Edgar Filing: EATON VANCE LOW DURATION DIVERSIFIED INCOME FUND

As filed with the Securities and Exchange Commission on December 7, 2004
1933 Act File No. 333-114596
1940 Act File No. 811-21563

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

FORM N-2

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 1 [X]
(CHECK APPROPRIATE BOX OR BOXES)

EATON VANCE SHORT DURATION DIVERSIFIED INCOME FUND
(formerly Eaton Vance Low Duration Diversified Income Fund)
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

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

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

COPIES OF COMMUNICATIONS TO:

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

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

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

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

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
AMOUNT BEING OFFERING AGGREGATE REGISTRATION
REGISTERED PRICE PER OFFERING FEES
TITLE OF SECURITIES UNIT PRICE
BEING REGISTERED (1) (1) (1) (1)(2)(3)
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Common Shares of
Beneficial Interest,
$0.01 par value 50,000 $20.00 $1,000,000 $126.70
================================================================================

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

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

(3) A registration fee of $126.70 was previously paid in connection with the
initial filing filed on April 19, 2004.

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

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

THE INFORMATION IN THIS PROSPECTUS IS INCOMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION December 7, 2004
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[EATON VANCE LOGO][ ] SHARES
EATON VANCE SHORT DURATION DIVERSIFIED
INCOME FUND

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

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

The Fund pursues its objectives by investing its assets primarily in three
distinct investment categories: 1) senior, secured floating rate loans made to
corporate and other business entities ("Senior Loans"); 2) deposits of banks in
foreign denominated currencies, short term debt obligations of foreign
governmental issuers, as well as positions in foreign currencies and bonds and
other debt obligations of foreign government, government agency and corporate
issuers, including emerging market issuers, which are denominated in foreign
currencies or U.S. dollars ("Foreign Obligations"); and 3) mortgage-backed
securities that are issued, backed or otherwise guaranteed by the U.S.
Government or its agencies or instrumentalities or that are issued by private
issuers ("MBS"). Senior Loans in which the Fund invests are typically of below
"investment grade" quality ("Non-Investment Grade Securities"), as may be
certain Foreign Obligations in which the Fund invests. Non-Investment Grade
Securities, commonly referred to as "junk" securities, are debt obligations that
are rated below investment grade by each of the national rating agencies who
cover the security, or, if unrated, are determined to be of comparable quality
by the Adviser. S&P and Fitch consider securities rated below BBB- to be below
investment grade and Moody's considers securities rated below Baa3 to be below
investment grade. In addition to holding securities, the Fund may also obtain
investment exposure to each of these three categories through the use of long or
short derivative instruments. The Adviser has broad discretion to allocate the
Fund's assets among these investment categories subject to the following
guidelines. Under normal market circumstances, at least 80% of the Fund's gross
assets will be invested in these categories collectively, including through the
use of derivatives; and the Fund's exposure to each of these categories will
equal at least 25% of the Fund's net assets.

The Fund's investment adviser is Eaton Vance Management ("Eaton Vance" or
the "Adviser"). As of October 31, 2004, Eaton Vance and its subsidiaries managed
approximately $[ ] billion on behalf of funds, institutional clients and
individuals.

(CONTINUED ON INSIDE COVER PAGE)

INVESTING IN SHARES INVOLVES CERTAIN RISKS. SEE "INVESTMENT OBJECTIVES, POLICIES
AND RISKS" ON PAGE [ ] OF THIS PROSPECTUS.

PER SHARE TOTAL (3)
--------- ---------
Public offering price $________ $________
Sales load (1) $________ $________
Proceeds to the Fund (2) $________ $________

(1) Eaton Vance (not the Fund) will pay certain additional compensation to
qualifying underwriters. See "Underwriting" on page [ ] of this Prospectus.

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

(3) The underwriters have an option to purchase up to an additional [ ] shares
of the fund at th public offering price, less the sales load, within 45 days
of the date of this Prospectus to cover any overallotments. If the
underwriters exercise this option in full, the total public offering price,
sales load, and estimated offering expenses and proceeds, after expenses, to
the fund will be [$ ], [$ ], [$ ], and [$ ], respectively. See
"Underwriting" on page [ ] of this Prospectus.

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

BECAUSE THE FUND IS NEWLY ORGANIZED, ITS COMMON SHARES HAVE NO HISTORY OF PUBLIC
TRADING.

This Prospectus provides information that you should know about the Fund before
investing, Please read this Prospectus carefully and keep it for future
reference. Information required to be in the Fund's Statement of Additional
Information is found in this Prospectus.

The Shares will be ready for delivery on or about [ ], 2005.

________________________________________________________

THE DATE OF THIS PROSPECTUS IS [ ] [ ], 2005

(CONTINUED FROM PREVIOUS PAGE)

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

Because the Fund is newly organized, its common shares have no history of
public trading. The shares of closed-end management investment companies
frequently trade at a discount from their net asset value. The returns earned by
holders of the Fund's common shares ("Common Shareholders") who purchase their
shares in this offering and sell their shares below net asset value will be
reduced.

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

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

This Prospectus sets forth concisely information you should know before
investing in the shares of the Fund. Please read and retain this Prospectus for
future reference. A Statement of Additional Information dated [ ], 2005, has
been filed with the Securities and Exchange Commission ("SEC") and can be
obtained without charge by calling 1-800-225-6265 or by writing to the Fund. A
table of contents to the Statement of Additional Information is located at page
[ ] of this Prospectus. This Prospectus incorporates by reference the entire
Statement of Additional Information. The Statement of Additional Information is
available along with other Fund-related materials: at the SEC's public reference
room in Washington, DC (call 1-202-942-8090 for information on the operation of
the reference room); the EDGAR database on the SEC's internet site
(HTTP://WWW.SEC.GOV); upon payment of copying fees by writing to the SEC's
public reference section, 450 Fifth Street, NW, Washington, DC 20549-0102; or by
electronic mail at [email protected]. The Fund's address is The Eaton Vance
Building, 255 State Street, Boston, Massachusetts 02109 and its telephone number
is 1-800-225-6265.

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. THE FUND HAS NOT, AND THE UNDERWRITERS HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. THE FUND IS NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE
AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS. THE FUND'S
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY HAVE CHANGED SINCE
THE DATE OF THIS PROSPECTUS.

Until [ ], 200[ ] (25 days after the date of this Prospectus),
all dealers that buy, sell or trade the shares, whether or not participating in
this offering, may be required to deliver a Prospectus. This is in addition to
the dealers' obligation to deliver a Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.

TABLE OF CONTENTS

Summary of Terms.......................... Custodian and Transfer Agent
Summary of Fund Expenses.................. Legal Opinions...................
The Fund.................................. Reports to Stockholders..........
Use of Proceeds........................... Independent Registered Public
Accounting Firm..................
Investment Objectives, Policies and Additional Information...........
Risks Management of the Fund............. Table of Contents for the Statement
Distributions............................. of Additional Information
Dividend Reinvestment Plan............... The Fund's privacy policy........
Description of Capital Structure..........
Underwriting..............................

SUMMARY OF TERMS

THE FOLLOWING PROVIDES A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS RELATING TO THE EATON VANCE SHORT DURATION DIVERSIFIED INCOME FUND
AND ITS SHARES AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN THE FUND OR PURCHASING ITS SHARES. THE INFORMATION
IS QUALIFIED IN ALL RESPECTS BY THE MORE DETAILED INFORMATION INCLUDED ELSEWHERE
IN THIS PROSPECTUS AND IN THE APPROPRIATE REGISTRATION STATEMENTS FILED WITH THE
U.S. SECURITIES AND EXCHANGE COMMISSION.

THE FUND Eaton Vance Short Duration Diversified Income Fund (the
"Fund") is a newly organized, diversified, closed-end
management investment company. The Fund offers investors the
opportunity to receive a high level of current income from a
diversified short duration portfolio. To the extent
consistent with this objective, the Fund may also offer an
opportunity for capital appreciation. Under normal market
conditions, the Adviser expects to maintain a duration of no
more than three years (including the effect of anticipated
leverage). Initially, the Fund is expected to have a
duration of approximately two years (including the effect of
anticipated leverage). Investments are based on Eaton Vance
Management's ("Eaton Vance" or the "Adviser") internal
research and ongoing credit analysis, which is generally not
available to individual investors. An investment in the Fund
may not be appropriate for all investors. There is no
assurance that the Fund will achieve its investment
objectives.

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

INVESTMENT The Fund's investment objective is to provide a high level
OBJECTIVE AND of current income. The Fund may, as a secondary objective,
POLICIES also seek capital appreciation to the extent consistent with
its primary goal of high current income. The Fund pursues
its objectives by investing its assets primarily in three
distinct investment categories: 1) senior, secured floating
rate loans made to corporate and other business entities
("Senior Loans"); 2) deposits of banks in foreign
denominated currencies, short term debt obligations of
foreign governmental issuers, as well as positions in
foreign currencies and bonds and other debt obligations of
foreign government, government agency and corporate issuers,
including emerging market issuers, which are denominated in
foreign currencies or U.S. dollars ("Foreign Obligations");
and 3) mortgage-backed securities that are issued, backed or
otherwise guaranteed by the U.S. Government or its agencies
or instrumentalities or that are issued by private issuers
("MBS"). Senior Loans in which the Fund invests are
typically of below "investment grade" quality
("Non-Investment Grade Securities"), as may be certain
Foreign Obligations in which the Fund invests.
Non-Investment Grade Securities, commonly referred to as
"junk" securities, are debt obligations that are rated below
investment grade by each of the national rating agencies who
cover the security, or, if unrated, are determined to be of
comparable quality by the Adviser. Standard & Poor's Ratings
Group ("S&P") and Fitch Ratings ("Fitch") consider
securities rated below BBB- to be below investment grade and
Moody's Investors Service, Inc. ("Moody's") considers
securities rated below Baa3 to be below investment grade. In
addition to holding securities, the Fund may also obtain
investment exposure to each of these three categories
through the use of long or short derivative instruments. The
Adviser has broad discretion to allocate the Fund's assets
among these investment categories subject to the following
guidelines. Under normal market circumstances, at least 80%
of the Fund's gross assets will be invested in these
categories collectively, including through the use of
derivatives; and the Fund's exposure to each of these
categories will equal at least 25% of the Fund's net assets.

principal and interest payments. Duration differs from
maturity in that it considers a security's yield, coupon
payments, principal payments and call features in addition
to the amount of time until the security finally matures. As
the value of a security changes over time, so will its
duration. Prices of securities with longer durations tend to
be more sensitive to interest rate changes than securities
with shorter durations. In general, a portfolio of
securities with a longer duration can be expected to be more
sensitive to interest rate changes than a portfolio with a
shorter duration.

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

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

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

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

The Fund may purchase or sell derivative instruments (which
derive their value from another instrument, security or
index) for investment purposes, such as obtaining investment
exposure to foreign currencies; risk management purposes,
such as hedging against fluctuations in securities prices or
interest rates; diversification purposes; or changing the
duration of the Fund. Transactions in derivative instruments
may include, but not limited to, the purchase or sale of
foreign currency forward contracts, futures contracts on
securities, currencies, indices and other financial
instruments, credit-linked notes, tranches of collateralized
loan obligations, options on futures contracts, and
exchange-traded and over-the-counter options on securities,
currencies or indices, and currency, interest rate, total
return and credit default swaps.

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

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

INVESTMENT ADVISER Eaton Vance, an indirect wholly-owned subsidiary of Eaton
AND ADMINISTRATOR Vance Corp., is the Fund's investment adviser and
administrator. The Adviser and its subsidiaries manage
approximately $[ ] billion on behalf of funds, institutional
clients and individuals as of October 31, 2004. [Twenty-six]
of the funds are closed-end. See "Management of the Fund."

DISTRIBUTIONS Commencing with the Fund's first dividend, the Fund intends
to make regular monthly cash distributions to Common
Shareholders of substantially all net investment income of
the Fund, after payment of interest on any outstanding
borrowings. The amount of each monthly distribution will
vary depending on a number of factors, including interest
payable on debt or other costs of financial leverage. As
portfolio and market conditions change, the rate of
dividends on the Common Shares and the Fund's dividend
policy could change. The Fund intends to include in certain
of its distributions amounts attributable to the imputed
interest represented by the difference between the foreign
currency spot rate and foreign currency forward rate or the
imputed interest derived from certain derivative
transactions. In certain circumstances, this practice may
result in a return of capital to Common Shareholders for
federal income tax purposes as discussed below. The Board
may modify this distribution policy at any time without
obtaining the approval of Common Shareholders. Over time,
the Fund will distribute all of its net investment income.
The initial distribution is expected to be declared
approximately 45 days and paid approximately 60 to 90 days
after the completion of this offering, depending on market
conditions. See "Distributions and taxes."

The investment income of the Fund will consist of all
interest income accrued on portfolio investments, short-term
capital gain (including short-term gains on terminated
option positions and gains on the sale of portfolio
investments held for one year or less) in excess of
long-term capital loss and income from certain hedging
transactions, less all expenses of the Fund. Expenses of the
Fund will be accrued each day. Over time, all of the Fund's
investment company taxable income will be distributed. In
addition, at least annually, the Fund intends to distribute
any net capital gain (which is the excess of net long-term
capital gain over net short-term capital loss). To the
extent that that Fund's net investment income and net
capital gain for any year exceed the total monthly
distributions paid during the year, the Fund will make a
special distribution at or near year-end of such excess
amount as may be required. If the Fund's total monthly
distributions in any year exceed the amount of its net
investment income and net capital gain for the year, any
such excess would be characterized as a return of capital
for federal income tax purposes. Under the 1940 Act, for any
distribution that includes amounts from sources other than
net income, the Fund is required to provide Common
Shareholders a written statement regarding the components of
such distribution.

Common Shareholders may elect automatically to reinvest some
or all of their distributions in additional Common Shares

under the Fund's dividend reinvestment plan. See "Dividend
reinvestment plan."

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

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

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

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

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

PREPAYMENT RISK. During periods of declining interest rates
or for other purposes, the borrowers may exercise their
option to prepay principal earlier than scheduled, forcing
the Fund to reinvest in lower yielding securities. This is

known as call or prepayment risk. Non-Investment Grade
Securities frequently have call features that allow the
issuer to redeem the security at dates prior to its stated
maturity at a specified price only if certain prescribed
conditions are met ("call protection"). An issuer may redeem
a Non-Investment Grade Security if, for example, the issuer
can refinance the debt at a lower cost due to declining
interest rates or an improvement in the credit standing of
the issuer. Senior Loans and MBS typically have no such call
protection. Senior Loans' prepayment risk is mitigated by
the floating-rate characteristic of Senior Loans. For
premium bonds and loans (bonds or loans acquired at prices
that exceed their par or principal value) purchased by the
Fund, prepayment risk may be enhanced.

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

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

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

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

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

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

The Fund may buy or sell foreign currencies or may deal in
forward foreign currency contracts, that is, agree to buy or

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

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

Certain currency investments, including that of emerging
market countries, may be highly volatile, and movement in
these instruments may result in substantial loss to the
Fund.

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

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

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

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

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

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

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

MORTGAGE-BACKED SECURITIES RISK. The value of Fund shares
may be adversely affected by fluctuations in interest rates
and the prepayment of the mortgage loans underlying the MBS
held by the Fund. Mortgage loans are most likely to be
prepaid in a declining interest rate environment and when
MBS are trading at a substantial premium. Prepayment may
reduce the Fund's coupon distributions because the proceeds
of a prepayment may be invested in lower-yielding
securities. In a rising interest rate environment, a
declining prepayment rate will extend the average life of
many MBS which in turn would lengthen the duration of the
Fund's portfolio. This possibility is often referred to as
extension risk. Extending the average life of an MBS
increases the risk of depreciation due to future increases
in market interest rates. The value of Fund Common Shares
can also be adversely affected by the existence of premiums
on the price of MBS it acquires.

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

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

DERIVATIVES RISK. Derivative transactions (such as forward
contracts, futures contracts and options thereon, options,

swaps and short sales) may subject the Fund to substantial
loss of principle in relation to the Fund's investment
amount. The Fund also will be subject to credit risk with
respect to the counterparties to the derivatives contracts
purchased by the Fund. If a counterparty becomes bankrupt or
otherwise fails to perform its obligations under a
derivative contract due to financial difficulties, the Fund
may experience significant delays in obtaining any recovery
under the derivative contract in a bankruptcy or other
reorganization proceeding. The Fund may obtain only a
limited recovery or may obtain no recovery in such
circumstances.

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

As discussed in detail under "Management of the Fund," the
fee paid to Eaton Vance will be calculated on the basis of
the Fund's average daily gross assets, including the
notional value of all long and short foreign exposures
created by forward foreign currency contracts or other
derivatives on foreign exposures and other assets purchased
with financial leverage. When there is a long and short
position in the same foreign exposure with settlement dates
within less than one year of each other they will be netted
for purposes of determining gross assets. See "Investment
objectives, policies and risks--Use of Leverage and Related
Risks

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

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

Financial leverage achieved through the purchase of
derivative instruments such forward foreign currency

contracts and reverse repurchase agreements exposes the Fund
to special risks. See "Investment objectives, policies and
risks--Additional Investment Practices" and "Investment
objectives, policies and risks--Additional Risk
Considerations."

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

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

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

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

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

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

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

volatility on Senior Loans than on higher rated fixed income
securities.

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

SUMMARY OF FUND EXPENSES

The purpose of the table below is to help you understand all fees and expenses
that you, as a Common Shareholder, would bear directly or indirectly. The
following table assumes leverage in an amount equal to [ ]% after preferred
shares issuance of the Fund's total assets, and shows Fund expenses as a
percentage of net assets attributable to Common Shares

Shareholder Transaction Expenses
Maximum Sales Load (as a percentage of offering price) %
Offering Expenses borne by the Fund................... %(1)
Dividend Reinvestment Plan Fees....................... None(3)

PERCENTAGE OF NET ASSETS
ATTRIBUTABLE
TO COMMON SHARES
(ASSUMING LEVERAGING)(4)

Annual Expenses
Investment Advisory Fee....................... %
Other Expenses................................ %(5)
Total Annual Expenses......................... %
Fee and Expense Reimbursements (years 1-5).... ( )%(6)
Net Annual Expenses (years 1-5)............... %(6)
__________

(1) Eaton Vance or an affiliate has agreed to reimburse all organizational costs
and pay all offering costs (other than sales load) that exceed $0.04 per
Common Share ( % of the offering price).
(2) You will be charged a $5.00 service charge and pay brokerage charges if you
direct the plan agent to sell your Common Shares held in a dividend
reinvestment account.
(3) Stated as percentages of net assets attributable to Common Shares assuming
no leverage, the Fund's expenses would be estimated to be as follows:

PERCENTAGE OF NET ASSETS
ATTRIBUTABLE
TO COMMON SHARES
(ASSUMING NO LEVERAGE)

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

(4) Estimated expenses based on the current fiscal year.
(5) Eaton Vance has contractually agreed to reimburse the Fund for fees and
other expenses in the amount of % of average daily total assets of the Fund
for the first 5 full years of the Fund's operations, % of average daily
total assets of the Fund in year 6, % in year 7 and % in year 8. For this
purpose, total assets (and gross assets in "Management of the Fund--The
Adviser") shall be calculated by deducting accrued liabilities of the Fund
not including the principal amount of any indebtedness for money borrowed or
the value of securities lending collateral received by the Fund. Without the
reimbursement, net annual expenses would be estimated to be % of average
daily net assets (or, assuming borrowings, % of average daily net assets)
attributable to Common Shares. Eaton Vance may voluntarily reimburse
additional fees and expenses but is under no obligation to do so. Any such
voluntary reimbursements may be terminated at any time.

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

EXAMPLE

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

1 YEAR 3 YEARS 5 YEARS 10 YEARS(2)

$ $ $ $

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

__________

(1) The example assumes that the estimated Other expenses set forth in the
Annual expenses table are accurate, that fees and expenses increase as
described in note 2 below and that all dividends and distributions are
reinvested at net asset value. Actual expenses may be greater or less than
those assumed. Moreover, the Fund's actual rate of return may be greater or
less than the hypothetical 5% return shown in the example.

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

THE FUND

The Fund is a newly organized, diversified, closed-end management investment
company registered under the 1940 Act. The Fund was organized as a Massachusetts
business trust on April 15, 2004 pursuant to a Declaration of Trust governed by
the laws of The Commonwealth of Massachusetts and has no operating history. The
Fund's principal office is located at The Eaton Vance Building, 255 State
Street, Boston, Massachusetts 02109 and its telephone number is 1-800-225-6265.

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

USE OF PROCEEDS

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

INVESTMENT OBJECTIVES, POLICIES AND RISKS

INVESTMENT OBJECTIVES

The Fund's investment objective is to provide a high level of current income.
The Fund may, as a secondary objective, also seek capital appreciation to the
extent consistent with its primary goal of high current income. The Fund pursues
its objectives by investing its assets primarily in three distinct investment
categories: 1) senior, secured floating rate loans made to corporate and other
business entities ("Senior Loans"); 2) deposits of banks in foreign denominated
currencies, short term debt obligations of foreign governmental issuers, as well
as positions in foreign currencies and bonds and other debt obligations of
foreign government, government agency and corporate issuers, including emerging
market issuers, which are denominated in foreign currencies or U.S. dollars
("Foreign Obligations"); and 3) mortgage-backed securities that are issued,
backed or otherwise guaranteed by the U.S. Government or its agencies or
instrumentalities or that are issued by private issuers ("MBS"). Senior Loans in
which the Fund invests are typically of below "investment grade" quality
("Non-Investment Grade Securities"), as may be certain Foreign Obligations in
which the Fund invests. Non-Investment Grade Securities, commonly referred to as
"junk" securities, are debt obligations that are rated below investment grade by
each of the national rating agencies who cover the security, or, if unrated, are
determined to be of comparable quality by the Adviser. Standard & Poor's Ratings
Group ("S&P") and Fitch Ratings ("Fitch") consider securities rated below BBB-
to be below investment grade and Moody's Investors Service, Inc. ("Moody's")
considers securities rated below Baa3 to be below investment grade. In addition
to holding securities, the Fund may also obtain investment exposure to each of
these three categories through the use of long or short derivative instruments.
The Adviser has broad discretion to allocate the Fund's assets among these
investment categories subject to the following guidelines. Under normal market
circumstances, at least 80% of the Fund's gross assets will be invested in these
categories collectively, including through the use of derivatives; and the
Fund's exposure to each of these categories will equal at least 25% of the
Fund's net assets.

PRIMARY INVESTMENT POLICIES

GENERAL COMPOSITION OF THE FUND

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

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

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

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

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

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

non-dollar denominated Foreign Obligations, the Fund may have substantial
exposure to fluctuations in the values of foreign currencies.

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

SENIOR LOANS

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

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

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

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

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

When interest rates decline, the value of a fund invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a fund invested in fixed-rate obligations can be expected to decline.
Although changes in prevailing interest rates can be expected to cause some
fluctuations in the value of Senior Loans (due to the fact that floating rates
on Senior Loans only reset periodically), the value of Senior Loans is
substantially less sensitive to changes in market interest rates than fixed-rate
instruments. As a result, the Adviser expects the Fund's policy of investing a
portion of its assets in floating-rate Senior Loans will make the Fund less
volatile and less sensitive to changes in market interest rates than if the Fund
invested exclusively in fixed-rate obligations. Similarly, a sudden and
significant increase in market interest rates may cause a decline in the value

of these investments and in the Fund's net asset value. Other factors
(including, but not limited to, rating downgrades, credit deterioration, a large
downward movement in stock prices, a disparity in supply and demand of certain
securities or market conditions that reduce liquidity) can reduce the value of
Senior Loans and other debt obligations, impairing the Fund's net asset value.

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

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

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

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

FOREIGN OBLIGATIONS

The Adviser believes that a portfolio of carefully selected Foreign Obligations
may earn attractive rates of return relative to U.S. instruments of comparable
duration and credit quality. In current market circumstances, the Adviser
believes that desired exposures to prevailing interest rates in certain foreign
countries may best be obtained through forward foreign currency contracts with
respect to such countries' currencies. The Adviser believes that this approach
reduces the credit risk associated with investment in the debt of foreign
sovereign and corporate issuers. In addition, utilizing forward foreign currency
contracts reduces the transaction costs of obtaining this exposure as compared
to investment in foreign debt obligations. Through its investments in non-dollar
denominated Foreign Obligations, the Fund may have substantial exposure to
fluctuations in the values of foreign currencies.

FOREIGN CURRENCIES. As stated above, the Fund may invest substantially in debt
securities denominated in foreign currencies and in foreign currency forward

contracts and other currency related instruments. Accordingly, the Fund may have
substantial exposure to fluctuations in the values of foreign currencies. The
Adviser intends to select currencies for both long and short investment based
upon such factors as a country's (i) economic and political structure, (ii) long
run economic and productivity gain, (iii) fiscal and monetary policies, (iv)
inflation and interest rates, (v) balance of payments and terms of trade, and
(vi) other factors such as flow funds.

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

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

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

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

Forward foreign currency exchange contracts are individually negotiated and
privately traded so they are dependent upon the creditworthiness of the
counterparty. Certain currency related investments may be acquired in the
"over-the-counter" or "interdealer" markets, where participants typically are
not subject to credit evaluation and regulatory oversight as are members of
"exchange based" markets. In the absence of a regulated market to facilitate
settlement, the Fund is subject to the risk that a counterpary will not settle a
transaction (such as a forward currency contract) in accordance with its terms
and conditions because of a dispute over the terms of contract or because of a
credit or liquidity problem. Moreover, certain Currency investments, that of
emerging markets, may be highly volatile, and movement in these instruments may
result in substantial loss to the Fund.

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

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

The Fund may but is not obligated to engage in transactions to hedge against
changes in foreign currencies, and will use such hedging techniques when the

Adviser deems appropriate. The Fund may enter into forward contracts or other
currency related investments for hedging in several circumstances. First, when
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of dollars, of the amount of foreign currency involved
in the underlying security transaction, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received.

Second, when the Investment Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of dollars, the amount
of foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. Maintaining a match
between the forward contract amounts and the value of the securities involved
will not generally be possible since the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures.

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

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

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

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

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

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

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

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

FOREIGN SECURITIES GENERALLY. The Fund may have substantial exposure to foreign
securities. Investment in foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political
and legal developments, including favorable or unfavorable changes in currency
exchange rates, exchange control regulations (including currency blockage),
expropriation or nationalization of assets, imposition of withholding taxes on

dividend or interest payments, and possible difficulty in obtaining and
enforcing judgments against foreign entities. Furthermore, issuers of foreign
securities are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The securities of
some foreign governments and companies and foreign securities markets are less
liquid and at times more volatile than comparable U.S. securities and securities
markets. Foreign brokerage commissions and other fees are also generally higher
than in the United States. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers located in these
foreign countries. There are also special tax considerations which apply to
securities of foreign issuers and securities principally traded overseas.
Investors should also be aware that under certain circumstances, markets which
are perceived to have similar characteristics to troubled markets may be
adversely affected whether or not similarities actually exist.

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

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

MORTGAGE-BACKED SECURITIES

The Fund typically invests in MBS that are backed by a guarantee of the U.S.
Government (or one of its agencies or instrumentalities), although certain of
these instruments may be privately issued. MBS represent participation interests
in pools of fixed-rate, hybrid and adjustable-rate mortgage loans. Unlike
conventional debt obligations, MBS provide monthly payments derived from the
monthly interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. [The Adviser expects that
under current market conditions many of the MBS held by the Fund will be premium
bonds acquired at prices that exceed their par or principal value.]

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

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

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

SECURITIES LENDING

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

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

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

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

ADDITIONAL INVESTMENT PRACTICES

OTHER GOVERNMENT SECURITIES
U.S. Government securities include (1) U.S. Treasury obligations, which differ
in their interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less), U.S. Treasury notes (maturities of one year to
ten years) and U.S. Treasury bonds (generally maturities of greater than ten
years) and (2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow an

amount limited to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality or (d) the credit of the agency
or instrumentality. The Fund may also invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities. Agencies and
instrumentalities of the U.S. Government include but are not limited to: Federal
Land Banks, Federal Financing Banks, Banks for Cooperatives, Federal
Intermediate Credit Banks, Farm Credit Banks, Federal Home Loan Banks, FHLMC,
FNMA, GNMA, Student Loan Marketing Association, United States Postal Service,
Small Business Administration, Tennessee Valley Authority and any other
enterprise established or sponsored by the U.S. Government. Because the U.S.
Government generally is not obligated to provide support to its
instrumentalities, the Fund will invest in obligations issued by these
instrumentalities only if the Adviser determines that the credit risk with
respect to such obligations is minimal.

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

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

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

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

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

SUB-PRIME MORTGAGES
Sub-prime mortgages are mortgages rated below "A" by S&P, Moody's or Fitch.
Historically, sub-prime loans have been made to borrowers with blemished (or
non-existent) credit records, and the borrower is charged a higher interest rate
to compensate for the greater risk of delinquency and the higher costs of loan
servicing and collection. Sub-prime mortgages are subject to both state and

federal anti-predatory lending statutes that carry potential liability to
secondary market purchasers such as the Fund. A partial list of certain
characteristics of sub-prime mortgages addressed by certain of these laws are:
(1) late fees assessed for late mortgage payments; (2) loan flipping - typically
a lender-solicited refinancing of a relatively new mortgage that yields no
"tangible" benefit for the borrower; (3) balloon payments that occur when a
repayment schedule does not fully amortize the outstanding principal balance,
leaving an unpaid principal amount when the loan reaches maturity; (4) repayment
ability that requires the lender to document that the borrower's monthly loan
payments will not exceed a stated percentage of gross monthly income; and (5)
negative amortization (I.E., an increase in the amount of principal owed on a
loan as payments are made). Individually, most of the above features are not
necessarily predatory. Used appropriately and fairly disclosed by responsible
lenders, these features can easily work in the borrower's favor. They become
predatory when used to generate unnecessary fees or borrowers are misled about
the implications they present. Sub-prime mortgages have certain characteristics
and associated risks similar Non-Investment Grade Securities, including a higher
degree of credit risk, and MBS, including prepayment risk. SEE INVESTMENT
OBJECTIVE, POLICIES AND RISKS--ADDITIONAL RISK CONSIDERATIONS."

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

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

INDEXED SECURITIES AND DERIVATIVES

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

INFLATION-INDEXED SECURITIES: The Fund may invest in inflation indexed
securities issued by the U.S. Treasury, by foreign governments or by corporate

entities, which are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation in the U.S. or another
reference country. The interest rate on these bonds is fixed at issuance, but
over the life of the bond this interest may be paid on an increasing or
decreasing principal value which has been adjusted for inflation. Repayment of
the original bond principal upon maturity (as adjusted for inflation) is
guaranteed in the case of U.S. Treasury inflation indexed bonds, even during a
period of deflation. However, the current market value of the bonds is not
guaranteed, and will fluctuate. The Fund may also invest in other bonds which
may or may not provide a similar guarantee. If a guarantee of principal is not
provided, the adjusted principal value of the bond repaid at maturity may be
less than the original principal.

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

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

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

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

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

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

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

ILLIQUID SECURITIES
The Fund may invest without limitation in securities for which there is no
readily available trading market or are otherwise illiquid. Illiquid securities
include securities legally restricted as to resale, such as commercial paper
issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, and

securities eligible for resale pursuant to Rule 144A thereunder. Section 4(2)
and Rule 144A securities may, however, be treated as liquid by the Adviser
pursuant to procedures adopted by the Board, which require consideration of
factors such as trading activity, availability of market quotations and number
of dealers willing to purchase the security. If the Fund invests in Rule 144A
securities, the level of portfolio illiquidity may be increased to the extent
that eligible buyers become uninterested in purchasing such securities.

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

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

INTEREST RATE SWAPS. The Fund will enter into interest rate and total return
swaps only on a net basis, I.E., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate swaps involve the exchange by the Fund with another
party of their respective commitments to pay or receive interest (E.G., an
exchange of fixed rate payments for floating rate payments). The Fund will only
enter into interest rate swaps on a net basis (I.E., the two payment streams are
netted out with the Fund receiving or paying, as the case may be, only the net
amount of the two payments). If the other party to an interest rate swap
defaults, the Fund's risk of loss consists of the net amount of payments that
the Fund is contractually entitled to receive. The net amount of the excess, if
any, of the Fund's obligations over its entitlements will be maintained in a
segregated account by the Fund's custodian. The Fund will not enter into any
interest rate swap unless the claims-paying ability of the other party thereto
is considered to be investment grade by the Adviser. If there is a default by
the other party to such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction. These instruments are
traded in the over-the-counter market.

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

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

CURRENCY SWAPS. The Fund many enter into currency swap contracts and baskets
thereof for risk management purposes and as a speculative investment. Currency
swaps involve the exchange of the two parties' respective commitments to pay or
receive fluctuations with respect to a notional amount of two different
currencies (E.G., an exchange of payments with respect to fluctuations in the
value of the U.S. dollar relative to the Japanese yen). The use of currency
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Adviser is incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment performance of the
Fund would be unfavorably affected.

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

risks, including the risk that the seller may be unable to fulfill the
transaction.

FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell various kinds of financial futures contracts and
options thereon to obtain investment exposure and/or to seek to hedge against
changes in interest rates or for other risk management purposes. Futures
contracts may be based on various debt securities and securities indices (such
as the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse
changes in securities prices, which may exceed the fund's initial investment in
these contracts. The Fund will only purchase or sell futures contracts or
related options in compliance with the rules of the Commodity Futures Trading
Commission. These transactions involve transaction costs. There can be no
assurance that Eaton Vance's use of futures will be advantageous to the Fund.
Financial covenants related to borrowings may limit use of these transactions.

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

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

REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. Under a reverse
repurchase agreement, the Fund temporarily transfers possession of a portfolio
instrument to another party, such as a bank or broker-dealer, in return for

cash. At the same time, the Fund agrees to repurchase the instrument at an
agreed upon time (normally within seven days) and price, which reflects an
interest payment. The Fund may enter into such agreements when it is able to
invest the cash acquired at a rate higher than the cost of the agreement, which
would increase earned income.

When the Fund enters into a reverse repurchase agreement, any fluctuations in
the market value of either the securities transferred to another party or the
securities in which the proceeds may be invested would affect the market value
of the Fund's assets. As a result, such transactions may increase fluctuations
in the market value of the Fund's assets. While there is a risk that large
fluctuations in the market value of the Fund's assets could affect net asset
value, this risk is not significantly increased by entering into reverse
repurchase agreements, in the opinion of the Adviser. Because reverse repurchase
agreements may be considered to be the practical equivalent of borrowing funds,
they constitute a form of leverage. Such agreements will be treated as subject
to investment restrictions regarding "borrowings." If the Fund reinvests the
proceeds of a reverse repurchase agreement at a rate lower than the cost of the
agreement, entering into the agreement will lower the Fund's yield.

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

USE OF LEVERAGE AND RELATED RISKS

The Fund expects to use financial leverage. The Fund expects initially to obtain
financial leverage immediately after the completion of the offering of the
Common Shares through derivative instruments, through the reinvestment of
securities lending collateral, through borrowings and/or through the
establishment of a commercial paper program. The Fund expects initially to have
financial leverage of between approximately 30%-40% of its total managed assets.
The Fund reserves the right in the future to adjust its use of these methods of
leverage and/or to leverage exclusively through only one of these methods. In
the future, the Adviser, in its sole discretion, may employ other forms of
financial leverage, including the issuance of debt securities or preferred
shares. The Fund also may borrow money as a temporary measure for extraordinary
or emergency purposes, including the payment of dividends and the settlement of
securities transactions, which otherwise might require untimely dispositions of
Fund securities. The Adviser anticipates that the use of leverage should result
in higher total return to Common Shareholders over time.

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

Changes in the value of the Fund's portfolio (including investments bought with
financial leverage) will be borne entirely by the Common Shareholders. If there
is a net decrease (or increase) in the value of the Fund's investment portfolio,
the leverage will decrease (or increase) the net asset value per share to a
greater extent than if the Fund were not leveraged. During periods in which the
Fund is using leverage, the fees paid to Eaton Vance for investment advisory
services will be higher than if the Fund did not use leverage because the fees
paid will be calculated on the basis of the Fund's average daily gross assets,
including the notional value of all long and short foreign exposures created by
forward foreign currency contracts or other derivatives on foreign exposures and
other assets purchased with financial leverage, so the fees will be higher when
leverage is utilized. When there is a long and short position in the same
foreign exposure with settlement dates within less than one year of each other
they will be netted for purposes of determining gross assets.

See "Management of the Fund" for a detailed description of the calculation of
the advisory fee.
In utilizing securities lending for financial leverage, the Fund will seek to
earn income on securities loans by reinvesting cash collateral in securities
consistent with its investment objectives and policies, seeking to invest at

rates that are higher than the "rebate" rate that it normally will pay to the
borrower with respect to such cash collateral. Securities loans may result in
delays in recovering, or a failure of the borrower to return, the loaned
securities. The defaulting borrower ordinarily would be liable to the Fund for
any losses resulting from such delays or failures, and the collateral provided
in connection with the loan normally would also be available for that purpose.
Securities loans normally may be terminated by either the Fund or the borrower
at any time. Upon termination and the return of the loaned securities, the Fund
would be required to return the related cash or securities collateral to the
borrower and it may be required to liquidate longer term portfolio securities in
order to do so. To the extent that such securities have decreased in value, this
may result in the Fund realizing a loss at a time when it would not otherwise do
so. The Fund also may incur losses if it is unable to reinvest cash collateral
at rates higher than applicable rebate rates paid to borrowers and related
administrative costs. These risks are substantially the same as those incurred
through other forms of financial leverage.

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

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

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

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

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

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

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

The following table is designed to illustrate the effect on the return to a
holder of the Fund's Common Shares of leverage in the amount of approximately [
]% of the Fund's gross assets, assuming hypothetical annual returns of the
Fund's portfolio of minus 10% to plus 10%. As the table shows, leverage
generally increases the return to Common Shareholders when portfolio return is
positive and greater than the cost of leverage and decreases the return when the
portfolio return is negative or less than the cost of leverage. The figures
appearing in the table are hypothetical and actual returns may be greater or
less than those appearing in the table.

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

Until the Fund enters into enters into derivative transactions involving
leverage, reinvests securities lending collateral, and/or borrows through a
credit facility and/or a commercial paper program, the Common Shares will not be
leveraged, and the risks and special considerations related to leverage
described in this Prospectus will not apply. Such leveraging of the Common
Shares cannot be achieved until the securities lending collateral and borrowings
have been invested in accordance with the Fund's investment objectives and
policies and/or the Fund has entered into Currency Commitments.

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

ADDITIONAL RISK CONSIDERATIONS

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

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

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

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

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

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

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

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

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

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

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

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

Certain currency related investments, including that of emerging market
countries, may be highly volatile, and relatively small price movement in these
instruments may result in substantial loss to the Fund.

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

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

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

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

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

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

issuers of emerging country debt instruments to make payments on their debt
obligations, regardless of their financial condition. In addition, there is a
heightened possibility of expropriation or confiscatory taxation, imposition of
withholding taxes on interest payments, or other similar developments that could
affect investments in those countries. There can be no assurance that adverse
political changes will not cause the Fund to suffer a loss of any or all of its
investments in such countries, or, in the case of fixed-income securities,
interest thereon.

MORTGAGE-BACKED SECURITIES RISK
The value of Fund shares may be adversely affected by fluctuations in interest
rates and the prepayment of the mortgage loans underlying the MBS held by the
Fund. Mortgage loans are most likely to be prepaid in a declining interest rate
environment. Prepayment may reduce the Fund's coupon distributions because the
proceeds of a prepayment may be invested in lower-yielding securities. In a
rising interest rate environment, a declining prepayment rate will extend the
average life of many MBS which in turn would lengthen the duration of the Fund's
portfolio. This possibility is often referred to as extension risk. Extending
the average life of an MBS increases the risk of depreciation due to future
increases in market interest rates. The value of Fund Common Shares can also be
adversely affected by the existence of premiums on the price of MBS it acquires.

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

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

DERIVATIVES RISK
Derivative transactions (such as forward contracts, futures contracts and
options thereon, options, swaps and short sales) may subject the Fund to
substantial loss of principle in relation to the Fund's investment amount. The
Fund also will be subject to credit risk with respect to the counterparties to
the derivatives contracts purchased by the Fund. If a counterparty becomes
bankrupt or otherwise fails to perform its obligations under a derivative
contract due to financial difficulties, the Fund may experience significant
delays in obtaining any recovery under the derivative contract in a bankruptcy
or other reorganization proceeding. The Fund may obtain only a limited recovery
or may obtain no recovery in such circumstances.

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

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

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

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

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

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

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

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

MANAGEMENT OF THE FUND

BOARD OF TRUSTEES

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

THE ADVISER

Eaton Vance acts as the Fund's investment adviser under an Investment Advisory
Agreement (the "Advisory Agreement"). The Adviser's principal office is located
at The Eaton Vance Building, 255 State Street, Boston, MA 02109. Eaton Vance,
its affiliates and predecessor companies have been managing assets of

individuals and institutions since 1924 and of investment companies since 1931.
Eaton Vance (or its affiliates) currently serves as the investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $[ ] billion as of October 31,
2004. Eaton Vance is an indirect, wholly-owned subsidiary of Eaton Vance Corp.,
a publicly-held holding company, which through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities.

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

In return for these services, facilities and payments, the Fund has agreed to
pay the Adviser as compensation under the Advisory Agreement a fee in the amount
of [ ]% of the average daily gross assets of the Fund, subject to the expense
reimbursement agreement described below. Eaton Vance has contractually agreed to
reimburse the Fund for fees and other expenses in the amount of [ ]% of average
daily total assets of the Fund for the first [ ] full years of the Fund's
operations, [ ]% of average daily total assets of the Fund in year [ ], [ ]% in
year [ ] and [ ]% in year [ ]. Eaton Vance may voluntarily reimburse additional
fees and expenses but is under no obligation to do so. Any such voluntary
reimbursements may be terminated at any time. Gross assets of the Fund means
total assets of the Fund, including the notional value of all long and short
exposure to any currency or issue or securities created by forward foreign
currency contracts or other derivatives on foreign exposures and other assets
purchased with financial leverage, minus all accrued expenses incurred in the
normal course of operations, but not excluding any liabilities or obligations
attributable to any future investment leverage obtained through (i) indebtedness
of any type (including, without limitation, borrowing through a credit
facility/commercial paper program or the issuance debt securities), (ii) the
issuance of preferred shares or other similar preference securities, (iii) the
reinvestment of collateral received for securities loaned in accordance with the
Fund's investment objectives and policies, and/or (iv) any other means. When
there is a long and short position in the same foreign exposure, with settlement
dates within one year of each other, they will be netted for purposes of
determining gross assets. For example, if the Fund is long $10 million Euro and
short $5 million Euro under forward the notional foreign currency exposure
represented by these contracts for purposes of calculating gross assets would be
$5 million. During periods in which the Fund is using leverage, the fees paid to
Eaton Vance for investment advisory services will be higher than if the Fund did
not use leverage because the fees paid will be calculated on the basis of the
Fund's gross assets, including leverage from derivatives investments, securities
lending and the proceeds from any borrowings and from the issuance of preferred
shares.

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

MBS. Ms. Schiff is responsible for the day-to-day management of the Fund's MBS
strategy. Ms. Schiff, has been an Eaton Vance portfolio manager since 1991, and
is a Vice President of Eaton Vance. Among other portfolios, she currently
manages Eaton Vance Government Obligations Fund, a registered open-end fund,
which employs an investment strategy primarily focused on MBS. In addition, Ms
Schiff co-manages Eaton Vance Limited Duration Income Fund, a multi-sector
closed-end income fund, which has MBS as one of its three principal investment
categories. As of October 31, 2004, this fund had assets of $[ ] billion.

SENIOR LOANS. Mr. Page and Mr. Swaffield are responsible for the day-to-day
management of the Fund's Senior Loan strategy. Among other portfolios, Mr. Page
and Mr. Swaffield have each been Eaton Vance portfolio managers since 1996, and
are Vice Presidents of Eaton Vance. They currently co-manage Eaton Vance Prime
Rate Reserves, a registered closed-end interval fund, Eaton Vance Classic Senior
Floating-Rate Fund, a registered closed-end interval fund, Eaton Vance
Floating-Rate Fund, a registered open-end fund, Eaton Vance Floating-Rate High
Income Fund, a registered open-end fund, Eaton Vance Senior Income Trust, a
registered closed-end fund listed on the New York Stock Exchange, and Eaton
Vance Senior Floating-Rate Trust, a registered closed-end fund listed on the New
York Stock Exchange, all of which employ investment strategies primarily focused
on Senior Loans. In addition, Mssrs. Page and Swafield co-manage Eaton Vance
Limited Duration Income Fund, a multi-sector closed-end income fund, which has
Senior Loans as one of its three principal investment categories. .As of October
31, 2004, these funds had combined assets of $[ ] billion. See "Additional
investment information and restrictions -- Litigation involving Eaton Vance" in
the SAI for further information.

FOREIGN OBLIGATIONS. Mr. Venezia is responsible for the day-to-day management of
the Fund's Foreign Obligations strategy. Mr. Venezia has been an Eaton Vance

portfolio manager since 1984, and is a Vice President of Eaton Vance. He
currently manages the Eaton Vance Strategic Income Fund, a registered open-end
fund, which invests in part in a strategy that utilizes currency and foreign
debt securities. In addition, Mr. Venezia is head of Eaton Vance's Global Bond
Department, which uses global economic and political analysis to search for debt
securities and currency investment ideas.

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

THE ADMINISTRATOR

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

DISTRIBUTIONS

Commencing with the Fund's first dividend, the Fund intends to make regular
monthly cash distributions to Common Shareholders of substantially all net
investment income of the Fund, after payment of interest on any outstanding
borrowings. The amount of each monthly distribution will vary depending on a
number of factors, including interest payable on debt or other costs of
financial leverage. As portfolio and market conditions change, the rate of
dividends on the Common Shares and the Fund's dividend policy could change. The
Fund intends to include in certain of its distributions amounts attributable to
the imputed interest represented by the difference between the foreign currency
spot rate and foreign currency forward rate or the imputed interest derived from
certain derivative transactions. In certain circumstances, this practice may
result in a return of capital to Common Shareholders for federal income tax
purposes as discussed below. The Board may modify this distribution policy at
any time without obtaining the approval of Common Shareholders. The initial
distribution is expected to be declared approximately 45 days and paid
approximately 60 to 90 days after the completion of this offering, depending on
market conditions. See "Distributions and taxes."

The investment income of the Fund will consist of all interest income accrued on
portfolio investments, short-term capital gain (including short-term gains on
terminated option positions and gains on the sale of portfolio investments held
for one year or less) in excess of long-term capital loss and income from
certain hedging transactions, less all expenses of the Fund. Expenses of the
Fund will be accrued each day. Over time, all of the Fund's investment company
taxable income will be distributed. In addition, at least annually, the Fund
intends to distribute any net capital gain (which is the excess of net long-term
capital gain over net short-term capital loss). To the extent that that Fund's
net investment income and net capital gain for any year exceed the total monthly
distributions paid during the year, the Fund will make a special distribution at
or near year-end of such excess amount as may be required. If the Fund's total
monthly distributions in any year exceed the amount of its net investment income
and net capital gain for the year, any such excess would be characterized as a
return of capital for federal income tax purposes. Under the 1940 Act, for any
distribution that includes amounts from sources other than net income, the Fund
is required to provide Common Shareholders a written statement regarding the
components of such distribution.

If, for any calendar year, as discussed above, the total distributions made
under the Fund's policy exceed the Fund's net investment taxable income and net
capital gain, the excess will, for federal income tax purposes, be treated as a
tax-free return of capital to each Common Shareholder (up to the amount of the
Common Shareholder's basis in his or her Common Shares) and thereafter as gain
from the sale of Common Shares. The amount treated as a tax-free return of
capital will reduce the Common Shareholder's adjusted basis in his or her Common
Shares, thereby increasing his or her potential gain or reducing his or her
potential loss on the subsequent sale of his or her Common Shares. To the extent
the Fund's distribution policy results in distributions in excess of its net
investment taxable income and net capital gain, such distributions will decrease
its total assets and increase its expense ratio to a greater extent than would
have been the case if distributions were limited to these amounts. Distributions
in any year may or may not include a substantial return of capital component.

The Fund has applied for an order from the SEC granting exemption from Section
19(b) of the Investment Company Act, and Rule 19b-1 thereunder to permit the

Fund to include realized long-term capital gains as a part of its regular
distributions to Common Shareholders more frequently than would otherwise be
permitted by the Investment Company Act. The Fund will not pursue this
distribution policy until it receives such an exemptive order. There is no
guarantee that the SEC will grant such exemptive relief. However, if the Fund
fails to receive the requested relief and the Fund is unable to include realized
capital gains in regular distributions more frequently than would otherwise be
permitted by the Investment Company Act, the Adviser does not believe that the
distribution policy, as set forth above, will otherwise be adversely affected.

Common Shareholders may elect automatically to reinvest some or all of their
distributions in additional Common Shares under the Fund's dividend reinvestment
plan. See "Dividend reinvestment plan."

FEDERAL INCOME TAX MATTERS

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

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

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

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

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

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

DIVIDEND REINVESTMENT PLAN

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

PFPC Inc. (the "Plan Agent") serves as agent for the Common Shareholders in
administering the Plan. Common Shareholders who elect not to participate in the
Plan will receive all Fund distributions in cash paid by check mailed directly
to the Common Shareholder of record (or if the Common Shares are held in street
or other nominee name, then to the nominee) by PFPC Inc., as disbursing agent.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent prior to any distribution record date.

Common Shares will be acquired by the Plan Agent or an independent broker-dealer
for the participants' accounts, depending upon the circumstances described
below, either (i) through receipt of additional previously authorized but
unissued Common Shares from the Fund ("newly issued Common Shares") or (ii) by
purchase of outstanding Common Shares on the open market ("open-market
purchases") on the New York Stock Exchange or elsewhere. If, on the payment date
for the distribution, the net asset value per Common Share 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 distribution amount in newly issued Common Shares on behalf of
the participants. The number of newly issued Common Shares to be credited to
each participant's account will be determined by dividing the dollar amount of
the distribution by the net asset value per Common Share on the date the Common
Shares are issued, provided that the maximum discount from the then current
market price per Common Share on the date of issuance may not exceed 5%. If on
the distribution payment date the net asset value per Common Share is greater
than the market value plus estimated brokerage commissions (such condition being
referred to herein as "market discount"), the Plan Agent will invest the
distribution amount in Common Shares acquired on behalf of the participants in
open-market purchases.

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

The Plan Agent maintains all Common Shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by Common Shareholders for tax records. Common Shares in the
account of each Plan participant will be held by the Plan Agent on behalf of the
Plan participant, and each Common Shareholder proxy will include those Common
Shares purchased or received pursuant to the Plan. The Plan Agent will forward
all proxy solicitation materials to participants and vote proxies for Common
Shares held pursuant to the Plan in accordance with the instructions of the
participants. In the case of Common Shareholders such as banks, brokers or
nominees that hold Common Shares for others who are the beneficial owners, the
Plan Agent will administer the Plan on the basis of the number of Common Shares
certified from time to time by the record Common Shareholder's name and held for
the account of beneficial owners who participate in the Plan.

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

Common Shareholders participating in the Plan may receive benefits not available
to Common Shareholders not participating in the Plan. If the market price (plus
commissions) of the Fund's Common Shares is above their net asset value,
participants in the Plan will receive Common Shares of the Fund at less than
they could otherwise purchase them and will have Common Shares with a cash value
greater than the value of any cash distribution they would have received on
their Common Shares. If the market price plus commissions is below the net asset
value, participants will receive distributions in Common Shares with a net asset
value greater than the per Common Share value of any cash distribution they
would have received on their Common Shares. However, there may be insufficient

Common Shares available in the market to make distributions in Common Shares at
prices below the net asset value. Also, since the Fund does not redeem its
Common Shares, the price on resale may be more or less than the net asset value.

Experience under the Plan may indicate that changes are desirable. Accordingly,
upon 30 days' notice to Plan participants, the Fund reserves the right to amend
or terminate the Plan. A Plan participant will be charged a $5.00 service charge
and pay brokerage charges whenever he or she directs the Plan Agent to sell
Common Shares held in a dividend reinvestment account.

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

DESCRIPTION OF CAPITAL STRUCTURE

The Fund is an unincorporated business trust established under the laws of The
Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated
April 15, 2004 and filed with the Secretary of The Commonwealth on April 16,
2004 (the "Declaration of Trust"). The Declaration of Trust provides that the
Trustees of the Fund may authorize separate classes of shares of beneficial
interest. The Trustees have authorized an unlimited number of Common Shares. The
Fund intends to hold annual meetings of Common Shareholders in compliance with
the requirements of the [New York Stock Exchange].

COMMON SHARES

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

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

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

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

CREDIT FACILITY/COMMERCIAL PAPER PROGRAM

In leveraging through borrowings/commercial paper, the Fund expects to enter
into definitive agreements with respect to a credit facility/commercial paper
program or other borrowing program. The Fund may negotiate with commercial banks
to arrange a credit facility/commercial paper program pursuant to which the Fund
would expect to be entitled to borrow an amount up to between approximately % to
% of the Fund's total assets (inclusive of the amount borrowed) as of the
closing of the offer and sale of the Common Shares offered hereby. Any such
borrowings would constitute financial leverage. Such a facility/commercial paper
program is not expected to be convertible into any other securities of the Fund,
outstanding amounts are expected to be prepayable by the Fund prior to final
maturity without significant penalty and there are not expected to be any
sinking fund or mandatory retirement provisions. Outstanding amounts would be
payable at maturity or such earlier times as required by the agreement. The Fund
may be required to prepay outstanding amounts under the facility/program or
incur a penalty rate of interest in the event of the occurrence of certain
events of default. The Fund would be expected to indemnify the lenders under the
facility/program against liabilities they may incur in connection with the
facility/program.

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

REPURCHASE OF COMMON SHARES AND OTHER DISCOUNT MEASURES

Because shares of closed-end management investment companies frequently trade at
a discount to their net asset values, the Board has determined that from time to
time it may be in the interest of Common Shareholders for the Fund to take
corrective actions. The Board, in consultation with Eaton Vance, will review at
least annually the possibility of open market repurchases and/or tender offers
for the

Common Shares and will consider such factors as the market price of the Common
Shares, the net asset value of the Common Shares, the liquidity of the assets of
the Fund, effect on the Fund's expenses, whether such transactions would impair
the Fund's status as a regulated investment company or result in a failure to
comply with applicable asset coverage requirements, general economic conditions
and such other events or conditions which may have a material effect on the
Fund's ability to consummate such transactions. There are no assurances that the
Board will, in fact, decide to undertake either of these actions or if
undertaken, that such actions will result in the Fund's Common Shares trading at
a price which is equal to or approximates their net asset value. In recognition
of the possibility that the Common Shares might trade at a discount to net asset
value and that any such discount may not be in the interest of Common
Shareholders, the Board, in consultation with Eaton Vance, from time to time may
review possible actions to reduce any such discount.

PREFERRED SHARES

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

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

In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Fund, the terms of any preferred shares may entitle the holders of
preferred shares to receive a preferential liquidating distribution (expected to
equal the original purchase price per share plus redemption premium, if any,
together with accrued and unpaid dividends, whether or not earned or declared
and on a cumulative basis) before any distribution of assets is made to holders
of Common Shares. After payment of the full amount of the liquidating
distribution to which they are entitled, the preferred shareholders would not be
entitled to any further participation in any distribution of assets by the Fund.

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

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

ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST

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

In addition, the Declaration of Trust requires the favorable vote of the holders
of at least 75% of the outstanding shares of each class of the Fund, voting as a

class, then entitled to vote to approve, adopt or authorize certain transactions
with 5%-or-greater holders of a class of shares and their associates, unless the
Board shall by resolution have approved a memorandum of understanding with such
holders, in which case normal voting requirements would be in effect. For
purposes of these provisions, a 5%-or-greater holder of a class of shares (a
"Principal Shareholder") refers to any person who, whether directly or
indirectly and whether alone or together with its affiliates and associates,
beneficially owns 5% or more of the outstanding shares of any class of
beneficial interest of the Fund. The transactions subject to these special
approval requirements are: (i) the merger or consolidation of the Fund or any
subsidiary of the Fund with or into any Principal Shareholder; (ii) the issuance
of any securities of the Fund to any Principal Shareholder for cash; (iii) the
sale, lease or exchange of all or any substantial part of the assets of the Fund
to any Principal Shareholder (except assets having an aggregate fair market
value of less than $1,000,000, aggregating for the purpose of such computation
all assets sold, leased or exchanged in any series of similar transactions
within a twelve-month period); or (iv) the sale, lease or exchange to the Fund
or any subsidiary thereof, in exchange for securities of the Fund, of any assets
of any Principal Shareholder (except assets having an aggregate fair market
value of less than $1,000,000, aggregating for the purposes of such computation
all assets sold, leased or exchanged in any series of similar transactions
within a twelve-month period).

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

CONVERSION TO OPEN-END FUND

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

UNDERWRITING

The Fund intends to offer the shares through the underwriters.
[ ] is acting as representative of the underwriters named
below. Subject to the terms and conditions contained in a purchase agreement
between the Fund and Eaton Vance and the underwriters, the Fund has agreed to
sell to the underwriters, and each underwriter named below has severally agreed
to purchase from the Fund, the number of shares listed opposite their names
below.

NUMBER
UNDERWRITER OF SHARES

____________ _________

Total

The underwriters have agreed to purchase all of the shares sold pursuant to
the purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.

The Fund and Eaton Vance have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, or
to contribute to payments the underwriters may be required to make in respect of
those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.

COMMISSIONS AND DISCOUNTS

The underwriters have advised the Fund that they propose initially to offer the
shares to the public at the initial public offering price on the cover page of
this prospectus and to dealers at that price less a concession not in excess of
$[ ] per share. The underwriters may allow, and the dealers may
reallow, a discount not in excess of $[ ] per share to other dealers.
There is a sales charge or underwriting discount of $[ ] per share, which is
equal to [ ]% of the initial public offering price per share. After the
initial public offering, the public offering price, concession and discount may
be changed. Investors must pay for the shares of common stock purchased in
the offering on or before, [ ] 2005.

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

PER SHARE WITHOUT
OPTION WITH OPTION

_________ _______ ___________

Public offering price $ [____] $ [____] $ [____]

Underwriting discount $ [____] $ [____] $ [____]

Proceeds, before expenses, to the Fund $ [____] $ [____] $ [____]

The expenses of the offering, excluding underwriting discount, are
estimated at $[ ] and are payable by the Fund. The Fund has agreed to
pay the underwriters $[ ] per share of common stock as a partial

reimbursement of expenses incurred in connection with the offering. The amount
paid by the Fund as this partial reimbursement to the underwriters will not
exceed [ ]% of the total price to the public of the shares of common
stock sold in this offering. Eaton Vance has agreed to pay the amount by which
the offering costs (other than the underwriting discount, but including the
$[ ] per share partial reimbursement of expenses to the underwriters)
exceed $[ ] per share of common stock ([ ]% of the offering price).
[Eaton Vance has agreed to pay all of the Fund's organizational expenses.]

OVERALLOTMENT OPTION

The Fund has granted the underwriters an option to purchase up to
[ ] additional shares at the public offering price less the
underwriting discount. The underwriters may exercise the option from time to
time for 45 days from the date of this prospectus solely to cover any
overallotments. If the underwriters exercise this option, each will be
obligated, subject to conditions contained in the purchase agreement, to
purchase a number of additional shares proportionate to that underwriter's
initial amount reflected in the above table.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

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

If the underwriters create a short position in the shares in connection
with the offering, I.E., if they sell more shares than are listed on the cover
of this prospectus, the representative may reduce that short position by
purchasing shares in the open market. The representative also may elect to
reduce any short position by exercising all or part of the overallotment option
described above. Purchases of the shares to stabilize its price or to reduce a
short position may cause the price of the shares to be higher than it might be
in the absence of such purchases.

The representative also may impose a penalty bid on underwriters and selling
group members. This means that if the representative purchases shares in the
open market to reduce the underwriters' short position or to stabilize the price
of such shares, they may reclaim the amount of the selling concession from the
underwriters and the selling group members who sold those shares. The imposition
of a penalty bid also may affect the price of the shares in that it discourages
resales of those shares.

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

CUSTODIAN AND TRANSFER AGENT

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

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

LEGAL OPINIONS

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

REPORTS TO SHAREHOLDERS

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

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

[ ], Boston, Massachusetts are the independent registered public accounting
firm for the Fund and will audit the Fund's financial statements.

ADDITIONAL INFORMATION

The Prospectus and the Statement of Additional Information do not contain all of
the information set forth in the Registration Statement that the Fund has filed
with the SEC. The complete Registration Statement may be obtained from the SEC
upon payment of the fee prescribed by its rules and regulations. The Statement
of Additional Information can be obtained without charge by calling
1-800-225-6265.

Statements contained in this Prospectus as to the contents of any contract or
other documents referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.

TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION

Additional Investment Information and Restrictions..............................
Trustees and Officers...........................................................
Investment Advisory and Other Services..........................................
Determination of Net Asset Value................................................
Portfolio Trading...............................................................
Taxes...........................................................................
Other Information...............................................................
Independent Registered Public Accounting Firm...................................
Financial Statements............................................................
Appendix A: Ratings.............................................................

THE FUND'S PRIVACY POLICY

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

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

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

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

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

[EATON VANCE LOGO]

STATEMENT OF ADDITIONAL INFORMATION SUBJECT TO COMPLETION December 7, 2004
--------------------------------------------------------------------------------

STATEMENT OF ADDITIONAL INFORMATION
_____________, 2005

EATON VANCE SHORT DURATION DIVERSIFIED INCOME FUND

THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MASSACHUSETTS 02109
(800) 225-6265

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

PAGE
----

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

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

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

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

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

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

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

Independent registered public accounting firm...........................

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

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

THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EATON VANCE SHORT DURATION DIVERSIFIED INCOME
FUND (THE "FUND") DATED __________, 2005, AS SUPPLEMENTED FROM TIME TO TIME,
WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING YOUR FINANCIAL INTERMEDIARY OR CALLING THE FUND AT 1-800-225-6265.

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

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

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

ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS

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

MORTGAGE-BACKED SECURITIES

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

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

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

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2

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

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

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

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

SENIOR LOANS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NON-INVESTMENT GRADE SECURITIES

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

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

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

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

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

OTHER INVESTMENTS

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

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

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

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

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

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

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

INDEXED SECURITIES AND DERIVATIVES
The Fund's investments in indexed securities and derivatives as described in
the Prospectus may include to a limited extent indexed securities or
derivatives that are based upon the value of indices of foreign
fixed-income/debt securities and/or, foreign equity securities. The investment
value of such a security or derivative may change positively or inversely in
relation to one or more these indices or other financial indicators described
in the prospectus ("reference prices"). An indexed security or derivative may
be leveraged to the extent that the magnitude of any change in the interest
rate, principal or other payment payable on an indexed security is a multiple
of the change in the reference price. Thus, indexed securities and derivatives
may decline in value due to adverse market changes in reference prices. Because
indexed securities derive their value from another instrument, security or
index, they are considered derivative debt securities, and are subject to
different combinations of prepayment, extension, interest rate and/or other
market risks.

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

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price exceeds the short sale price. Selling securities short runs the risk of
losing an amount greater than the initial investment therein.

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

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

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

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

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

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

TEMPORARY INVESTMENTS

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

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

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

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

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

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

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

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

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

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

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

The Fund may borrow money as a temporary measure for extraordinary or emergency
purposes, including the payment of dividends and the settlement of securities
transactions which otherwise might require untimely dispositions of Fund
securities. The 1940 Act currently requires that the Fund have 300% asset
coverage with respect to all borrowings other than temporary borrowings.

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

The Fund has adopted the following nonfundamental investment policy which may
be changed by the Board without approval of the Fund's shareholders. As a
matter of nonfundamental policy, the Fund may not make short sales of
securities or maintain a short position, unless at all times when a short
position is open it either owns an equal amount of such securities or owns

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securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short.

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

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

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

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

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

TRUSTEES AND OFFICERS

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

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

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

James B. Hawkes Trustee and Since 4/15/04 Chairman, President and 194
11/9/41 Vice President Chief Executive Officer
of BMR, Eaton Vance,
EVC and EV; Director of
EV; Vice President and
Director of EVD.
Trustee and/or officer
of 194 registered 194
investment companies in
the Eaton Vance Fund
Complex. Mr. Hawkes is
an interested person
because of his
positions with BMR,
Eaton Vance, EVC and
EV, which are
affiliates of the Fund

----------

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

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12

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

PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES

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

Mark S. Venezia President and Chief Since 4/15/04 Vice President Eaton Vance and BMR.
5/23/49 Executive Officer
James L. O'Connor Treasurer and Principal Since 4/15/04 Vice President of BMR, Eaton Vance and EVD.
4/1/45 Financial and Accounting Officer of 119 registered investment companies
Officer managed by Eaton Vance or BMR.
Alan R. Dynner Secretary Since 4/15/04 Vice President, Secretary and Chief Legal
10/10/40 Officer of BMR, Eaton Vance, EVD, EV and EVC.
Officer of 197 registered investment companies
managed by Eaton Vance or BMR.
Christine Johnson Vice President Since 4/15/04 Vice President Eaton Vance and BMR. Officer of
11/9/72 2egistered investment companies managed by
Eaton Vance or BMR.
Scott H. Page Vice President Since 4/15/04 Vice President of Eaton Vance and BMR. Officer
11/30/59 of 15 registered investment companies managed
by Eaton Vance or BMR
Susan Schiff Vice President Since 4/15/04 Vice President of Eaton Vance and BMR. Officer
3/13/61 of 27 registered investment companies managed
by Eaton Vance or BMR.
Payson F. Swaffield Vice President Since 4/15/04 Vice President of Eaton Vance and BMR. Officer
8/13/56 of 15 registered investment companies managed
by Eaton Vance or BMR.
Michael W. Weilheimer Vice President Since 4/15/04 Vice President of Eaton Vance and BMR. Officer
2/11/61 of 12 registered investment companies managed
by Eaton Vance or BMR.

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

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

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

Messrs. [ ] (Chairman), [ ] and [ ] and [ ] are members of the Audit Committee
of the Board of Trustees of the Fund. The Board of Trustees has designated
Messrs. [ ], [ ] and [ ], each a non-interested Trustee, as audit committee
financial experts. The Audit Committee's purposes are to (i) oversee the Fund's
accounting and financial reporting processes, its internal control over
financial reporting, and, as appropriate, the internal control over financial
reporting of certain service providers; (ii) oversee or, as appropriate, assist
Board oversight of the quality and integrity of the Fund's financial statements
and the independent audit thereof; (iii) oversee, or, as appropriate, assist
Board oversight of, the Fund's compliance with legal and regulatory requirements
that relate to the Fund's accounting and financial reporting, internal control
over financial reporting and independent audits; (iv) approve prior to
appointment the engagement and, when appropriate, replacement of the independent
registered public accounting firm, and, if applicable, nominate the independent
registered public accounting firm to be proposed for shareholder ratification in
any proxy statement of the Fund; (v) evaluate the qualifications, independence
and performance of the independent registered public accounting firm and the
audit partner in charge of leading the audit; and (vi) prepare, as necessary,
audit committee reports consistent with the requirements of Rule 306 of
Regulation S-K for inclusion in the proxy statement of the Fund.

Messrs. [ ] (Chairman), [ ], [ ], [ ] and [ ] are currently members of the
Special Committee of the Board of Trustees of the Fund. The purposes of the
Special Committee are to consider, evaluate and make recommendations to the
Board of Trustees concerning the following matters: (i) contractual arrangements
with each service provider to the Fund, including advisory, sub-advisory,
transfer agency, custodial and fund accounting, distribution services and
administrative services; (ii) any and all other matters in which any of the Fund
service providers (including Eaton Vance or any affiliated entity thereof) has
an actual or potential conflict of interest with the interests of the Fund, or
investors therein; and (iii) any other matter appropriate for review by the

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

non-interested Trustees, unless the matter is within the responsibilities of the
Audit Committee or the Governance Committee of the Fund.

As of the date of this SAI, the Governance Committee has [ ] times, the Audit
Committee and Special Committee have met [ ] times.

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

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

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

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

+ Eaton Vance's results and financial condition and the overall
organization of the Adviser and the Sub-Adviser;

+ Arrangements regarding the distribution of Fund shares;

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

+ The allocation of brokerage and the benefits received by the Adviser as
the result of brokerage allocation; including allocations to soft dollar
brokerage and allocations to firms that sell Eaton Vance fund shares;

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

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

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

+ The terms of the Advisory Agreement, and the reasonableness and
appropriateness of the particular fee paid by the Fund for the services
described therein;

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

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

In evaluating the Advisory Agreement between the Fund and Eaton Vance, the
Special Committee reviewed material furnished by Eaton Vance at the initial
Board meeting held on [ ], 2004, including the above referenced considerations
and information relating to the education, experience and number of investment
professionals and other personnel who would provide services under the Advisory
Agreement and under the Sub-Advisory Agreement. The Special Committee also took
into account the time and attention to be devoted by senior management to the
Fund and the other funds in the complex. The Special Committee evaluated the
level of skill required to manage the Fund and concluded that the human
resources available at Eaton Vance were appropriate to fulfill effectively the
duties of the Adviser on behalf of the Fund. The Special Committee also
considered the business reputation of the Adviser, its financial resources and
professional liability insurance coverage and concluded that Eaton Vance would
be able to meet any reasonably foreseeable obligations under the Advisory
Agreement.

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

In addition to the factors mentioned above, the Special Committee also reviewed
the level of the Adviser's profits in respect of the management of the Eaton
Vance funds, including the Fund. The Special Committee considered the other
profits realized by Eaton Vance and its affiliates in connection with the

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

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

operation of the Fund. The Special Committee also considered profit margins of
Eaton Vance in comparison with available industry data. In addition, the Special
Committee considered the fiduciary duty assumed by the Adviser in connection
with the service rendered to the Fund and the business reputation of the
Adviser, its financial resources and its professional liability insurance
coverage.

The Special Committee did not consider any single factor as controlling in
determining whether or not to approve the Advisory Agreement. Nor are the items
described herein all encompassing of the matters considered by the Special
Committee. In assessing the information provided by Eaton Vance and its
affiliates, the Special Committee also took into consideration the benefits to
shareholders of investing in a fund that is part of a large family of funds
which provides a large variety of shareholder services.

Based on its consideration of all factors that it deemed material and assisted
by the advice of its independent counsel, the Special Committee concluded that
the approval of the Advisory Agreement, including the fee structure (described
herein) is in the interests of shareholders. The Special Committee also
considered that the Adviser would enter into a Shareholder Services Agreement
with [ ], whereby the Adviser (and not the Fund) would pay [ ] to provide upon
request certain market data and reports to support shareholder services pursuant
to the agreement.

SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee in the Fund and all Eaton Vance Funds overseen by the
Trustee as of December 31, 200[ ].

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

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

During the calendar years ended December 31, 200[ ] and December 31, 200[ ], no
noninterested Trustee (or their immediate family members) had:

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

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

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

During the calendar years ended December 31, 200[ ] and December 31, 200[ ], no
officer of EVC, EVD or any person controlling, controlled by or under common
control with EVC or EVD served on the Board of Directors of a company where a
noninterested Trustee of the Fund or any of their immediate family members
served as an officer.

Trustees of the Fund who are not affiliated with the Adviser may elect to defer
receipt of all or a percentage of their annual fees in accordance with the
terms of a Trustees Deferred Compensation Plan (the "Trustees' Plan"). Under
the Trustees' Plan, an eligible Trustee may elect to have his deferred fees
invested by the Fund in the shares of one or more funds in the Eaton Vance
Family of Funds, and the amount paid to the Trustees under the Trustees' Plan

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

will be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Trustees' Plan will have a negligible
effect on the Fund's assets, liabilities, and net income per share, and will
not obligate the Fund to retain the services of any Trustee or obligate the
Fund to pay any particular level of compensation to the Trustee. The Fund does
not have a retirement plan for its Trustees.

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

[ ] [ ] [ ] [ ] [ ] [ ]
---- ---- ---- ---- ---- ----
SOURCE OF COMPENSATION
--------------------------------------------------------------------------------
Fund*................ $ $ $ $ $ $
Fund Complex......... $ $ $ $ $ $

------------
* ESTIMATED

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

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

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

In addition, the Adviser will monitor situations that may result in a conflict
of interest between the Fund's shareholders and the Adviser or any of its
affiliates or any affiliate of the Fund by maintaining a list of significant
existing and prospective corporate clients. The Adviser's personnel responsible
for reviewing and voting proxies on behalf of the Fund will report any proxy
received or expected to be received from a company included on that list to
members of senior management of the Adviser identified in the Policies. Such
members of senior management will determine if a conflict exists. If a conflict
does exist, the proxy will either be voted strictly in accordance with the
Policies or the Adviser will seek instruction on how to vote from the Special
Committee. Information on how the Fund voted proxies relating to portfolio
securities during the 12 month period ended June 30, 2005 will be available (1)
without charge, upon request, by calling 1-800-262-1122, and (2) on the
Securities and Exchange Commission's website at http://www.sec.gov.

INVESTMENT ADVISORY AND OTHER SERVICES

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

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

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

as adviser to a family of mutual funds, and individual and various institutional
accounts, including corporations, hospitals, retirement plans, universities,
foundations and trusts.

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

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

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

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

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

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

INVESTMENT ADVISORY SERVICES
Under the general supervision of the Fund's Board of Trustees, Eaton Vance will
carry out the investment and reinvestment of the assets of the Fund, will
furnish continuously an investment program with respect to the Fund, will
determine which securities should be purchased, sold or exchanged, and will
implement such determinations. Eaton Vance will furnish to the Fund investment
advice and provide related office facilities and personnel for servicing the

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

investments of the Fund. Eaton Vance will compensate all Trustees and officers
of the Fund who are members of the Eaton Vance organization and who render
investment services to the Fund, and will also compensate all other Eaton Vance
personnel who provide research and investment services to the Fund.

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

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

PORTFOLIO TRADING
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DETERMINATION OF NET ASSET VALUE

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

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

The Adviser and the Valuation Committee may implement new pricing methodologies
or expand mark-to-market valuation of debt securities whose market prices are
not readily available in the future, which may result in a change in the Fund's
net asset value per share. The Fund's net asset value per share will also be
affected by fair value pricing decisions and by changes in the market for such
debt securities. In determining the fair value of a debt security, the Adviser
will consider relevant factors, data, and information, including: (i) the
characteristics of and fundamental analytical data relating to the debt
security, including the cost, size, current interest rate, period until next
interest rate reset, maturity and base lending rate of the debt security, the
terms and conditions of the debt security and any related agreements, and the
position of the debt security in the borrower's debt structure; (ii) the nature,
adequacy and value of the collateral, including the Fund's rights, remedies and
interests with respect to the collateral; (iii) the creditworthiness of the
borrower, based on an evaluation of its financial condition, financial
statements and information about the borrower's business, cash flows, capital
structure and future prospects; (iv) information relating to the market for the
debt security, including price quotations for and trading in the debt security
and interests in similar debt securities and the market environment and investor
attitudes towards the debt security and interests in similar debt securities;
(v) the experience, reputation, stability and financial condition of the agent
and any intermediate participants in the debt security; and (vi) general
economic and market conditions affecting the fair value of the debt security.
The fair value of each debt security is reviewed and approved by the Adviser's
Valuation Committee and the Fund's Trustees.

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

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

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and (vi) general economic and market conditions affecting the fair value of the
Senior Loan. The fair value of each Senior Loan is reviewed and approved by the
Adviser's Valuation Committee and the Fund's Trustees.

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

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

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

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

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PORTFOLIO TRADING

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

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

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

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

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

As authorized in Section 28(e) of the Securities Exchange Act of 1934, a broker
or dealer who executes a portfolio transaction on behalf of the Fund may receive
a commission which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Adviser
determines in good faith that such compensation was reasonable in relation to
the value of the brokerage and research services provided. This determination
may be made on the basis of that particular transaction or on the basis of
overall responsibilities which the Adviser and its affiliates have for accounts
over which they exercise investment discretion. In making any such
determination, the Adviser will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of the
commission should be related to such services. Brokerage and research services
may include advice as to the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts; effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement); and
the "Research Services" referred to in the next paragraph.

It is a common practice of the investment advisory industry and of the advisers
of investment companies, institutions and other investors to receive research,
analytical, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer

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

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

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

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

TAXES

The following discussion of federal income tax matters is based on the advice
of Kirkpatrick & Lockhart LLP, counsel to the Fund. The Fund intends to elect
to be treated and to qualify each year as a regulated investment company
("RIC') under the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the Fund intends to satisfy certain requirements relating to
sources of its income and diversification of its assets and to distribute
substantially all of its net income and net short-term and long-term capital
gains (after reduction by any available capital loss carryforwards) in
accordance with the timing requirements imposed by the Code, so as to maintain
its RIC status and to avoid paying any federal income or excise tax. To the
extent it qualifies for treatment as a RIC and satisfies the above-mentioned

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22

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distribution requirements, the Fund will not be subject to federal income tax
on income paid to its shareholders in the form of dividends or capital gain
distributions.

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

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

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

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

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

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occur. Nevertheless, the Treasury Department and the IRS have announced that
they will apply the provision of the Technical Corrections Bill relating to
qualified dividend income in advance of the enactment of such legislation.

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

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

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

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

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

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

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

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

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24

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

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

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

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

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

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

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

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

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

OTHER INFORMATION

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

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

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

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

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

--------------------------------------------------------------------------------
26

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

--------------------------------------------------------------------------------
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM REPORT

[TO BE ADDED BY AMENDMENT]

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

EATON VANCE SHORT DURATION DIVERSIFIED INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES
___________, 2005

ASSETS

Cash........................................................................ $_______

Offering costs.............................................................. ________

Receivable from Adviser..................................................... ________

Total assets................................................................ $
========
LIABILITIES

Accrued offering costs...................................................... $_______

Accrued organizational costs................................................ ________

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

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

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

STATEMENT OF OPERATIONS
PERIOD FROM APRIL 16, 2004 (DATE OF ORGANIZATION) THROUGH ___________, 2005

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

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

Expense reimbursement....................................................... --------
$ --
Net expenses............................................................. --------

NET INVESTMENT INCOME........................................................... $ --
========
See notes to financial statements.

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

NOTES TO FINANCIAL STATEMENTS

NOTE 1: ORGANIZATION

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

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

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

NOTE 2: ACCOUNTING POLICIES

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

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

NOTE 3: INVESTMENT MANAGEMENT AGREEMENT

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

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

NOTE 4: FEDERAL INCOME TAXES

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

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

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

LONG-TERM DEBT SECURITIES RATINGS

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

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

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

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

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

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

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

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

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

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

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

__________________________

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STANDARD & POOR'S RATINGS GROUP

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

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

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

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

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

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

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

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

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

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

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

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

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

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

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

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

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

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

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

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

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

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

A-3: A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

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

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

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

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

FITCH RATINGS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * * * * * * *

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

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

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

EATON VANCE SHORT DURATION DIVERSIFIED INCOME FUND

STATEMENT OF ADDITIONAL INFORMATION
_________, 2005
_______________

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

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

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

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
___________________

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1) FINANCIAL STATEMENTS:

Included in Part A:
Not applicable.

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

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

(2) EXHIBITS:

(a) (1) Agreement and Declaration of Trust dated April 15, 2004 is
incorporated herein by reference to the Registrant's initial
Registration Statement on Form N-2 (File Nos. 333-114596 and
811-21563) as to the Registrant's common shares of beneficial
interest ("Common Shares") filed with the Securities and
Exchange Commission on April 19, 2004 (Accession No.
0000898432-04-000354) ("Initial Common Shares Registration
Statement").

(2) Amendment to Agreement and Declaration of Trust dated November
29, 2004 filed herewith.

(b) (1) By-Laws are incorporated herein by reference to the
Registrant's Initial Common Shares Registration Statement.

(2) Amendment to By-Laws dated November 29, 2004 filed herewith.

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

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

(f) Not applicable.

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

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

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

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

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

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

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

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

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

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

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

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

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

(m) Not applicable.

(n) Consent of Independent Registered Public Accounting Firm to be filed
by amendment.

(o) Not applicable.

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

(q) Not applicable.

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

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

ITEM 25. MARKETING ARRANGEMENTS

See Form of Underwriting Agreement to be filed by amendment.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

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

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

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

None.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

Set forth below is the number of record holders as of December 7, 2004, of
each class of securities of the Registrant:

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

ITEM 29. INDEMNIFICATION

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

Registrant's Trustees and officers are insured under a standard investment
company errors and omissions insurance policy covering loss incurred by reason
of negligent errors and omissions committed in their official capacities as

such. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
described in this Item 29, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

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

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

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

ITEM 32. MANAGEMENT SERVICES

Not applicable.

ITEM 33. UNDERTAKINGS

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

2. Not applicable.

3. Not applicable.

4. Not applicable.

5. The Registrant undertakes that:

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

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

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

NOTICE

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

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Boston and
the Commonwealth of Massachusetts, on the 7th day of December 2004.

EATON VANCE SHORT DURATION DIVERSIFIED
INCOME FUND

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

Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.

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

/s/ Mark S. Venezia President and Executive Officer December 7, 2004
-------------------
Mark S. Venezia

/s/ James L. O'Connor Treasurer and Principal December 7, 2004
--------------------- Financial and Accounting Officer
James L. O'Connor

/s/ Thomas E. Faust Jr. Trustee December 7, 2004
-----------------------
Thomas E. Faust Jr.

/s/ James B. Hawkes Trustee December 7, 2004
-------------------
James B. Hawkes

Index to Exhibits
-----------------

(a)(2) Amendment to Agreement and Declaration of Trust dated November 29, 2004.
(b)(2) Amendment to By-Laws dated November 29, 2004.