ($100,000/5,000 shares outstanding) $20.00

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

EVERGREEN UTILITIES AND HIGH INCOME FUND

Notes to Statement of Assets and Liabilities

March 15, 2004

Note 1 - Organization
Evergreen Utilities and High Income Fund (the "Fund"), a Delaware statutory
trust, is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a non-diversified, closed-end management investment
company.

The Fund's investment objective is to seek a high level of current income
and moderate capital growth, with an emphasis on providing tax-advantaged
dividend income.

Note 2 - Significant Accounting Policies

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

(b) Organization Expenses and Offering Costs: Organization expenses
relating to organizing the Fund have been incurred by Evergreen
Investment Management Company LLC ("EIMC"). Offering costs are
estimated to be approximately $500,000. EIMC has also agreed to pay
offering costs (excluding sales charges) that exceed $0.04 per share.
Offering costs up to $0.04 per share and sales charges will be borne
by the Fund and its shareholders and will be accounted for as a
reduction to paid in capital. Based on an estimated expected offering
of 12,500,000 shares, all of the offering costs will be borne by the
Fund.

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

Note 3 - Investment Adviser and Other Affiliated Transactions

EIMC serves as investment adviser to the Fund. As compensation for EIMC's
services, the Fund will pay EIMC a management fee at an annual rate of
0.60% of the Fund's average daily total assets.

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

Note 4 - Service Providers
The Fund has retained State Street Bank and Trust Company as custodian.
EquiServe Trust Company, N.A. will serve as the transfer agent, registrar,
shareholder servicing agent and dividend disbursing agent for the Fund's
shares.

Note 5 - Fund Shares
The Fund has authorized an unlimited number of common shares, without par
value, of which 5,000 shares were issued and outstanding at March 15, 2004.

APPENDIX A - DESCRIPTION OF RATINGS

CORPORATE AND MUNICIPAL BOND RATINGS

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

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

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

COMPARISON OF LONG-TERM BOND RATINGS

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

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

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

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

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

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

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

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

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

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

CORPORATE BONDS

LONG-TERM RATINGS

Moody's Corporate Long-Term Bond Ratings

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

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

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

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

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

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

Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

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

C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

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

S&P Corporate Long-Term Bond Ratings

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

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

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

BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.

BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.

CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

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

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

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

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

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

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

Fitch Corporate Long-Term Bond Ratings

Investment Grade

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

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

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

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

Speculative Grade

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

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

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

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

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

CORPORATE SHORT-TERM RATINGS

Moody's Corporate Short-Term Issuer Ratings

Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

-- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.

-- Well-established access to a range of financial markets and assured sources
of alternate liquidity.

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

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

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

S&P Corporate Short-Term Obligation Ratings

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

A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory. A-3 A short-term
obligation rated A-3 exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.

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

C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.

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

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

Fitch Corporate Short-Term Obligation Ratings

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

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

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

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

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

D Default. Denotes actual or imminent payment default.

MUNICIPAL BONDS

LONG-TERM RATINGS

Moody's Municipal Long-Term Bond Ratings

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

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

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

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

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

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

Caa Bonds rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.

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

C Bonds rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

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

S&P Municipal Long-Term Bond Ratings

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

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

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

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

D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

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

Fitch Municipal Long-Term Bond Ratings

Investment Grade

Speculative Grade

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

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

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

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

SHORT-TERM MUNICIPAL RATINGS

Moody's Municipal Short-Term Issuer Ratings

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

-- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.

-- Well-established access to a range of financial markets and assured sources
of alternate liquidity.

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

Moody's Municipal Short-Term Loan Ratings

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

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

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

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

S&P Commercial Paper Ratings

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

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

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

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

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

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

S&P Municipal Short-Term Obligation Ratings

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

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

SP-3 Speculative capacity to pay principal and interest.

Fitch Municipal Short-Term Obligation Ratings

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

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

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

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

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

D Default. Denotes actual or imminent payment default.

APPENDIX B--PROXY VOTING POLICY AND PROCEDURES

Evergreen Investment Management Company, LLC

Proxy Voting Policy and Procedures

ISS Proxy Voting Guidelines Summary

June 16, 2003

Statement of Principles

Evergreen Investment Management Company, LLC (EIMCO) recognizes it has a
fiduciary duty to vote proxies on behalf of clients who have delegated such
responsibility to EIMCO, and that in all cases proxies should be voted in a
manner reasonably believed to be in the clients' best interest.

Corporate Governance Committee

EIMCO has established a corporate governance committee (Committee) which is a
sub-committee of EIMCO's Investment Policy Committee. The Committee is
responsible for approving EIMCO's proxy voting policies and procedures, for
overseeing the proxy voting process, and for reviewing proxy voting on a regular
basis. The Committee will meet quarterly to review reports of all proxies voted
for the prior period and to conduct other business as required.

Conflicts of Interest

EIMCO recognizes that under certain circumstances it may have a conflict of
interest in voting proxies on behalf of its clients. Such circumstances may
include, but are not limited to, situations where EIMCO or one or more of its
affiliates has a client or customer relationship with the issuer of the security
that is the subject of the proxy vote.

In most cases, structural and informational barriers within EIMCO and Wachovia
Corporation will prevent EIMCO from becoming aware of the relationship giving
rise to the potential conflict of interest. In such circumstances, EIMCO will
vote the proxy according to its standard guidelines and procedures described
above.

If persons involved in proxy voting on behalf of EIMCO becomes aware of a
potential conflict of interest, the Committee shall consult with EIMCO's Legal
Department and consider whether to implement special procedures with respect to
the voting of that proxy, including whether an independent third party should be
retained to vote the proxy.

Share Blocking

EIMCO does not vote global proxies, with share blocking restrictions, requiring
shares to be prohibited from sale.

Proxy Voting Guideline Summary

I. The Board of Directors

Voting on Director Nominees in Uncontested Elections

Votes on director nominees should be made on a case-by-case basis, examining the
following factors: composition of the board and key board committees, attendance
at board meetings, corporate governance provisions and takeover activity,
long-term company performance relative to a market index, directors' investment
in the company, whether the chairman is also serving as CEO, and whether a
retired CEO sits on the board. However, there are some actions by directors that
should result in votes being withheld. These instances include directors who:

o Attend less than 75 percent of the board and committee meetings without a
valid excuse

o Implement or renew a dead-hand or modified dead-hand poison pill

o Ignore a shareholder proposal that is approved by a majority of the shares
outstanding

o Ignore a shareholder proposal that is approved by a majority of the votes
cast for two consecutive years

o Have failed to act on takeover offers where the majority of the
shareholders have tendered their shares

o Are inside directors and sit on the audit, compensation, or nominating
committees

o Are inside directors and the full board serves as the audit, compensation,
or nominating committee or the company does not have one of these
committees

In addition, directors who enacted egregious corporate governance policies or
failed to replace management as appropriate would be subject to recommendations
to withhold votes.

Separating Chairman and CEO

Vote on a case-by-case basis on shareholder proposals requiring that the
positions of chairman and CEO be held separately.

Proposals Seeking a Majority of Independent Directors

Shareholder proposals asking that a majority of directors be independent should
be evaluated on a case-by-case basis. Vote for shareholder proposals asking that
board audit, compensation, and/or nominating committees be composed exclusively
of independent directors.

Stock Ownership Requirements

Vote against shareholder proposals requiring directors to own a minimum amount
of company stock in order to qualify as a director or to remain on the board.
Term of Office

Vote against shareholder proposals to limit the tenure of outside directors.

Age Limits

Vote against shareholder proposals to impose a mandatory retirement age for
outside directors.

Director and Officer Indemnification and Liability Protection

Proposals on director and officer indemnification and liability protection
should be evaluated on a case-by-case basis, using Delaware law as the standard.
Vote against proposals to eliminate entirely directors' and officers' liability
for monetary damages for violating the duty of care. Vote against
indemnification proposals that would expand coverage beyond just legal expenses
to acts, such as negligence, that are more serious violations of fiduciary
obligation than mere carelessness. Vote for only those proposals providing such
expanded coverage in cases when a director's or officer's legal defense was
unsuccessful if: (1) the director was found to have acted in good faith and in a
manner that he reasonably believed was in the best interests of the company, and
(2) only if the director's legal expenses would be covered.

Charitable Contributions

Vote against proposals regarding charitable contributions.

II. Proxy Contests

Voting for Director Nominees in Contested Elections

Votes in a contested election of directors must be evaluated on a case-by-case
basis, considering the following factors: long-term financial performance of the
target company relative to its industry; management's track record; background
to the proxy contest; qualifications of director nominees (both slates);
evaluation of what each side is offering shareholders as well as the likelihood
that the proposed objectives and goals can be met; and stock ownership
positions.

Reimburse Proxy Solicitation Expenses

Voting to reimburse proxy solicitation expenses should be analyzed on a
case-by-case basis. In cases where Evergreen recommends in favor of the
dissidents, we also recommend voting for reimbursing proxy solicitation
expenses.

III. Auditors

Ratifying Auditors

Vote for proposals to ratify auditors, unless: an auditor has a financial
interest in or association with the company, and is therefore not independent;
or there is reason to believe that the independent auditor has rendered an
opinion which is neither accurate nor indicative of the company's financial
position.

IV. Proxy Contest Defenses

Board Structure: Staggered vs. Annual Elections

Vote against proposals to classify the board.

Vote for proposals to repeal classified boards and to elect all directors
annually.

Shareholder Ability to Remove Directors

Vote against proposals that provide that directors may be removed only for
cause.

Vote for proposals to restore shareholder ability to remove directors with or
without cause.

Vote against proposals that provide that only continuing directors may elect
replacements to fill board vacancies.

Vote for proposals that permit shareholders to elect directors to fill board
vacancies.

Cumulative Voting

Vote against proposals to eliminate cumulative voting.

Vote proposals to restore or permit cumulative voting on a case-by-case basis
relative to the company's other governance provisions.

Shareholder Ability to Call Special Meetings

Vote against proposals to restrict or prohibit shareholder ability to call
special meetings.

Vote for proposals that remove restrictions on the right of shareholders to act
independently of management.

Shareholder Ability to Act by Written Consent

Vote against proposals to restrict or prohibit shareholder ability to take
action by written consent.

Vote for proposals to allow or make easier shareholder action by written
consent.

Shareholder Ability to Alter the Size of the Board

Vote for proposals that seek to fix the size of the board.

Vote against proposals that give management the ability to alter the size of the
board without shareholder approval.

V. Tender Offer Defenses

Poison Pills

Vote for shareholder proposals that ask a company to submit its poison pill for
shareholder ratification.

Review on a case-by-case basis shareholder proposals to redeem a company's
poison pill.

Review on a case-by-case basis management proposals to ratify a poison pill.

Fair Price Provisions

Vote proposals to adopt fair price provisions on a case-by-case basis,
evaluating factors such as the vote required to approve the proposed
acquisition, the vote required to repeal the fair price provision, and the
mechanism for determining the fair price.

Generally, vote against fair price provisions with shareholder vote requirements
greater than a majority of disinterested shares.

Greenmail

Vote for proposals to adopt antigreenmail charter of bylaw amendments or
otherwise restrict a company's ability to make greenmail payments.

Review on a case-by-case basis antigreenmail proposals when they are bundled
with other charter or bylaw amendments.

Pale Greenmail

Review on a case-by-case basis restructuring plans that involve the payment of
pale greenmail.

Unequal Voting Rights

Vote against dual-class exchange offers.

Vote against dual-class recapitalizations.

Supermajority Shareholder Vote Requirement to Amend the Charter or Bylaws

Vote against management proposals to require a supermajority shareholder vote to
approve charter and bylaw amendments.

Vote for shareholder proposals to lower supermajority shareholder vote
requirements for charter and bylaw amendments.

Supermajority Shareholder Vote Requirement to Approve Mergers

Vote against management proposals to require a supermajority shareholder vote to
approve mergers and other significant business combinations.

Vote for shareholder proposals to lower supermajority shareholder vote
requirements for mergers and other significant business combinations.

White Squire Placements

Vote for shareholder proposals to require approval of blank check preferred
stock Issues for other than general corporate purposes.

VI. Miscellaneous Governance Provisions

Confidential Voting

Vote for shareholder proposals that request companies to adopt confidential
voting, use independent tabulators, and use independent inspectors of election
as long as the proposals include clauses for proxy contests as follows: In the
case of a contested election, management should be permitted to request that the
dissident group honor its confidential voting policy. If the dissidents agree,
the policy remains in place. If the dissidents do not agree, the confidential
voting policy is waived.

Vote for management proposals to adopt confidential voting.

Equal Access

Vote for shareholder proposals that would allow significant company shareholders
equal access to management's proxy material in order to evaluate and propose
voting recommendations on proxy proposals and director nominees, and in order to
nominate their own candidates to the board.

Bundled Proposals

Review on a case-by-case basis bundled or "conditioned" proxy proposals. In the
case of items that are conditioned upon each other, examine the benefits and
costs of the packaged items. In instances when the joint effect of the
conditioned items is not in shareholders' best interests, vote against the
proposals. If the combined effect is positive, support such proposals.

Shareholder Advisory Committees

Review on a case-by-case basis proposals to establish a shareholder advisory
committee.

VII. Capital Structure

Common Stock Authorization

Review proposals to increase the number of shares of common stock authorized for
issue on a case-by-case basis.

Vote against proposals to increase the number of authorized shares of the class
of stock that has superior voting rights in companies that have dual-class
capitalization structures.

Stock Distributions: Splits and Dividends

Vote for management proposals to increase common share authorization for a stock
split, provided that the increase in authorized shares would not result in an
excessive number of shares available for issuance given a company's industry and
performance in terms of shareholder returns.

Reverse Stock Splits

Vote for management proposals to implement a reverse stock split when the number
of shares will be proportionately reduced to avoid delisting.

Review on a case-by-case basis on proposals to implement a reverse stock split
that do not proportionately reduce the number of shares authorized for Issue.

Preferred Stock

Vote against proposals authorizing the creation of new classes of preferred
stock with unspecified voting, conversion, dividend distribution, and other
rights ("blank check" preferred stock).

Vote for proposals to create blank check preferred stock in cases when the
company expressly states that the stock will not be used as a takeover defense.

Vote for proposals to authorize preferred stock in cases where the company
specifies the voting, dividend, conversion, and other rights of such stock and
the terms of the preferred stock appear reasonable.

Vote case-by-case on proposals to increase the number of blank check preferred
shares after analyzing the number of preferred shares available for Issue given
a company's industry and performance in terms of shareholder returns.

Shareholder Proposals Regarding Blank Check Preferred Stock

Vote for shareholder proposals to have blank check preferred stock placements,
other than those shares issued for the purpose of raising capital or making
acquisitions in the normal course of business, submitted for shareholder
ratification.

Adjustments to Par Value of Common Stock

Vote for management proposals to reduce the par value of common stock.

Preemptive Rights

Review on a case-by-case basis shareholder proposals that seek preemptive
rights. In evaluating proposals on preemptive rights, consider the size of a
company and the characteristics of its shareholder base.

Debt Restructurings

Review on a case-by-case basis proposals to increase common and/or preferred
shares and to Issue shares as part of a debt restructuring plan. Consider the
following Issues: Dilution--How much will ownership interest of existing
shareholders be reduced, and how extreme will dilution to any future earnings
be? Change in Control--Will the transaction result in a change in control of the
company? Bankruptcy--Generally, approve proposals that facilitate debt
restructurings unless there are clear signs of self-dealing or other abuses.

Share Repurchase Programs

Vote for management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.

Tracking Stock

Votes on the creation of tracking stock are determined on a case-by-case basis,
weighing the strategic value of the transaction against such factors as:

o adverse governance changes

o excessive increases in authorized capital stock

o unfair method of distribution

o diminution of voting rights
o adverse conversion features

o negative impact on stock option plans

o other alternatives such as spinoff

VIII. Executive and Director Compensation

Votes with respect to compensation plans should be determined on a case-by-case
basis.

Our new methodology for reviewing compensation plans primarily focuses on the
transfer of shareholder wealth (the dollar cost of pay plans to shareholders
instead of simply focusing on voting power dilution). Using the expanded
compensation data disclosed under the SEC's new rules, Evergreen will value
every award type. Evergreen will include in its analyses an estimated dollar
cost for the proposed plan and all continuing plans. This cost, dilution to
shareholders' equity, will also be expressed as a percentage figure for the
transfer of shareholder wealth, and will be considered along with dilution to
voting power. Once Evergreen determines the estimated cost of the plan, we
compare it to a company-specific dilution cap.

Our model determines a company-specific allowable pool of shareholder wealth
that may be transferred from the company to executives, adjusted for (1)
long-term corporate performance (on an absolute basis and relative to a standard
industry peer group and an appropriate market index), (2) cash compensation, and
(3) categorization of the company as emerging, growth, or mature. These
adjustments are pegged to market capitalization. Evergreen will continue to
examine other features of proposed pay plans such as administration, payment
terms, plan duration, and whether the administering committee is permitted to
reprice underwater stock options without shareholder approval.

Management Proposals Seeking Approval to Reprice Options

Vote on management proposals seeking approval to reprice options on a
case-by-case basis.

Director Compensation

Votes on stock-based plans for directors are made on a case-by-case basis.

Employee Stock Purchase Plans

Votes on employee stock purchase plans should be made on a case-by-case basis.

OBRA-Related Compensation Proposals:

Amendments that Place a Cap on Annual Grants or Amend Administrative Features

Vote for plans that simply amend shareholder-approved plans to include
administrative features or place a cap on the annual grants any one participant
may receive to comply with the provisions of Section 162(m) of OBRA.

Amendments to Added Performance-Based Goals

Vote for amendments to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) of OBRA.

Amendments to Increase Shares and Retain Tax Deductions Under OBRA

Votes on amendments to existing plans to increase shares reserved and to qualify
the plan for favorable tax treatment under the provisions of Section 162(m)
should be evaluated on a case-by-case basis.

Approval of Cash or Cash-and-Stock Bonus Plans

Vote for cash or cash-and-stock bonus plans to exempt the compensation from
taxes under the provisions of Section 162(m) of OBRA.

Shareholder Proposals to Limit Executive and Director Pay

Generally, vote for shareholder proposals that seek additional disclosure of
executive and director pay information.

Review on a case-by-case basis all other shareholder proposals that seek to
limit executive and director pay.

Golden and Tin Parachutes

Vote for shareholder proposals to have golden and tin parachutes submitted for
shareholder ratification.

Review on a case-by-case basis all proposals to ratify or cancel golden or tin
parachutes.

Employee Stock Ownership Plans (ESOPs)

Vote for proposals that request shareholder approval in order to implement an
ESOP or to increase authorized shares for existing ESOPs, except in cases when
the number of shares allocated to the ESOP is "excessive" (i.e., generally
greater than five percent of outstanding shares).

401(k) Employee Benefit Plans

Vote for proposals to implement a 401(k) savings plan for employees.

IX. State of Incorporation

Voting on State Takeover Statutes

Review on a case-by-case basis proposals to opt in or out of state takeover
statutes (including control share acquisition statutes, control share cash-out
statutes, freezeout provisions, fair price provisions, stakeholder laws, poison
pill endorsements, severance pay and labor contract provisions, antigreenmail
provisions, and disgorgement provisions).

Voting on Reincorporation Proposals

Proposals to change a company's state of incorporation should be examined on a
case-by-case basis.

X. Mergers and Corporate Restructurings

Mergers and Acquisitions

Votes on mergers and acquisitions should be considered on a case-by-case basis,
taking into account at least the following: anticipated financial and operating
benefits; offer price (cost vs. premium); prospects of the combined companies;
how the deal was negotiated; and changes in corporate governance and their
impact on shareholder rights.

Corporate Restructuring

Votes on corporate restructuring proposals, including minority squeezeouts,
leveraged buyouts, spinoffs, liquidations, and asset sales should be considered
on a case-by-case basis.

Spinoffs

Votes on spinoffs should be considered on a case-by-case basis depending on the
tax and regulatory advantages, planned use of sale proceeds, market focus, and
managerial incentives.

Asset Sales

Votes on asset sales should be made on a case-by-case basis after considering
the impact on the balance sheet/working capital, value received for the asset,
and potential elimination of diseconomies.

Liquidations

Votes on liquidations should be made on a case-by-case basis after reviewing
management's efforts to pursue other alternatives, appraisal value of assets,
and the compensation plan for executives managing the liquidation.

Appraisal Rights

Vote for proposals to restore, or provide shareholders with, rights of
appraisal.

Changing Corporate Name

Vote for changing the corporate name.

XI. Mutual Fund Proxies

Election of Directors

Vote the election of directors on a case-by-case basis, considering the
following factors: board structure; director independence and qualifications;
and compensation of directors within the fund and the family of funds attendance
at board and committee meetings.

Votes should be withheld from directors who:

o attend less than 75 percent of the board and committee meetings without a
valid excuse for the absences. Valid reasons include illness or absence due
to company business. Participation via telephone is acceptable. In
addition, if the director missed only one meeting or one day's meetings,
votes should not be withheld even if such absence dropped the director's
attendance below 75 percent.

o ignore a shareholder proposal that is approved by a majority of shares
outstanding

o ignore a shareholder proposal that is approved by a majority of the votes
cast for two consecutive years

o are interested directors and sit on the audit or nominating committee

o are interested directors and the full board serves as the audit or
nominating committee or the company does not have one of these committees.

Converting Closed-end Fund to Open-end Fund

Vote conversion proposals on a case-by-case basis, considering the following
factors: past performance as a closed-end fund; market in which the fund
invests; measures taken by the board to address the discount; and past
shareholder activism, board activity, and votes on related proposals.

Proxy Contests

Vote proxy contests on a case-by-case basis, considering the following factors:
past performance; market in which fund invests; and measures taken by the board
to address the Issues past shareholder activism, board activity, and votes on
related proposals.

Investment Advisory Agreements

Vote the investment advisory agreements on a case-by-case basis, considering the
following factors: proposed and current fee schedules; fund category/investment
objective; performance benchmarks; share price performance as compared with
peers; and the magnitude of any fee increase.

Approving New Classes or Series of Shares

Vote for the establishment of new classes or series of shares.

Preferred Stock Proposals

Vote the authorization for or increase in preferred shares on a case-by-case
basis, considering the following factors: stated specific financing purpose and
other reasons management gives possible dilution for common shares.

1940 Act Policies

Vote these proposals on a case-by-case basis, considering the following factors:
potential competitiveness; regulatory developments; current and potential
returns; and current and potential risk.

Changing a Fundamental Restriction to a Nonfundamental Restriction

Vote these proposals on a case-by-case basis, considering the following factors:
fund's target investments; reasons given by fund for change; and the projected
impact of change on portfolio.

Change Fundamental Investment Objective to Nonfundamental

Vote against proposals to change a fund's fundamental investment objective to
nonfundamental.

Name Rule Proposals

Vote these proposals on a case-by-case basis, considering the following factors:
political/economic changes in target market; bundling with quorum requirements;
bundling with asset allocation changes; and consolidation in the fund's target
market.

Disposition of Assets/Termination/Liquidation

Vote this proposal on a case-by-case basis, considering the following factors:
strategies employed to salvage the company; company's past performance; and
terms of the liquidation.

Changes to the Charter Document

Vote changes to the charter document on a case-by-case basis, considering the
following factors: degree of change implied by the proposal; efficiencies that
could result; state of incorporation; and regulatory standards and implications.

Changing the Domicile of a Fund

Vote reincorporations on a case-by-case basis, considering the following
factors: state regulations of both states; required fundamental policies of both
states; and the increased flexibility available.

Change in Fund's Subclassification

Vote these proposals on a case-by-case basis, considering the following factors:
potential competitiveness; current and potential returns; risk of concentration;
and consolidation in the target industry.

Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder
Approval

Vote against these proposals.

Distribution Agreements

Vote these proposals on a case-by-case basis, considering the following factors:
fees charged to comparably sized funds with similar objectives; proposed
distributor's reputation and past performance; and competitiveness of fund in
industry.

Master-Feeder Structure

Vote for the establishment of a master-feeder structure.

Changes to the Charter Document

Mergers

Vote merger proposals on a case-by-case basis, considering the following
factors: resulting fee structure; performance of both funds; and continuity of
management personnel.

Shareholder Proposals

Establish Director Ownership Requirement

Vote against the establishment of a director ownership requirement.

Reimburse Shareholder for Expenses Incurred

Terminate the Investment Advisor

Vote to terminate the investment advisor on a case-by-case basis, considering
the following factors: performance of the fund's NAV and the history of
shareholder relations.

XII. Social and Environmental Issues

Energy and Environment

In most cases, Evergreen refrains from providing a vote recommendation on
proposals that request companies to file the CERES Principles.

Generally, vote for disclosure reports that seek additional information,
particularly when it appears companies have not adequately addressed
shareholders' environmental concerns.

South Africa

In most cases, Evergreen refrains from providing a vote recommendation on
proposals pertaining to South Africa.

Generally, vote for disclosure reports that seek additional information such as
the amount of business that could be lost by conducting business in South
Africa.

Northern Ireland

In most cases, Evergreen refrains from providing a vote recommendation on
proposals pertaining to the MacBride Principles.

Generally, vote for disclosure reports that seek additional information about
progress being made toward eliminating employment discrimination, particularly
when it appears companies have not adequately addressed shareholder concerns.

Military Business

In most cases, Evergreen refrains from providing a vote recommendation on
defense Issue proposals.

Generally, vote for disclosure reports that seek additional information on
military related operations, particularly when the company has been unresponsive
to shareholder requests.

Maquiladora Standards and International Operations Policies

In most cases, Evergreen refrains from providing a vote recommendation on
proposals relating to the Maquiladora Standards and international operating
policies.

Generally, vote for disclosure reports on these Issues, particularly when it
appears companies have not adequately addressed shareholder concerns.

World Debt Crisis

In most cases, Evergreen refrains from providing a vote recommendation on
proposals dealing with third world debt.

Generally, vote for disclosure reports on these Issues, particularly when it
appears companies have not adequately addressed shareholder concerns.

Equal Employment Opportunity and Discrimination

In most cases, Evergreen refrains from providing a vote recommendation on
proposals regarding equal employment opportunities and discrimination.

Generally, vote for disclosure reports that seek additional information about
affirmative action efforts, particularly when it appears companies have been
unresponsive to shareholder requests.

Animal Rights

In most cases, Evergreen refrains from providing a vote recommendation on
proposals that deal with animal rights.

Product Integrity and Marketing

In most cases, Evergreen refrains from providing a vote recommendation on
proposals that ask companies to end their production of legal, but socially
questionable, products.

Generally, vote for disclosure reports that seek additional information
regarding product integrity and marketing Issues, particularly when it appears
companies have been unresponsive to shareholder requests.

Human Resources issues

In most cases, Evergreen refrains from providing a vote recommendation on
proposals regarding human resources Issues.

Generally, vote for disclosure reports that seek additional information
regarding human resources Issues, particularly when it appears companies have
been unresponsive to shareholder requests.

PART C -- OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1) FINANCIAL STATEMENTS - The following financial statements have been
incorporated by reference into the Registration Statement as described
on page 51 of the Statement of Additional Information:

(i) Statement of Assets and Liabilities as of March 15, 2004; and

(ii) Notes to Financial Statements March 15, 2004.

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

(2) EXHIBITS

All references are to the Registrant's Registration Statement on Form N-2
as filed with the Commission on February 9, 2004, Files Nos. 333-112631 and
811-21507 (the "Registration Statement").

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Exhibit No. Description of Exhibits
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(a)(1) Amended and Restated Certificate of Trust of Evergreen Utilities and
High Income Fund dated February 9, 2004 is incorporated by reference
to the Registration Statement.
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(a)(2) Amended and Restated Agreement and Declaration of Trust of Evergreen
Utilities and High Income Fund is incorporated by reference to the
Registration Statement.
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(b) Amended and Restated By-Laws are incorporated by reference to the
Registration Statement.
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(c) Not applicable.
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(d) Form of Share Certificate is filed herein.

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(e) Terms and Conditions of Automatic Dividend Reinvestment Plan are
incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement ("Pre-Effective Amendment No. 1").

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(f) Not applicable.
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(g) Form of Investment Advisory and Management Agreement between
Registrant and Evergreen Investment Management Company, LLC is
incorporated by reference to Pre-Effective Amendment No. 1.

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(h)(1) Form of Underwriting Agreement is filed herein.

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(h)(2) Form of Master Selected Dealer Agreement is filed herein.

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(i) Deferred Compensation Plan is filed herein.

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(j) Form of Custodian Agreement by and between Registrant and State Street
Bank and Trust Company is incorporated by reference to Pre-Effective
Amendment No. 1.

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(k)(1) Form of Administrative Services Agreement between Registrant and
Evergreen Investment Services, Inc. is incorporated by reference to
Pre-Effective Amendment No. 1.

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(k)(2) Form of Transfer Agency and Service Agreement is incorporated by
reference to Pre-Effective Amendment No. 1.

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(l)(1) Opinion and consent of Sullivan & Worcester LLP.

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(l)(2) Opinion and consent of Richards, Layton & Finger, P.A.

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(m) Not applicable.
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(n) Consent of KPMG LLP is filed herein.

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(o) Not applicable.
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(p) Initial Stock Purchase Agreement is filed herein.

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(q) Not applicable.
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(r)(1) Code of Ethics for Evergreen Utilities and High Income Fund is
incorporated by reference to Pre-Effective Amendment No. 1.

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(r)(2) Code of Ethics for Evergreen Management Company, LLC is incorporated
by reference to Pre-Effective Amendment No. 1.

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(s) Powers of Attorney are incorporated by reference to Pre-Effective
Amendment No. 1.

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ITEM 25. MARKETING ARRANGEMENTS

See Exhibit (h) of Item 24(2) of this Registration Statement.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses to be incurred in connection
with the issuance and distribution of securities described in this Registration
Statement:

Registration fees $31,675
National Association of Securities Dealers, Inc. fee $30,500
American Stock Exchange listing fee $65,000
Printing (other than stock certificates) $50,000
Accounting fees and expenses $10,000
Legal fees and expenses $115,000
Underwriter expense reimbursement $62,500
Engraving and Printing Certificates $4,900
Miscellaneous $5,000
Marketing $125,425
Total $500,000

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES (as of April 15, 2004)

TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- -------------
Common Shares 1

ITEM 29. INDEMNIFICATION

Prior to its commencement of operations, Registrant will have obtained from
a major insurance carrier a trustees and officers liability policy covering
certain types of errors and omissions.

Provisions for the indemnification of the Registrant's Trustees and
officers are also contained in the Registrant's Amended and Restated Agreement
and Declaration of Trust.

The Investment Advisory and Management Agreement between the Registrant and
Evergreen Investment Management Company, LLC contains provisions for the
indemnification of the Registrant's Advisor.

The Underwriting Agreement contains provisions requiring indemnification of
the Registrant's underwriters by the Registrant.

The Administrative Services Agreement between Registrant and Evergreen
Investment Services, Inc. contains provisions for the indemnification of
Evergreen Investment Services, Inc., the Registrant's Administrator.

The Transfer Agency and Service Agreement with the Registrant's transfer
agent contains provisions for the indemnification of EquiServe Trust Company,
N.A., the Registrant's transfer agent.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR

The Directors and principal executive officers of Wachovia Bank, N.A. are:

G. Kennedy Thompson Chairman, Wachovia Corporation and
Wachovia Bank, N.A., Chief Executive
Officer, President and Director, Wachovia
Corporation and Wachovia Bank, N.A.

Mark C. Treanor Executive Vice President, Secretary &
General Counsel, Wachovia Corporation;
Secretary and Executive Vice President,
Wachovia Bank, N.A.

Robert T. Atwood Executive Vice President and Chief Financial
Officer, Wachovia Corporation; Chief
Financial Officer and Executive Vice
President, Wachovia Bank, N.A.

All of the above persons are located at the following address: Wachovia
Bank, N.A., One Wachovia Center, Charlotte, NC 28288.

The information required by this item with respect to Evergreen Investment
Management Company, LLC is incorporated by reference to the Form ADV (File No.
801-8327) of Evergreen Investment Management Company, LLC.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:

Evergreen Investment Services, Inc. and Evergreen Investment Management
Company, LLC, all located at 200 Berkeley Street, Boston, Massachusetts 02116.

Wachovia Bank, N.A., One Wachovia Center, 301 S. College Street, Charlotte,
North Carolina 28288.

State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171.

EquiServe Trust Company, N.A., 150 Royall Street, Canton, Massachusetts,
02021.

ITEM 32. MANAGEMENT SERVICES

Not applicable.

ITEM 33. UNDERTAKINGS

(1) The Registrant undertakes to suspend the offering of its shares until it
amends its Prospectus if: (1) subsequent to the effective date of this
Registration Statement, the net asset value per share declines more than 10%
from its net asset value per share as of the effective date of the Registration
Statement; or (2) the net asset value increases to an amount greater than its
net proceeds as stated in the Prospectus.

(2) Not Applicable.

(3) Not Applicable.

(4) Not Applicable.

(5) Registrant hereby undertakes:

(a) that for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.

(b) that for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

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

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Pre-Effective Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boston,
the Commonwealth of Massachusetts on the 19th day of April, 2004.

EVERGREEN UTILITIES AND HIGH INCOME FUND

By: /s/ Dennis H. Ferro
Dennis H. Ferro
President

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 2 to the Registration Statement has been signed
below by the following persons in the capacities indicated on the 19th day of
April, 2004.

/s/ Carol A. Kosel
-----------------------------
Carol A. Kosel
Treasurer
(Principal Financial and Accounting Officer)

/s/ Charles A. Austin, III /s/ K. Dun Gifford /s/ William Walt Pettit
------------------------------ ------------------------ ----------------------------------
Charles A. Austin III* K. Dun Gifford* William Walt Pettit*
Trustee Trustee Trustee

/s/ Gerald M. McDonnell /s/ Russell A. Salton, III MD
------------------------------- -----------------------------------
Gerald M. McDonnell* Russell A. Salton, III MD*
Trustee Trustee

/s/ Michael S. Scofield /s/ David M. Richardson /s/ Richard K. Wagoner
------------------------- --------------------------- -------------------------------
Michael S. Scofield* David M. Richardson* Richard K. Wagoner*
Chairman of the Board Trustee Trustee
and Trustee

/s/ Leroy Keith, Jr. /s/ Richard J. Shima

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

Leroy Keith, Jr.* Richard J. Shima* Shirley L. Fulton*
Trustee Trustee Trustee

*By: /s/ Catherine F. Kennedy
------------------------------
Catherine F. Kennedy
Attorney-in-Fact

*Catherine F. Kennedy, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.

EXHIBIT INDEX

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(d) Form of Share Certificate.

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(h)(1) Form of Underwriting Agreement.

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(h)(2) Form of Master Selected Dealer Agreement .

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(i) Deferred Compensation Plan.

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(l)(1) Opinion and consent of Sullivan & Worcester LLP.

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(l)(2) Opinion and consent of Richards, Layton & Finger, P.A.

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(n) Consent of KPMG LLP.

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(p) Initial Stock Purchase Agreement.

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