Edgar Filing: FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY INCOME FUND

As filed with the Securities and Exchange Commission on November 23, 2004
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1933 Act File No. 333-119081
1940 Act File No. 811-21636

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

FORM N-2
(Check appropriate box or boxes)

[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 2
[ ] Post-Effective Amendment No. _

and

[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 2

First Trust/Aberdeen Global Opportunity Income Fund
Exact Name of Registrant as Specified in Declaration of Trust

1001 Warrenville Road, Suite 300, Lisle, Illinois 60532
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)

(630) 241-4141
Registrant's Telephone Number, including Area Code

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532

Name and Address (Number, Street, City, State, Zip Code) of Agent for Service

Copies of Communications to:

Eric F. Fess, Esq. Leonard B. Mackey, Jr., Esq.
Chapman and Cutler LLP Clifford Chance US LLP
111 West Monroe Street 31 West 52nd Street
Chicago, Illinois 60603 New York, New York 10019

Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement

Page 1

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If any of the securities being registered on this form are 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)

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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

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---------------- ------------ ---------------- ---------------- ---------------
Title of Proposed Proposed
Securities Amount Maximum Maximum Amount of
Being Being Offering Price Aggregate Registration
Registered Registered Per Unit Offering Price Fee
---------------- ------------ ---------------- ---------------- ---------------
Common Shares, 18,750,000 $20.00 $375,000,000(1) $47,512.50(2)
$0.01 par value
---------------- ------------ ---------------- ---------------- ---------------

(1) Estimated solely for the purpose of calculating the registration fee.
(2) $2.53 of which has been previously paid.

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.

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Page 2

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 23, 2004

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

PROSPECTUS
----------
SHARES

FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY
INCOME FUND

COMMON SHARES
$20.00 PER SHARE

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

The Fund. First Trust/Aberdeen Global Opportunity Income Fund (the "Fund")
is a newly organized diversified, closed-end management investment company.

Investment Objectives. The Fund's primary investment objective is to seek a
high level of current income. As a secondary objective, the Fund will seek
capital appreciation. The Fund will pursue these objectives by investing in the
world bond markets through a diversified portfolio of investment grade and
below-investment grade government and corporate debt securities.

The Fund may invest in both investment grade and non-investment grade debt
issues. Non-investment grade debt issues are commonly referred to as "high
yield" or "junk" bonds and are considered speculative with respect to the
issuer's capacity to pay interest and repay principal. Investments in government
debt may also include bonds issued by countries considered to be emerging
markets. There can be no assurance that the Fund's investment objectives will be
achieved.

No Prior History. BECAUSE THE FUND IS NEWLY ORGANIZED, ITS SHARES HAVE NO
HISTORY OF PUBLIC TRADING. SHARES OF CLOSED-END INVESTMENT COMPANIES FREQUENTLY
TRADE AT A DISCOUNT FROM THEIR NET ASSET VALUE. THIS RISK MAY BE GREATER FOR
INVESTORS EXPECTING TO SELL THEIR SHARES IN A RELATIVELY SHORT PERIOD AFTER
COMPLETION OF THE PUBLIC OFFERING. The Fund's common shares have been approved
for listing on the New York Stock Exchange, subject to notice of issuance, under
the symbol "FAM."

Investment Adviser and Sub-Adviser. First Trust Advisors L.P. ("First Trust
Advisors" or the "Adviser") will be the Fund's investment adviser and will be
responsible for selecting and supervising the Sub-Adviser (as defined below),
the ongoing monitoring of the Fund's investment portfolio, managing the Fund's
business affairs and providing certain clerical and bookkeeping and other
administrative services. The Adviser, in consultation with the Sub-Adviser, is
also responsible for determining the Fund's overall investment strategy and
overseeing its implementation. Aberdeen Asset Management Inc. ("Aberdeen" or the
"Sub-Adviser") will be the Fund's sub-adviser.

(continued on the following page)

INVESTING IN THE FUND'S COMMON SHARES INVOLVES CERTAIN RISKS THAT ARE
DESCRIBED IN THE "RISKS" SECTION BEGINNING ON PAGE 22 OF THIS PROSPECTUS.

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PER SHARE TOTAL (1)
--------- -----
Public offering price $20.00 $
Sales load $.90 $
Estimated offering costs (2) (3) $.04 $
Proceeds, after expenses, to the Fund $19.06 $

(notes on following page)

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

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

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

MERRILL LYNCH & CO. A.G. EDWARDS
WACHOVIA SECURITIES ADVEST, INC. ROBERT W. BAIRD & CO.
FERRIS, BAKER WATTS FIXED INCOME SECURITIES, L.P. RBC CAPITAL MARKETS
INCORPORATED

SUNTRUST ROBINSON HUMPHREY WEDBUSH MORGAN SECURITIES INC. WELLS FARGO SECURITIES, LLC

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

The date of this prospectus is , 2004.

Front Cover

(continued from previous page)

First Trust Advisors serves as investment adviser or portfolio supervisor
to investment portfolios with approximately $14.0 billion in assets which it
managed or supervised as of September 30, 2004. Aberdeen is a wholly owned
subsidiary of Aberdeen Asset Management PLC ("Aberdeen PLC") which is the parent
company of an asset management group managing approximately $39.99 billion of
assets, including $7.96 billion in global fixed-income securities, as of
September 30, 2004, for a range of pension funds, financial institutions,
investment trusts, unit trusts, offshore funds, charities and private clients.
See "Management of the Fund" in this prospectus and "Investment Adviser" and
"Sub-Adviser" in the Fund's Statement of Additional Information (the "SAI").

Leverage. Within three months after the completion of the offering of
common shares described in this prospectus, the Fund intends, subject to then
favorable market conditions, to utilize leverage through the issuance of
preferred shares of beneficial interest ("Preferred Shares"), commercial paper
or notes and/or borrowings in an aggregate amount up to 33-1/3% of the Fund's
Managed Assets after such issuance and/or borrowing. "Managed Assets" means the
gross asset value of the Fund (including assets attributable to the Fund's
Preferred Shares, if any, and the principal amount of borrowings) minus the sum
of the Fund's accrued and unpaid dividends on any outstanding Preferred Shares
and accrued liabilities (other than the principal amount of any borrowings
incurred or of commercial paper or notes issued by the Fund). For purposes of
determining Managed Assets, the liquidation preference of the Preferred Shares
is not treated as a liability. The issuance of these instruments, which would be
senior to the common shares, will result in the financial leveraging of the
common shares. Whether to offer Preferred Shares or engage in another form of
leveraging, and, if offered, the terms of such shares or leveraging and the
timing and other terms of their offering or arrangement will be determined by
the Fund's board of trustees ("Board of Trustees"). Through leveraging, the Fund
will seek to obtain a higher return for the holders of common shares than if the
Fund did not use leverage. Leverage is a speculative technique and investors
should note that there are special risks and costs associated with the
leveraging of the common shares. There can be no assurance that a leveraging
strategy will be successful during any period in which it is employed. See
"Borrowings and Preferred Shares--Effects of Leverage," "Risks--Leverage Risk"
and "Description of Shares."

You should read this prospectus, which contains important information about
the Fund, before deciding whether to invest in the common shares, and retain it
for future reference. This prospectus sets forth concisely the information about
the Fund that a prospective investor ought to know before investing. The SAI
dated , 2004, containing additional information about the Fund, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
its entirety into this prospectus. You may request a free copy of the SAI, the
table of contents of which is on page 41 of this prospectus, by calling (800)
988-5891 or by writing to the Fund, or obtain a copy (and other information
regarding the Fund) from the Securities and Exchange Commission's web site
(http://www.sec.gov).

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

(notes from previous page)

(1) The Fund has granted the underwriters an option to purchase up to
additional common shares at the public offering price, less the sales
load, within 45 days of the date of this prospectus solely to cover
overallotments, if any. If such option is exercised in full, the total
price to the public, sales load, estimated offering costs and proceeds,
after expenses, to the Fund will be $ , $ , $ and $ ,
respectively. See "Underwriting."

(2) Total expenses of the offering of the common shares of the Fund paid by
the Fund (other than sales load, but including the partial
reimbursement of certain underwriter expenses described below) are
estimated to be $ , which represents .2% (or $.04 per common share) of
the Fund's offering price. The Fund's investment adviser, First Trust
Advisors L.P., has agreed to pay (i) all organizational expenses and
(ii) all offering costs of the Fund (other than sales load, but
including the partial reimbursement of expenses described below) that
exceed .2% (or $.04 per common share) of the Fund's offering price. The
Fund's sub-adviser, Aberdeen Asset Management Inc., has agreed to
reimburse the Fund's investment adviser for one-half of such
organizational expenses and offering costs of the Fund that exceed .2%
(or $.04 per common share) of the Fund's offering price.

(3) The Fund has agreed to pay the underwriters $.00667 per common share as
a partial reimbursement of expenses incurred in connection with the
offering and to pay certain fees to counsel to the underwriters. The
Fund's investment adviser (not the Fund) will pay Merrill Lynch,
Pierce, Fenner & Smith Incorporated additional compensation and will
pay A.G. Edwards & Sons, Inc. an incentive fee. The total amount of the
foregoing payments, together with any reimbursement to First Trust
Portfolios, L.P. for distribution services, will not exceed 4.5% (or
$.90 per common share) of the total price to the public of the common
shares sold in this offering, but is in addition to the 4.5% (or $.90
per common share) sales load described in the table. See
"Underwriting."

Page 2

TABLE OF CONTENTS

PAGE
----
Prospectus Summary ..................................................... 4
Summary of Fund Expenses ............................................... 15
The Fund ............................................................... 16
Use of Proceeds ........................................................ 16
The Fund's Investments ................................................. 16
Borrowings and Preferred Shares ........................................ 20
Risks .................................................................. 22
Management of the Fund ................................................. 29
Net Asset Value ........................................................ 31
Distributions .......................................................... 31
Dividend Reinvestment Plan ............................................. 32
Description of Shares .................................................. 32
Certain Provisions in the Declaration of Trust ......................... 34
Structure of the Fund; Common Share Repurchases and
Conversion to Open-End Fund ......................................... 35
Tax Matters ............................................................ 36
Underwriting ........................................................... 38
Administrator, Custodian and Transfer Agent ............................ 40
Legal Opinions ......................................................... 40
Table of Contents for the Statement of Additional Information .......... 41

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER THE FUND NOR THE UNDERWRITERS HAVE 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. NEITHER THE FUND NOR THE
UNDERWRITERS ARE MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION
APPEARING IN THIS PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT COVER ONLY.

Page 3

PROSPECTUS SUMMARY

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

THE FUND......................... First Trust/Aberdeen Global Opportunity
Income Fund (the "Fund") is a newly
organized, diversified, closed-end
management investment company. See "The
Fund."

THE OFFERING..................... The Fund is offering common
shares of beneficial interest at $20.00 per
share through a group of underwriters (the
"Underwriters") led by Merrill Lynch,
Pierce, Fenner & Smith Incorporated
("Merrill Lynch"). The common shares of
beneficial interest are called "Common
Shares" in this prospectus. You must
purchase at least 100 Common Shares in this
offering. The Fund has given the
Underwriters an option to purchase up to
additional Common Shares to cover orders in
excess of Common Shares. The Adviser has
agreed to pay (i) all organizational
expenses and (ii) all offering costs of the
Fund (other than sales load, but including a
partial reimbursement of certain underwriter
expenses) that exceed .2% (or $.04 per
Common Share) of the Fund's offering price.
The Sub-Adviser has agreed to reimburse the
Adviser for one-half of such organizational
expenses and offering costs of the Fund that
exceed .2% (or $.04 per Common Share) of the
Fund's offering price.

LISTING.......................... The Fund's Common Shares have been approved
for listing on the New York Stock Exchange,
subject to notice of issuance, under the
symbol "FAM."

INVESTMENT OBJECTIVES
AND POLICIES..................... The Fund's primary investment objective is
to seek a high level of current income. As a
secondary objective, the Fund will seek
capital appreciation. The Fund will pursue
these objectives by investing in the world
bond markets through a diversified portfolio
of investment grade and below-investment
grade government and corporate debt
securities. There can be no assurance that
the Fund's investment objectives will be
achieved.

The Fund may invest in both investment grade
and non-investment grade debt issues.
Non-investment grade debt issues are
commonly referred to as "high yield" or
"junk" bonds and are considered speculative
with respect to the issuer's capacity to pay
interest and repay principal. Investments in
government debt may also include bonds
issued by countries considered to be
emerging markets.

Under normal market conditions, the Fund
will invest substantially all of its Managed
Assets (as defined below) in a diversified
portfolio of fixed-income securities,
including government and corporate bonds, of
U.S. and non-U.S. issuers. Under normal
market conditions, the Fund expects to
invest in securities of issuers in at least
three countries (in addition to the United
States), however, securities of issuers in a
single country will not exceed 30% of the
Fund's Managed Assets. Percentage
limitations described in this prospectus are
as of the time of investment by the Fund and
may be exceeded on a going-forward basis as
a result of market value fluctuations of the
Fund's portfolio.

The Sub-Adviser will select securities for
the portfolio employing the investment
strategies established by Aberdeen's Global
Investment Grade and Global Emerging Market
Teams. Aberdeen's Investment Team
(consisting of the Global Investment Grade
and Global Emerging Market Teams) will
regularly monitor and make allocation
decisions among issuers of various regions,
countries and credit qualities in order to
achieve the Fund's investment objectives of
a high level of current income and capital
appreciation measured in U.S. dollars. The
Fund has no stated maturity strategy.
Rather, the Sub-Advisor will invest in
securities of various maturities which it
believes offer income and total return
opportunities to the Fund. The Sub-Adviser
will select government and corporate bonds
from a universe of over 65 countries,
focusing on high real yields and improving
credit conditions that offer income and
total return opportunities. Allocation
between investment grade and below-
investment grade securities will vary
according to relative value and opportunity
identified by Aberdeen's Investment Team,
with input from Aberdeen's Fixed Income
Strategy Group. The Fund's portfolio
positions will be undertaken according to

Page 4

the quality of their risk-adjusted
potential return. Aberdeen's Investment Team
will have daily responsibility for the
management of the portfolio and for the
implementation of the investment process,
monitored through weekly investment
committee meetings.

The Fund will invest at least 60% of its
Managed Assets in securities issued by
government, government-related and
supranational issuers ("government debt").
At least 25% of the Fund's Managed Assets
will be invested in U.S. dollar-denominated
securities or non-U.S. dollar-denominated
securities that have been fully hedged into
U.S. dollars. Government debt includes: debt
securities issued or guaranteed by
governments, governmental agencies or
instrumentalities and political
subdivisions; debt securities issued by
government owned, controlled or sponsored
entities; interests in entities organized
and operated for the purpose of
restructuring the investment characteristics
of instruments issued by the above-noted
issuers; or debt securities issued by
supranational entities such as the World
Bank or the European Union.

The Fund may invest up to 40% of its Managed
Assets in corporate debt obligations.
Corporate bonds generally are used by
corporations to borrow money from investors.
The issuer pays the investor a fixed or
variable rate of interest and normally must
repay the amount borrowed on or before
maturity. Certain corporate bonds are
"perpetual" in that they have no maturity
date. The Fund may invest in non-U.S.
corporate bonds which involve unique risks
compared to investing in the securities of
U.S. issuers. See "Risks--Non-U.S.
Securities Risk."

The Fund may invest up to 60% of its Managed
Assets in securities rated below "Baa3" by
Moody's Investors Service, Inc. ("Moody's"),
below "BBB-" by Standard & Poor's
Corporation, a division of The McGraw-Hill
Companies ("S&P"), or comparably rated by
another nationally recognized statistical
rating organization ("NRSRO") or, if
unrated, determined by the Sub-Adviser to be
of comparable credit quality. The Fund may
invest in high yield securities of any
rating. However, the Fund will not invest
more than 15% of its Managed Assets in
securities rated below "B-" by Moody's
and/or S&P. Accordingly, the Fund may invest
a significant portion of its Managed Assets
in securities that are rated non-investment
grade. Securities of non-investment grade
quality, typically referred to as "high
yield" or "junk" bonds, are regarded as
having predominately speculative
characteristics with respect to the issuer's
capacity to pay interest and repay
principal. See "Risks--Non-Investment Grade
Securities Risk."

The Fund may invest up to 15% of its Managed
Assets in asset-backed securities.
Asset-backed securities are securities that
represent a participation in, or are secured
by and payable from, a stream of payments
generated by particular assets, most often a
pool or pools of similar assets (e.g., trade
receivables). The credit quality of these
securities depends primarily upon the
quality of the underlying assets and the
level of credit support and/or enhancement
provided. The underlying assets (e.g.,
loans) are subject to prepayments which
shorten the securities' weighted average
maturity and may lower their return. Losses
or delays in payment may result if the
credit support or enhancement is exhausted
because the required payments of principal
and interest on the underlying assets are
not made. The value of these securities may
also change because of changes in the
market's perception of the creditworthiness
of the servicing agent for the pool, the
originator of the pool or the financial
institution or fund providing the credit
support or enhancement.

The Fund may invest up to 35% of its Managed
Assets in credit linked notes ("Credit
Linked Notes"), provided such securities are
issued by an institution with at least an
"A" credit rating by Moody's and/or S&P.
Credit Linked Notes are structured
securities typically issued by banks whose
principal and interest payments are
contingent on the performance of a specified
borrower company or companies (the
"Reference Issuer"). Credit Linked Notes are
created by embedding a credit default swap
in a funded asset to form an investment
whose credit risk and cash flow
characteristics resemble those of a bond or
loan. These notes pay an enhanced coupon to
the investor for taking on the added credit
risk of the Reference Issuer.

Page 5

The Fund's investment objectives are
considered fundamental and may not be
changed without shareholder approval. The
remainder of the Fund's investment policies
(other than its investment restrictions
which are described in the SAI), including
its investment strategy, are considered
non-fundamental and may be changed by the
Board of Trustees without shareholder
approval. The Fund will provide investors
with at least 60 days' prior notice of any
change in the Fund's investment strategy.
There can be no assurance that the Fund's
investment objectives will be achieved. See
"The Fund's Investments" and "Risks" in this
prospectus and "Investment Policies and
Techniques" and "Additional Information
About the Fund's Investments and Investment
Risks" in the SAI.

INVESTMENT ADVISER
AND SUB-ADVISER.................. First Trust Advisors L.P. will be the Fund's
investment adviser and will be responsible
for supervising the Fund's Sub-Adviser,
monitoring the Fund's investment portfolio,
managing the Fund's business affairs and
providing certain clerical and bookkeeping
and other administrative services. The
Adviser, in consultation with the
Sub-Adviser, is also responsible for
determining the Fund's overall investment
strategy and overseeing its implementation.
Aberdeen Asset Management Inc. will be the
Fund's Sub-Adviser.

First Trust Advisors, a registered
investment adviser, is an Illinois limited
partnership formed in 1991. It serves as
investment adviser or portfolio supervisor
to investment portfolios with approximately
$14.0 billion in assets which it managed or
supervised as of September 30, 2004. See the
SAI under "Adviser."

Aberdeen is a registered investment adviser
and wholly owned subsidiary of Aberdeen PLC.
Aberdeen PLC is the parent company of an
asset management group managing
approximately $37.4 billion in assets,
including $7.4 billion in global
fixed-income securities, as of June 30,
2004, for a range of pension funds,
financial institutions, investment trusts,
unit trusts, offshore funds, charities and
private clients. In rendering investment
advisory services, the Sub-Adviser may use
the resources of wholly owned investment
adviser subsidiaries of Aberdeen PLC,
pursuant to a memorandum of understanding
with advisory affiliates of the Sub-Adviser.
See the SAI under "Sub-Adviser."

STRATEGIC TRANSACTIONS........... The Fund may, but is not required to, use
various strategic transactions (1) to seek
to reduce interest rate risks arising from
any use of financial leverage, (2) to
facilitate portfolio management and (3) to
mitigate risks, including interest rate,
currency and credit risks. The Fund may
purchase and sell derivative investments
such as exchange-listed and over-the-
counter put and call options on currencies,
securities, fixed-income, currency and
interest rate indices and other financial
instruments, purchase and sell financial
futures contracts and options thereon, and
enter into various interest rate and
currency transactions such as swaps, caps,
floors or collars or credit transactions and
credit derivative instruments. The Fund also
may purchase derivative instruments that
combine features of these instruments.
Collectively, all of the above are referred
to as "Strategic Transactions." The Fund
generally seeks to use these instruments and
transactions as a portfolio management or
hedging technique to protect against
possible adverse changes in the market value
of securities held in or to be purchased for
the Fund's portfolio, protect the value of
the Fund's portfolio, facilitate the sale of
certain securities for investment purposes,
manage the effective interest rate and

Page 6

currency exposure of the Fund, or establish
positions in the derivatives markets as a
substitute for purchasing or selling
particular securities.

BORROWINGS AND
PREFERRED SHARES................. The Fund intends to use leverage through the
issuance of Preferred Shares, commercial
paper or notes and/or borrowing (each a
"Leverage Instrument" and collectively, the
"Leverage Instruments") in an aggregate
amount up to 33-1/3% of the Fund's Managed
Assets after such issuance and/or borrowing.
The Fund may borrow from banks and other
financial institutions. Leverage creates a
greater risk of loss, as well as potential
for more gain, for the Common Shares than if
leverage is not used. The Fund's leveraging
strategy may not be successful. See
"Risks--Leverage Risk." Subject to market
conditions, approximately three months after
completion of this offering, the Fund
intends to establish a leverage program.
Leverage Instruments will have seniority
over the Common Shares. The use of Leverage
Instruments will leverage your investment in
the Common Shares. If the Fund uses Leverage
Instruments, associated costs will be borne
immediately by holders of Common Shares
("Common Shareholders") and result in a
reduction of the net asset value ("NAV") of
the Common Shares.

Preferred Shares will pay dividends based on
short-term rates, which will be reset
frequently. Borrowings may be at a fixed or
floating rate and generally will be based
upon short-term rates. So long as the rate
of return, net of applicable Fund expenses,
on the Fund's portfolio investments
purchased with leverage exceeds the then
current interest rate or dividend rate on
the Leverage Instruments, the Fund will
generate more return or income than will be
needed to pay such dividends or interest
payments. In this event, the excess will be
available to pay higher dividends to Common
Shareholders. When leverage is employed, the
NAV and market prices of the Common Shares
and the yield to Common Shareholders will be
more volatile.

DISTRIBUTIONS.................... The Fund's present distribution policy,
which may be changed at any time by the
Fund's Board of Trustees, is to distribute
monthly all or a portion of its net
investment income to Common Shareholders
(after the payment of interest and dividends
in connection with leverage). In addition,
the Fund intends to distribute any net
long-term capital gains to Common
Shareholders as long-term capital gain
dividends at least annually. Unless an
election is made to receive dividends in
cash, Common Shareholders will automatically
have all dividends and distributions
reinvested in Common Shares through the
Fund's Dividend Reinvestment Plan. See
"Dividend Reinvestment Plan."

If the Fund realizes a long-term capital
gain, it will be required to allocate such
gain between the Common Shares and the
Preferred Shares, if any, issued by the Fund
in proportion to the total dividends paid to
each class of shares for the year in which
the income is realized. See "Distributions"
and "Borrowings and Preferred Shares."

ADMINISTRATOR,
CUSTODIAN AND
TRANSFER AGENT................... The Fund has retained PFPC Trust Company as
custodian, and PFPC Inc. as administrator,
fund accountant and transfer agent for the
Fund. The Adviser and the Board of Trustees
will be responsible for monitoring the
activities of the custodian, administrator,
fund accountant and transfer agent. See
"Administrator, Custodian and Transfer
Agent."

CLOSED-END STRUCTURE............. Closed-end funds differ from open-end
management investment companies (commonly
referred to as mutual funds) in that
closed-end funds generally list their shares
for trading on a securities exchange and do
not redeem their shares at the option of the
shareholder. By comparison, mutual funds
issue securities redeemable at net asset
value at the option of the shareholder and
typically engage in a continuous offering of
their shares. Mutual funds are subject to
continuous asset in-flows and out-flows that
can complicate portfolio management, whereas
closed-end funds generally can stay more
fully invested in securities consistent with
the closed-end fund's investment objective
and policies. In addition, in comparison to
open-end funds, closed-end funds have
greater flexibility in their ability to make
certain types of investments, including
investments in illiquid securities.

Page 7

Shares of closed-end funds listed for
trading on a securities exchange frequently
trade at a discount from net asset value.
The market price of such shares may be
affected by net asset value, dividend or
distribution levels (which are dependent, in
part, on expenses), supply of and demand for
the shares, stability of dividends or
distributions, trading volume of the shares,
general market and economic conditions and
other factors beyond the control of a
closed-end fund. The foregoing factors may
result in the market price of the Common
Shares being greater than, less than or
equal to NAV.

The Board of Trustees has reviewed the
structure of the Fund in light of its
investment objectives and policies and
believes that the closed-end fund structure
is appropriate. As described in this
prospectus, however, the Board of Trustees
may review periodically the trading range
and activity of the Common Shares with
respect to its NAV and the Board of Trustees
may take certain actions to seek to reduce
or eliminate any such discount. Such actions
may include open market repurchases or
tender offers for the Common Shares or the
possible conversion of the Fund to an
open-end fund. There can be no assurance
that the Board of Trustees 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 NAV per Common Share. Investors
should assume that it is highly unlikely
that the Board of Trustees would vote to
convert the Fund to an open-end management
investment company. See "Structure of the
Fund; Common Share Repurchases and
Conversion to Open-End Fund."

TAX MATTERS...................... Distributions with respect to the Common
Shares will constitute dividends to the
extent of the Fund's current and accumulated
earnings and profits, as calculated for U.S.
federal income tax purposes. Such dividends
generally will be taxable as ordinary income
to Common Shareholders. Distributions of net
capital gain that are designated by the Fund
as capital gain dividends will be treated as
long-term capital gains in the hands of
Common Shareholders receiving such
distributions. In addition, distributions
generally will not constitute "qualified
dividends" for federal income tax purposes
and thus will not be eligible for the new
lower tax rates on qualified dividends. See
"Tax Matters."

SPECIAL RISK
CONSIDERATIONS................... Risk is inherent in all investing. The
following discussion summarizes the
principal risks that you should consider
before deciding whether to invest in the
Fund. For additional information about the
risks associated with investing in the Fund,
see "Risks."

No Operating History. The Fund is a newly
organized, diversified, closed-end
management investment company with no
operating history.

Investment and Market Risk. An investment in
Common Shares is subject to investment risk,
including the possible loss of the entire
principal amount that you invest. Your
investment in Common Shares represents an
indirect investment in the securities owned
by the Fund. The value of these securities,
like other market investments, may move up
or down, sometimes rapidly and
unpredictably. The value of the securities
in which the Fund invests will affect the
value of the Common Shares. Your Common
Shares at any point in time may be worth
less than your original investment, even
after taking into account the reinvestment
of Fund dividends and distributions.

Management Risk. The Fund is subject to
management risk because it is an actively
managed portfolio. The Adviser and the
Sub-Adviser 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.

Non-Investment Grade Securities Risk. The
Fund may invest up to 60% of its Managed
Assets in non-investment grade securities.
Non-investment grade securities are rated
below "Baa3" by Moody's, below "BBB-" by
S&P, or comparably rated by another NRSRO
or, if unrated, determined by the
Sub-Adviser to be of comparable credit
quality. Non-investment grade debt
instruments are commonly referred to as
"high yield" or "junk" bonds and are
considered speculative with respect to the
issuer's capacity to pay interest and
principal and are susceptible to default or
decline in market value due to adverse
economic and business developments. The

Page 8

market values for high yield securities tend
to be very volatile, and these securities
are less liquid than investment grade debt
securities. For these reasons, your
investment in the Fund is subject to the
following specific risks:

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

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

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

o a negative perception of the high
yield market may depress the price
and liquidity of high yield
securities.

Adverse changes in economic conditions are
more likely to lead to a weakened capacity
of a high yield issuer to make principal
payments and interest payments than an
investment grade issuer. An economic
downturn could severely affect the ability
of highly leveraged issuers to service their
debt obligations or to repay their
obligations upon maturity.

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

Fixed-Income Securities Risk. In addition to
the risks discussed above, debt securities,
including high yield securities, are subject
to certain risks, including:

o Issuer Risk. The value of fixed-income
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.

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

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

o Credit Risk. Credit risk is the risk
that a security in the Fund's portfolio
will decline in price or the issuer
fails to make interest payments when due
because the issuer of the security
experiences a decline in its financial
status.

Interest Rate Risk. Interest rate risk is
the risk that fixed-income securities will
decline in value because of changes in
market interest rates. When market interest
rates rise, the market value of such
securities generally will fall. Because the
Fund will invest in securities that pay a

Page 9

fixed rate of return, the NAV and market
price of the Common Shares will tend to
decline if the market interest rates
applicable to such investments were to rise.
During periods of rising interest rates, the
average life of certain types of securities
may be extended because of slower than
expected prepayments pursuant to call
provisions. This may lock in a below market
yield, increase the security's duration and
reduce the value of the security.
Investments in debt securities with
long-term maturities may experience
significant price declines if long-term
interest rates increase. Market interest
rates in the United States and in certain
other countries in which the Fund may invest
currently are near historically low levels.

Non-U.S. Securities Risk. The Fund intends
to invest a substantial portion of its
assets in securities of non-U.S. issuers.
Investing in securities of non-U.S. issuers,
which are generally denominated in non-U.S.
currencies, may involve certain risks not
typically associated with investing in
securities of U.S. issuers. These risks
include: (i) there may be less publicly
available information about non-U.S. issuers
or markets due to less rigorous disclosure
or accounting standards or regulatory
practices; (ii) non-U.S. markets may be
smaller, less liquid and more volatile than
the U.S. market; (iii) potential adverse
effects of fluctuations in currency exchange
rates or controls on the value of the Fund's
investments; (iv) the economies of non-U.S.
countries may grow at slower rates than
expected or may experience a downturn or
recession; (v) the impact of economic,
political, social or diplomatic events; (vi)
certain non-U.S. countries may impose
restrictions on the ability of non-U.S.
issuers to make payments of principal and
interest to investors located in the United
States due to blockage of non-U.S. currency
exchanges or otherwise; and (vii)
withholding and other non-U.S. taxes may
decrease the Fund's return. These risks may
be more pronounced to the extent that the
Fund invests a significant amount of its
assets in companies located in one region
and to the extent that the Fund invests in
securities of issuers in emerging markets.

Government Securities Risk. The ability of a
government issuer, especially in an emerging
market country, to make timely and complete
payments on its debt obligations will be
strongly influenced by the government
issuer's balance of payments, including
export performance, its access to
international credits and investments,
fluctuations of interest rates and the
extent of its foreign reserves. A country
whose exports are concentrated in a few
commodities or whose economy depends on
certain strategic imports could be
vulnerable to fluctuations in international
prices of these commodities or imports. To
the extent that a country receives payment
for its exports in currencies other than
U.S. dollars, its ability to make debt
payments denominated in U.S. dollars could
be adversely affected. If a government
issuer cannot generate sufficient earnings
from foreign trade to service its external
debt, it may need to depend on continuing
loans and aid from foreign governments,
commercial banks, and multinational
organizations. There are no bankruptcy
proceedings similar to those in the United
States by which defaulted government debt
may be collected. Additional factors that
may influence a government issuer's ability
or willingness to service debt include, but
are not limited to, a country's cash flow
situation, the availability of sufficient
foreign exchange on the date a payment is
due, the relative size of its debt service
burden to the economy as a whole and the
issuer's policy towards the International
Monetary Fund, the International Bank for
Reconstruction and Development and other
international agencies to which a government
debtor may be subject.

Non-U.S. Government Securities Risk.
Economies and social and political climates
in individual countries may differ
unfavorably from the United States. Non-U.S.
economies may have less favorable rates of
growth of gross domestic product, rates of
inflation, currency valuation, capital
reinvestment, resource self-sufficiency and
balance of payments positions. Many
countries have experienced extremely high
rates of inflation for many years.
Unanticipated economic, political and social
developments may also affect the values of
the Fund's investments and limit the
availability of additional investments in
such countries. Furthermore, such
developments may significantly disrupt the
financial markets or interfere with the
Fund's ability to enforce its rights against
non-U.S. government issuers.

Page 10

A substantial portion of the Fund's Managed
Assets are expected to be invested in debt
instruments of issuers located in countries
considered to be emerging markets, and
investments in such securities are
considered speculative. Heightened risks of
investing in emerging markets government
debt include: smaller market capitalization
of securities markets, which may suffer
periods of relative illiquidity; significant
price volatility; restrictions on foreign
investment; and possible repatriation of
investment income and capital. Furthermore,
foreign investors may be required to
register the proceeds of sales and future
economic or political crises could lead to
price controls, forced mergers,
expropriation or confiscatory taxation,
seizure, nationalization or creation of
government monopolies. The currencies of
emerging market countries may experience
significant declines against the U.S.
dollar, and devaluation may occur subsequent
to investments in these currencies by the
Fund. Inflation and rapid fluctuations in
inflation rates have had, and may continue
to have, negative effects on the economies
and securities markets of certain emerging
market countries.

Country Risk. This risk arises as the Fund
may have exposure of up to 30% of its
Managed Assets to issuers in any one
country. The impact on the Fund's NAV of
specific risks relating to investment in
non-U.S. issuers, such as political,
regulatory, interest rate, currency and
inflation, may be magnified due to the
concentration of the Fund's investments in a
particular country.

Currency Risk. The value of securities
denominated or quoted in foreign currencies
may be adversely affected by fluctuations in
the relative currency exchange rates and by
exchange control regulations. The Fund's
investment performance may be negatively
affected by a devaluation of a currency in
which the Fund's investments are denominated
or quoted. Further, the Fund's investment
performance may be significantly affected,
either positively or negatively, by currency
exchange rates because the U.S. dollar value
of securities denominated or quoted in
another currency will increase or decrease
in response to changes in the value of such
currency in relation to the U.S. dollar.
Certain of the Fund's non-U.S.
dollar-denominated securities may be hedged
into U.S. dollars. However, as discussed in
"Risks--Derivatives Risk," hedging may not
alleviate all currency risks.

Market Discount From Net Asset Value. Shares
of closed-end investment companies
frequently trade at a discount from their
net asset value. This characteristic is a
risk separate and distinct from the risk
that the Fund's NAV could decrease as a
result of its investment activities and may
be greater for investors expecting to sell
their Common Shares in a relatively short
period following completion of this
offering. The NAV of the Common Shares will
be reduced immediately following the
offering as a result of the payment of
certain offering costs. Although the value
of the Fund's net assets is generally
considered by market participants in
determining whether to purchase or sell
Common Shares, whether investors will
realize gains or losses upon the sale of the
Common Shares will depend entirely upon
whether the market price of the Common
Shares at the time of sale is above or below
the investor's purchase price for the Common
Shares. Because the market price of the
Common Shares will be determined by factors
such as net asset value, dividend and
distribution levels (which are dependent, in
part, on expenses), supply of and demand for
the Common Shares, stability of dividends or
distributions, trading volume of the Common
Shares, general market and economic
conditions and other factors beyond the
control of the Fund, the Fund cannot predict
whether the Common Shares will trade at,
below or above NAV or at, below or above the
initial public offering price.

Leverage Risk. The Fund may borrow an amount
up to 33-1/3% (or such other percentage as
permitted by law) of its Managed Assets
(including the amount borrowed) less all
liabilities other than borrowings. The Fund
may also issue Preferred Shares in an amount
up to 50% of the Fund's Managed Assets
(including the proceeds from Leverage
Instruments). However, the Fund intends,
under normal circumstances, to utilize
leverage in an amount up to 33-1/3% of the
Fund's Managed Assets. Borrowings and the
issuance of Preferred Shares are referred to
in this prospectus collectively as
"leverage." The Fund may use leverage for
investment purposes, to finance the
repurchase of its Common Shares and to meet
cash requirements. Although the use of
leverage by the Fund may create an

Page 11

opportunity for increased return for the
Common Shares, it also results in additional
risks and can magnify the effect of any
losses. If the income and gains earned on
the securities and investments purchased
with leverage proceeds are greater than the
cost of the leverage, the Common Shares'
return will be greater than if leverage had
not been used. Conversely, if the income and
gains from the securities and investments
purchased with such proceeds does not cover
the cost of leverage, the return to the
Common Shares will be less than if leverage
had not been used. There is no assurance
that a leveraging strategy will be
successful. Leverage involves risks and
special considerations for Common
Shareholders including:

o the likelihood of greater volatility
of NAV and market price of the Common
Shares than a comparable portfolio
without leverage;

o the risk that fluctuations in
interest rates on borrowings and
short-term debt or in the dividend
rates on any Preferred Shares that
the Fund may pay will reduce the
return to the Common Shareholders or
will result in fluctuations in the
dividends paid on the Common Shares;

o the effect of leverage in a declining
market, which is likely to cause a
greater decline in the NAV of the
Common Shares than if the Fund were
not leveraged, which may result in a
greater decline in the market price
of the Common Shares; and

o when the Fund uses financial
leverage, the investment advisory fee
payable to the Adviser (and by the
Adviser to the Sub-Adviser) will be
higher than if the Fund did not use
leverage.

The Sub-Adviser, in its judgment,
nevertheless may determine to continue to
use leverage if it expects that the benefits
to the Fund's shareholders of maintaining
the leveraged position will outweigh the
current reduced return.

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

Credit Linked Notes Risk. The Fund may
invest in Credit Linked Notes. Credit Linked
Notes are securities that are collateralized
by one or more credit default swaps on
designated debt securities that are referred
to as "reference securities." Through the
purchase of a Credit Linked Note, the buyer
assumes the risk of the default or, in some
cases, other declines in credit quality of
the referenced securities. The buyer also
takes on exposure to the issuer of the
Credit Linked Note in the full amount of the
purchase price of the note. The issuer of a
Credit Linked Note normally will have hedged
its risk on the reference securities without
acquiring any additional credit exposure.
The Fund has the right to receive periodic
interest payments from the issuer of the
Credit Linked Note at an agreed upon
interest rate, and, if there has been no
default or, if applicable, other declines in
credit quality, a return of principal at the
maturity date.

Credit Linked Notes are subject to credit
risk of the reference securities underlying
the credit default swaps. If one of the
underlying reference securities defaults or
suffers certain other declines in credit
quality, the Fund may, instead of receiving
repayment of principal in whole or in part,
receive the security that has defaulted.

Page 12

Credit Linked Notes typically are privately
negotiated transactions between two or more
parties. The Fund bears the risk that the
issuer of the credit linked note will
default or become bankrupt. The Fund bears
the risk of loss of the principal amount it
invested and the periodic interest payments
expected to be received for the duration of
its investment in the credit linked note.

The market for Credit Linked Notes may
suddenly become illiquid. The other parties
to the transaction may be the only investors
with sufficient understanding of the
derivative to be interested in bidding for
it. Changes in liquidity may result in
significant, rapid and unpredictable changes
in the prices for Credit Linked Notes. In
certain cases, a market price for a Credit
Linked Note may not be available.

Portfolio Turnover Risk. The Fund's annual
portfolio turnover rate may vary greatly
from year to year. Although the Fund cannot
accurately predict its annual portfolio
turnover rate, it is not expected to exceed
100% under normal circumstances. However,
portfolio turnover rate is not considered a
limiting factor in the execution of
investment decisions for the Fund. High
portfolio turnover may result in the Fund's
recognition of gains that will be taxable as
ordinary income to the Fund. A high
portfolio turnover may increase the Fund's
current and accumulated earnings and
profits, resulting in a greater portion of
the Fund's distributions being treated as a
dividend to the Fund's Common Shareholders.
In addition, a higher portfolio turnover
rate results in correspondingly greater
brokerage commissions and other
transactional expenses that are borne by the
Fund. See "The Fund's
Investments--Investment Practices--Portfolio
Turnover" and "Tax Matters."

Market Disruption Risk. The terrorist
attacks in the United States on September
11, 2001 had a disruptive effect on the
securities markets. The ongoing U.S.
military and related action in Iraq and
events in the Middle East, as well as the
continuing threat of terrorist attacks,
could have significant adverse effects on
the U.S. economy, the stock market and world
economies and markets generally. The Fund
cannot predict the effects of similar events
in the future on the U.S. and world
economies, the value of the Common Shares or
the NAV of the Fund.

Inflation Risk. Inflation risk is the risk
that the value of assets or income from
investments 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 can
decline. In addition, during any periods of
rising inflation, the dividend rates or
borrowing costs associated with the Fund's
use of financial leverage would likely
increase, which would tend to further reduce
returns to Common Shareholders.

Illiquid/Restricted Securities Risk. The
Fund may invest up to 10% of its Managed
Assets in securities that, at the time of
investment, are illiquid (determined using
the Securities and Exchange Commission's
standard applicable to investment companies,
i.e., securities that cannot be disposed of
within seven days in the ordinary course of
business at approximately the value at which
the Fund has valued the securities). The
Fund may also invest, without limit, in
restricted securities. However, restricted
securities determined by the Sub-Adviser to
be illiquid are subject to the limitations
set forth above. The Sub-Adviser, under the
supervision of the Board of Trustees, will
determine whether restricted securities are
illiquid (that is, not readily marketable)
and thus subject to the Fund's limit of
investing no more than 10% of its Managed
Assets in illiquid securities. Investments
in restricted securities could have the
effect of increasing the amount of the
Fund's assets invested in illiquid
securities if qualified institutional buyers
are unwilling to purchase these securities.
Illiquid and restricted securities may be
difficult to dispose of at a fair price at
the times when the Fund believes it is
desirable to do so. The market price of
illiquid and restricted securities generally
is more volatile than that of more liquid
securities, which may adversely affect the
price that the Fund pays for or recovers
upon the sale of such securities. Illiquid
and restricted securities are also more
difficult to value and the Sub-Adviser's
judgment may play a greater role in the
valuation process. Investment of the Fund's
assets in illiquid and restricted securities
may restrict the Fund's ability to take
advantage of market opportunities. The risks
associated with illiquid and restricted
securities may be particularly acute in

Page 13

situations in which the Fund's operations
require cash and could result in the Fund
borrowing to meet its short-term needs or
incurring losses on the sale of illiquid or
restricted securities. In order to dispose
of an unregistered security, the Fund, where
it has contractual rights to do so, may have
to cause such security to be registered. A
considerable period may elapse between the
time the decision is made to sell the
security and the time the security is
registered, therefore enabling the Fund to
sell it. Contractual restrictions on the
resale of securities vary in length and
scope and are generally the result of a
negotiation between the issuer and acquiror
of the securities. In either case, the Fund
would bear market risks during that period.

Certain Affiliations. Certain broker-dealers
may be considered to be affiliated persons
of the Fund or First Trust Advisors. Absent
an exemption from the Securities and
Exchange Commission or other regulatory
relief, the Fund is generally precluded from
effecting certain principal transactions
with affiliated brokers, and its ability to
utilize affiliated brokers for agency
transactions is subject to restrictions.
This could limit the Fund's ability to
engage in securities transactions and take
advantage of market opportunities. In
addition, unless and until the underwriting
syndicate is broken in connection with the
initial public offering of the Common
Shares, the Fund will be precluded from
effecting principal transactions with
brokers who are members of the syndicate.

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

Secondary Market for the Fund's Shares. The
issuance of Common Shares through the Fund's
Dividend Reinvestment Plan may have an
adverse effect on the secondary market for
the Fund's Common Shares. The increase in
the number of outstanding Common Shares
resulting from issuances pursuant to the
Fund's Dividend Reinvestment Plan and the
discount to the market price at which such
Common Shares may be issued, may put
downward pressure on the market price for
the Common Shares. Common Shares will not be
issued pursuant to the Dividend Reinvestment
Plan at any time when Common Shares are
trading at a lower price than the Fund's NAV
per Common Share. When the Fund's Common
Shares are trading at a premium, the Fund
may also issue Common Shares that may be
sold through private transactions effected
on the New York Stock Exchange ("NYSE") or
through broker-dealers. The increase in the
number of outstanding Common Shares
resulting from these offerings may put
downward pressure on the market price for
Common Shares.

Lending Portfolio Securities. To generate
additional income, the Fund may lend
portfolio securities in an amount up to
33-1/3% of Managed Assets to broker-dealers,
major banks or other recognized domestic
institutional borrowers of securities. As
with other extensions of credit, there are
risks of delay in the recovery or even loss
of rights in the collateral should a
borrower default or fail financially. The
Fund intends to engage in lending portfolio
securities only when such lending is fully
secured by investment grade collateral held
by an independent agent.

Certain Other Risks. An investment in the
Fund is subject to certain other risks
described in the "Risks" section of this
prospectus.

Page 14

SUMMARY OF FUND EXPENSES

The following table assumes the issuance of leverage in the form of debt in
an amount equal to 33-1/3% of the Fund's Managed Assets (after their issuance),
and shows Fund expenses as a percentage of net assets attributable to Common
Shares. The "Other expenses" shown in the table and related footnotes are based
on estimated amounts.

SHAREHOLDER TRANSACTION EXPENSES
Sales load paid by you (as a percentage of offering price) .......................................... 4.50%
Offering expenses borne by the Fund (as a percentage of offering price).............................. .20%(1)
Dividend Reinvestment Plan fees...................................................................... None(2)

PERCENTAGE OF NET ASSETS ATTRIBUTABLE
TO COMMON SHARES (ASSUMES
DEBT IS USED)(3)
ANNUAL EXPENSES ----------------
Management fees(4) .................................................................................. 1.49%
Interest payments on borrowed funds.................................................................. 1.38%
Other expenses....................................................................................... .27%(5)
Total annual expenses........................................................................... 3.14%
=====

(1) The Adviser has agreed to pay (i) all organizational expenses and (ii)
all offering costs of the Fund (other than sales load, but including a
partial reimbursement of certain underwriter expenses) that exceed .2%
(or $.04 per Common Share) of the Fund's offering price. The
Sub-Adviser has agreed to reimburse the Adviser for one-half of such
organizational expenses and offering costs of the Fund that exceed .2%
(or $.04 per Common Share) of the Fund's offering price.

(2) You will pay brokerage charges if you direct PFPC Inc., as agent for
the Common Shareholders (the "Plan Agent"), to sell your Common Shares
held in a dividend reinvestment account.

(3) The table presented below in this footnote estimates what the Fund's
annual expenses would be stated as percentages of the Fund's net assets
attributable to Common Shares. Unlike the table above, this table
assumes that no debt and no other leverage is used. This will be the
case, for instance, prior to the Fund's expected issuance of debt or
the use of other Leverage Instruments. In accordance with these
assumptions, the Fund's expenses would be estimated to be as follows:

PERCENTAGE OF NET ASSETS ATTRIBUTABLE
TO COMMON SHARES (ASSUMES NO
DEBT IS USED OR OTHER
LEVERAGE INSTRUMENTS ARE USED)
ANNUAL EXPENSES ------------------------------
Management fees...................................................... 1.00%
Other expenses....................................................... .21%
Total annual expenses................................................ 1.21%
=====

(4) Represents the aggregate fee payable to the Adviser (and by the Adviser
to the Sub-Adviser).

(5) If the Fund uses Leverage Instruments in the form of debt, costs of the
issuance of debt, estimated to be approximately .15% of the total
dollar amount of the debt issuance, will be borne immediately by the
Common Shareholders and result in a reduction of the NAV of the Common
Shares. Assuming the issuance of debt in an amount equal to 33-1/3% of
the Fund's Managed Assets (immediately after the issuance of such
debt), those offering costs of the debt issuance are estimated to be
approximately $211,500 or $.014 per Common Share (.07% of the offering
price of the Common Shares).

The purpose of the table above and the example below is to help you
understand all fees and expenses that you, as a holder of Common Shares, would
bear directly or indirectly. The expenses shown in the table under "Other
expenses" and "Total annual expenses" are based on estimated amounts for the
Fund's first full year of operations. See "Management of the Fund" and "Dividend
Reinvestment Plan."

The following example illustrates the expenses (including the sales load of
$45, estimated offering expenses of this offering of $2 and the estimated
offering costs of issuing debt assuming the Fund issues debt representing
33-1/3% of the Fund's capital (after their issuance) of $.71) that you would pay
on a $1,000 investment in Common Shares, assuming (1) total net annual expenses
of 3.14% of net assets attributable to Common Shares and (2) a 5% annual
return*:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$78 $141 $207 $380

* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
example assumes that the estimated "Other expenses" set forth in the
Annual Expenses table are accurate and that all dividends and
distributions are reinvested at net asset value. Moreover, the Fund's
actual rate of return may be greater or less than the hypothetical 5%
return shown in the example. In the event that the Fund does not
utilize any leverage, an investor would pay the following expenses
based on the assumptions in the example: one year, $59; three years,
$84; five years, $111; and ten years, $188.

Page 15

THE FUND

The Fund is a newly organized, diversified, closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund was organized on September 7, 2004 as a
Massachusetts business trust pursuant to a Declaration of Trust (the
"Declaration of Trust"). As a newly organized entity, the Fund has no operating
history. The Fund's principal office is located at 1001 Warrenville Road, Suite
300, Lisle, Illinois 60532, and its telephone number is (630) 241-4141.
Investment in the Fund involves certain risks and special considerations,
including risks associated with the Fund's use of leverage. See "Risks."

USE OF PROCEEDS

The net proceeds of the offering of Common Shares will be approximately
$ ($ if the Underwriters exercise the
overallotment option in full) after payment of the estimated offering costs. The
Adviser has agreed to pay (i) all organizational expenses and (ii) all offering
costs of the Fund (other than sales load, but including a partial reimbursement
of certain underwriter expenses) that exceed .2% (or $.04 per Common Share) of
the Fund's offering price. The Sub-Adviser has agreed to reimburse the Adviser
for one-half of such organizational expenses and offering costs of the Fund that
exceed .2% (or $.04 per Common Share) of the Fund's offering price. The Fund
will invest the net proceeds of the offering in accordance with the Fund's
investment objectives and policies as stated below. The Fund expects it will be
able to invest substantially all of the net proceeds in securities that meet the
Fund's investment objectives and policies within two months after the completion
of the offering. Pending such investment, it is anticipated that the proceeds
will be invested in cash or cash equivalents.

THE FUND'S INVESTMENTS

INVESTMENT OBJECTIVES AND POLICIES

The Fund's primary investment objective is to seek a high level of current
income. As a secondary objective, the Fund will seek capital appreciation. The
Fund will pursue these objectives by investing in the world bond markets through
a diversified portfolio of investment grade and below-investment grade
government and corporate debt securities. There can be no assurance that the
Fund's investment objectives will be achieved.

The Fund's investment objectives and the investment restrictions listed in
the SAI are considered fundamental and may not be changed without approval by
holders of a majority of the outstanding voting securities of the Fund, as
defined in the 1940 Act, which includes Common Shares and Preferred Shares, if
any, voting together as a single class, and the holders of the outstanding
Preferred Shares voting as a single class. The remainder of the Fund's
investment policies, including its investment strategy, are considered
non-fundamental and may be changed by the Board of Trustees without shareholder
approval, provided that shareholders receive at least 60 days' prior written
notice of any change. As defined in the 1940 Act, when used with respect to
particular shares of the Fund, a "majority of the outstanding" shares means (i)
67% or more of the shares present at a meeting, if the holders of more than 50%
of the shares are present or represented by proxy, or (ii) more than 50% of the
shares, whichever is less.

INVESTMENT PHILOSOPHY AND PROCESS

Under normal market conditions, the Fund will invest substantially all of
its Managed Assets in a diversified portfolio of fixed-income securities,
including government and corporate bonds, of U.S. and non-U.S. issuers.

The Sub-Adviser will select securities for the Fund's portfolio employing
the investment strategies established by Aberdeen's Global Investment Grade and
Global Emerging Market Teams. Aberdeen's Investment Team (consisting of the
Global Investment Grade and Global Emerging Market Teams) will regularly monitor
and make allocation decisions among issuers of various regions, countries and
credit qualities in order to achieve the Fund's investment objectives of a high
level of current income and capital appreciation measured in U.S. dollars. The
Sub-Adviser will select government and corporate bonds from a universe of over
65 countries, focusing on high real yields and improving credit conditions that
offer income and total return opportunities. Allocation between investment grade
and below-investment grade securities will vary according to relative value and
opportunity identified by Aberdeen's Investment Team, with input from Aberdeen's
Fixed Income Strategy Group. The Fund's portfolio positions will be undertaken
according to the quality of their risk-adjusted potential return. Aberdeen's
Investment Team will have daily responsibility for the management of the Fund's
portfolio and for the implementation of the investment process, monitored
through weekly investment committee meetings.

Investment Grade Securities. A significant portion, but in no event less
than 40%, of the Fund's Managed Assets will be invested in securities rated
"Baa3" or better by Moody's, "BBB-" or better by S&P, or comparably rated by
another NRSRO or, if unrated, determined by the Sub-Adviser to be of comparable
credit quality. A portfolio containing investment grade securities that invests
across many national markets has the opportunity to achieve returns in excess of
a portfolio that invests in a single domestic bond market, as the global
fixed-income marketplace is generally less efficient than domestic markets. This
opportunity is derived from a variety of sources, including differing regulatory

Page 16

environments, structural ownership patterns, less correlated economic cycles and
other diverse local influences. Furthermore combining several investment grade
country yield curves, that have different volatility and correlation to global
events, usually results in lower overall portfolio volatility.

Aberdeen seeks to identify and invest in bond markets across the globe that
offer high income, and in addition, offer the potential for capital gain due to
an improvement in the fiscal, economic or structural environments of the
respective issuers. The investment process is designed to consistently evaluate
five sources of fixed-income performance: country, yield curve, duration, credit
and currency allocation decisions.

Aberdeen's research process is internally driven and is predominantly top
down in nature. Each country and bond market is analyzed from the perspectives
of (1) long-term structural trends, (2) medium-term (strategic) bond market
valuations and (3) short-term tactical views.

Long-term structural views are driven by an understanding of demographics,
political systems/cycles, fiscal sustainability, international trade, capital
market structures and regulatory regimes. These factors influence the
demand/supply for capital, and therefore have a structural impact on long term
yield patterns. Opportunities are identified by comparative country analysis,
determining which countries are likely to benefit or suffer as economic and
political cycles change.

Medium-term strategic views examine current market valuations in order to
judge whether they are consistent with economic and political environments, and
how they are likely to change given Aberdeen's forecasts over a three to 12
month period. This market evaluation is conducted by Aberdeen's Global Economics
Team and the Fixed Income Strategy Group who use a combination of quantitative
and qualitative techniques to highlight apparent imbalances between market
valuations and underlying fundamentals. Such analysis will determine the bias of
the construction of the investment grade portion of the Fund's portfolio.

Short-term tactical views are formed through continuous monitoring of
market developments. Relative value, technical analysis, market positioning
intelligence and portfolio flow data are used to determine the timing,
implementation and scale of positions suggested by Aberdeen's strategic views.

Underlying the investment process is consistent risk management and stress
testing of the portfolio using risk modeling and attribution techniques. The
quantitative techniques are used to identify and test market observations and
are a tool to assist in portfolio construction.

Emerging Markets and Non-Investment Grade Securities. As used in this
prospectus, an "emerging market" country is any country determined to have an
emerging markets economy, considering factors such as whether the country has a
low-to-middle- income economy according to the World Bank or its related
organizations, the country's credit rating, its political and economic stability
and the development of its financial and capital markets. These countries
generally include countries located in Latin America, the Caribbean, Asia,
Africa, the Middle East and Eastern and Central Europe. Global emerging market
countries must engage in political, structural and fiscal reform in order to
reduce the cost and volatility of their sources of borrowing. If they
successfully engage in such reform, investors in emerging market securities can
achieve strong total return through a combination of high income and capital
gain. Effective credit analysis and market structural awareness is central to
long-term performance, and a selective and active approach can enhance return
and reduce risk. Constructing a diversified portfolio means exposure to
different regional economical cycles and less correlated events, therefore
regional shifts can be exploited or avoided. Emerging market debt is one of the
earliest mechanisms available to investors to benefit from an improvement in a
country's outlook.

Aberdeen's Emerging Market Debt Team follows a disciplined investment
process that applies daily information flow into investment recommendations,
portfolio construction and risk management. The process is designed to highlight
total return opportunities across all emerging debt markets, and the underlying
philosophy is to only invest in "improving credits." Improving credits are
issuers that, in the opinion of Aberdeen's Investment Team, are strengthening
their credit quality due to improving fiscal, economic and funding conditions.
Improving credits also include issuers engaging in regulatory and structural
reform to strengthen their ability to manage their financing requirements
through different interest rate and economic cycles.

There is a large variance in the return outcomes offered by different
emerging market countries, as reform succeeds or fails according to political or
economic variables. Early identification of structural strengths or weaknesses
in order to respond to these variables is required as sometimes it is difficult
to attempt to manage exposure in volatile market conditions. In addition,
behavioral characteristics can vary greatly between different market countries,
and market structural factors (volumes, demand/supply, relative security value)
can have a large impact on total return outcomes. Effective and timely
management of the flow of information is required to be in a position to make
informed investment decisions.

Aberdeen's investment philosophy is therefore to pursue an active, total
return and diversified approach to constructing the emerging debt portion of the
Fund's investment portfolio. By only investing in improving credits, identified
through a disciplined investment process, Aberdeen seeks to increase the
probability of the Fund's absolute out-performance.

Page 17

The building block for an investment decision is to gauge debt
sustainability, and what events might improve or decrease that sustainability.
Credit improvement means lower borrowing costs in the long-term, while
deterioration in credit rarely does. Aberdeen draws on a variety of sources that
include country research visits, dialogue with multilateral agencies/local
investors/ government officials and discourse with other market participants to
provide a snapshot of variables relevant to a particular issue that assists in
making an investment decision.

Of equal importance is market structural and technical analysis (yield
curves, relative security value, volume, demand/supply imbalances) as it is
complementary to fundamental credit analysis. Either can indicate investment
opportunities that may be confirmed or rejected by the other. These processes
create the emerging market debt opportunity set.

Global market factors may enhance/negate those emerging market debt
opportunities according to regional or macro trends. Although emerging market
debt investment is credit oriented in nature, there are other factors (global
interest rates, swap spreads, currency moves, risk appetite indicators) that
will also contribute to performance, irrespective of underlying credit
improvement, and therefore the timing of any investment allocation may have to
be varied. The specialist teams within Aberdeen's Global Fixed Income Team
exchange views through the Fixed Income Strategy Group, and the interaction of
this global view with credit, structural and market analysis contributes to
portfolio construction.

The Fund's portfolio is constructed to reflect the investment team's credit
views, on a diversified basis, and in a manner to optimize exposure according to
global market conditions. There is a specific buy/sell discipline that relates
to improving/ deteriorating credits and relative valuations. Each investment
idea requires a target return and a stop-loss so the risk/reward ratio is
acceptable. Furthermore a list of qualifying indicators is used to determine
what events may change the investment rationale, so they can be monitored on a
continual basis. Underlying the investment process is consistent risk management
and stress testing of the Fund's portfolio using risk modeling and attribution
techniques, on a daily basis.

Aberdeen's philosophy is that there is continual development and refinement
of the process, and that implementation is disciplined and of a high quality.
The mechanisms for ensuring implementation consistently are weekly investment
meetings and monthly reviews of performance attribution.

PORTFOLIO COMPOSITION

The Fund's portfolio will be composed principally of the following
investments. A more detailed description of the Fund's investment policies and
restrictions and more detailed information about the Fund's portfolio
investments are contained in the SAI.

Government Debt Securities. The Fund will invest at least 60% of its
Managed Assets in government debt securities. At least 25% of the Fund's Managed
Assets will be invested in U.S. dollar-denominated securities or non-U.S.
dollar-denominated securities that have been fully hedged into U.S. dollars. The
Fund will invest in government debt securities, including those of emerging
market issuers or of other non-U.S. issuers. These securities may be U.S.
dollar-denominated or non-U.S. dollar-denominated and include: (a) debt
obligations issued or guaranteed by foreign national, provincial, state,
municipal or other governments with taxing authority or by their agencies or
instrumentalities; and (b) debt obligations of supranational entities.
Government debt securities include: debt securities issued or guaranteed by
governments, governmental agencies or instrumentalities and political
subdivisions; debt securities issued by government owned, controlled or
sponsored entities; interests in entities organized and operated for the purpose
of restructuring the investment characteristics of instruments issued by the
above-noted issuers; or debt securities issued by supranational entities such as
the World Bank or the European Union. The Fund may also invest in securities
denominated in currencies of emerging market countries. Emerging market debt
securities generally are rated in the lower rating categories of recognized
credit rating agencies or are unrated and considered to be of comparable quality
to lower rated debt securities. A non-U.S. issuer of debt or the non-U.S.
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due, and the Fund may have limited
recourse in the event of a default. Some of these risks do not apply to issuers
in larger, more developed countries. These risks are more pronounced in
investments in issuers in emerging markets or if the Fund invests significantly
in one country.

Corporate Bonds. The Fund may invest up to 40% of its Managed Assets in
corporate bonds. Corporate bonds generally are used by corporations to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest and normally must repay the amount borrowed on or before maturity.
Certain bonds are "perpetual" in that they have no maturity date. The Fund may
invest in non-U.S. corporate bonds which involve unique risks compared to
investing in the securities of U.S. issuers. See "Risks--Non-U.S. Securities
Risk."

Non-Investment Grade Securities. The Fund may invest up to 60% of its
Managed Assets in securities that, at the time of investment, are not investment
grade quality. However, the Fund will not invest more than 15% of its Managed
Assets in securities rated below "B-" by Moody's and/or S&P. Accordingly, the
Fund may invest a significant portion of its Managed Assets in securities that
are rated non-investment grade or, if unrated, considered to be of comparable
quality by the Sub-Adviser. Non-investment grade quality securities are
regarded as having predominately speculative characteristics with respect to
capacity to pay interest and repay principal, and are commonly referred to as
"high yield" or "junk" bonds. Issuers of high yield securities may be highly

Page 18

leveraged and may not have available to them more traditional methods of
financing. The prices of these lower grade securities typically are more
sensitive to negative developments, such as a decline in the issuer's revenues
or a general economic downturn, than the prices of higher grade securities. The
secondary market for high yield securities may not be as liquid as the secondary
market for more highly rated securities, a factor which may have an adverse
effect on the Fund's ability to dispose of a particular security. See
"Risks--Non-Investment Grade Securities Risk."

Asset-Backed Securities. The Fund may invest up to 15% of its Managed
Assets in asset-backed securities. Asset-backed securities are securities that
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool or pools of similar
assets (e.g., trade receivables). The credit quality of these securities depends
primarily upon the quality of the underlying assets and the level of credit
support and/or enhancement provided. The underlying assets (e.g., loans) are
subject to prepayments which shorten the securities' weighted average maturity
and may lower their return. Losses or delays in payment may result if the credit
support or enhancement is exhausted because the required payments of principal
and interest on the underlying assets are not made. The value of these
securities may also change because of changes in the market's perception of the
creditworthiness of the servicing agent for the pool, the originator of the pool
or the financial institution or fund providing the credit support or
enhancement.

Credit Linked Notes. The Fund may invest up to 35% of its Managed Assets in
Credit Linked Notes provided such securities are issued by an institution with
at least an "A" credit rating by Moody's and/or S&P. Credit Linked Notes are
structured securities typically issued by banks whose principal and interest
payments are contingent on the performance of the Reference Issuer. Credit
Linked Notes are created by embedding a credit default swap in a funded asset to
form an investment whose credit risk and cash flow characteristics resemble
those of a bond or loan. These notes pay an enhanced coupon to the investor for
taking on the added credit risk of the Reference Issuer.

Illiquid/Restricted Securities. The Fund may invest up to 10% of its
Managed Assets in securities that, at the time of investment, are illiquid
(determined using the Securities and Exchange Commission's standard applicable
to investment companies, i.e., securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the value at
which the Fund has valued the securities). The Fund may also invest, without
limit, in restricted securities. However, restricted securities determined by
the Sub-Adviser to be illiquid are subject to the limitations set forth above.

Short-Term Debt Securities; Temporary Defensive Position; Invest-Up Period.
During the period during which the net proceeds of the offering of Common Shares
are being invested, or during periods in which the Adviser or Sub-Adviser
determines that it is temporarily unable to follow the Fund's investment
strategy or that it is impractical to do so, the Fund may deviate from its
investment strategy and invest all or any portion of its Managed Assets in cash
or cash equivalents. The Adviser's or Sub-Adviser's determination that it is
temporarily unable to follow the Fund's investment strategy or that it is
impractical to do so will generally occur only in situations in which a market
disruption event has occurred and where trading in the securities selected
through application of the Fund's investment strategy is extremely limited or
absent. In such a case, Common Shares of the Fund may be adversely affected and
the Fund may not pursue or achieve its investment objectives. For a further
description of these temporary investments, see the SAI under "Investment
Policies and Techniques."

INVESTMENT PRACTICES

Strategic Transactions. The Fund may, but is not required to, use various
strategic transactions (1) to seek to reduce interest rate risks arising from
any use of financial leverage, (2) to facilitate portfolio management and (3) to
mitigate risks, including interest rate, currency and credit risks. Strategic
Transactions are generally accepted under modern portfolio management theory and
are regularly used by many mutual funds and other institutional investors.
Although the Sub-Adviser seeks to use such practices to further the Fund's
investment objectives, no assurance can be given that the Sub-Adviser will
engage in any of these practices or that these practices will achieve this
result.

The Fund may purchase and sell derivative instruments such as
exchange-listed and over-the-counter put and call options on currencies,
securities, fixed-income, currency and interest rate indices and other financial
instruments, purchase and sell financial futures contracts and options thereon
and enter into various interest rate and currency transactions such as swaps,
caps, floors or collars or credit derivative instruments. The Fund also may
purchase derivative instruments that combine features of these instruments.
Collectively, all of the above are referred to as "Strategic Transactions." The
Fund generally seeks to use Strategic Transactions as a portfolio management or
hedging technique to protect against possible adverse changes in the market
value of securities held in or to be purchased for the Fund's portfolio, protect
the value of the Fund's portfolio, facilitate the sale of certain securities for
investment purposes, manage the effective interest rate and currency exposure of
the Fund or establish positions in the derivative markets as a substitute for
purchasing or selling particular securities.

Page 19

purchase portfolio securities at inopportune times or for prices other than
current market values, may limit the amount of appreciation the Fund can realize
on an investment, or may cause the Fund to hold a security that it might
otherwise sell. Additionally, amounts paid by the Fund as premiums and cash or
other assets held in margin accounts with respect to Strategic Transactions are
not otherwise available to the Fund for investment purposes. See
"Risks--Derivatives Risk" in this prospectus and "Other Investment Policies and
Techniques" in the SAI for further information on Strategic Transactions and
their risks.

Lending Portfolio Securities. To generate additional income, the Fund may
lend portfolio securities in an amount up to 33-1/3% of Managed Assets to
broker-dealers, major banks or other recognized domestic institutional borrowers
of securities. As with other extensions of credit, there are risks of delay in
the recovery or even loss of rights in the collateral should the borrower
default or fail financially. The Fund intends to engage in lending portfolio
securities only when such lending is fully secured by investment grade
collateral held by an independent agent.

Portfolio Turnover. The Fund's annual portfolio turnover rate may vary
greatly from year to year. Although the Fund cannot accurately predict its
annual portfolio turnover rate, it is not expected to exceed 100% under normal
circumstances. Portfolio turnover rate is not considered a limiting factor in
the execution of investment decisions for the Fund. There are no limits on the
rate of portfolio turnover, and investments may be sold without regard to length
of time held when the Fund's investment strategy so dictates. A higher portfolio
turnover rate results in correspondingly greater brokerage commissions and other
transactional expenses that are borne by the Fund. High portfolio turnover may
result in the realization of net short-term capital gains by the Fund which,
when distributed to Common Shareholders, will be taxable as ordinary income. See
"Tax Matters."

BORROWINGS AND PREFERRED SHARES

The Fund anticipates that under current market conditions it will issue
Leverage Instruments representing no more than 33-1/3% of its Managed Assets
approximately three months after the completion of this offering. If as a result
of market conditions, or any other reason, the Fund does not issue Preferred
Shares, the Fund will limit its borrowing to 33-1/3% (or such other percentage
permitted by law) of its Managed Assets. Any use of Leverage Instruments by the
Fund will, however, be consistent with the provisions of the 1940 Act. The
Leverage Instruments would have complete priority upon distribution of assets
over Common Shares. The issuance of Leverage Instruments would leverage the
Common Shares. Although the timing and other terms of the offering of Leverage
Instruments and the terms of the Leverage Instruments would be determined by the
Fund's Board of Trustees, the Fund expects to invest the proceeds derived from
any Leverage Instrument offering in securities consistent with the Fund's
investment objectives and policies. If Preferred Shares are issued, they would
pay adjustable rate dividends based on shorter-term interest rates, which would
be redetermined periodically by an auction process. The adjustment period for
Preferred Shares dividends could be as short as one day or as long as a year or
more. So long as the Fund's portfolio is invested in securities that provide a
higher rate of return than the dividend rate or interest rate of the Leverage
Instruments, after taking expenses into consideration, the leverage will cause
Common Shareholders to receive a higher rate of income than if the Fund were not
leveraged.

Leverage creates risk for the Common Shareholders, including the likelihood
of greater volatility of NAV and market price of the Common Shares, and the risk
that fluctuations in interest rates on borrowings and debt or in the dividend
rates on any Preferred Shares may affect the return to the Common Shareholders
or will result in fluctuations in the dividends paid on the Common Shares. To
the extent total return exceeds the cost of leverage, the Fund's return will be
greater than if leverage had not been used. Conversely, if the total return
derived from securities purchased with funds received from the use of leverage
is less than the cost of leverage, the Fund's return 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. In
the latter case, the Sub-Adviser in its best judgment nevertheless may determine
to maintain the Fund's leveraged position if it expects that the benefits to the
Fund's Common Shareholders of maintaining the leveraged position will outweigh
the current reduced return. Under normal market conditions, the Fund anticipates
that it will be able to invest the proceeds from leverage at a higher rate than
the costs of leverage, which would enhance returns to Common Shareholders. The
fees paid to the Adviser (and by the Adviser to the Sub-Adviser) will be
calculated on the basis of the Managed Assets including proceeds from borrowings
for leverage and the issuance of Preferred Shares. During periods in which the
Fund is utilizing financial leverage, the investment advisory fee payable to the
Adviser (and by the Adviser to the Sub-Adviser) will be higher than if the Fund
did not utilize a leveraged capital structure. The use of leverage creates risks
and involves special considerations. See "Risks--Leverage Risk."

The Fund's Declaration of Trust authorizes the Fund, without prior approval
of the Common Shareholders, to borrow money. In this connection, the Fund may
issue notes or other evidence of indebtedness (including bank borrowings or
commercial paper) and may secure any such borrowings by mortgaging, pledging or
otherwise subjecting as security the Fund's assets. In connection with such
borrowing, the Fund may be required to maintain minimum average balances with
the lender or to pay a commitment or other fee to maintain a line of credit. Any
such requirements will increase the cost of borrowing over the stated interest
rate. Under the requirements of the 1940 Act, the Fund, immediately after any
such borrowings, must have an "asset coverage" of at least 300% (33-1/3% of

Page 20

Managed Assets after borrowings). With respect to such borrowing, asset coverage
means the ratio which the value of the total assets of the Fund, less all
liabilities and indebtedness not represented by senior securities (as defined in
the 1940 Act), bears to the aggregate amount of such borrowing represented by
senior securities issued by the Fund.

The rights of lenders to the Fund to receive interest on and repayment of
principal of any such borrowings will be senior to those of the Common
Shareholders, and the terms of any such borrowings may contain provisions which
limit certain activities of the Fund, including the payment of dividends to
Common Shareholders in certain circumstances. Further, the 1940 Act does (in
certain circumstances) grant to the lenders to the Fund certain voting rights in
the event of default in the payment of interest on or repayment of principal. In
the event that such provisions would impair the Fund's status as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), the Fund intends to repay the borrowings. Any borrowing will likely be
ranked senior or equal to all other existing and future borrowings of the Fund.

Certain types of borrowings may result in the Fund being subject to
covenants in credit agreements relating to asset coverage and portfolio
composition requirements. The Fund may be subject to certain restrictions on
investments imposed by guidelines of one or more rating agencies, which may
issue ratings for the short-term corporate debt securities or Preferred Shares
issued by the Fund. These guidelines may impose asset coverage or portfolio
composition requirements that are more stringent than those imposed by the 1940
Act. It is not anticipated that these covenants or guidelines will impede the
Sub-Adviser from managing the Fund's portfolio in accordance with the Fund's
investment objectives and policies.

If Preferred Shares are issued, they would pay adjustable rate dividends
based on shorter-term interest rates, which would be redetermined periodically
by an auction process. The adjustment period for Preferred Shares dividends
could be as short as one day or as long as a year or more.

Under the 1940 Act, the Fund is not permitted to issue Preferred Shares
unless immediately after such issuance the value of the Fund's Managed Assets is
at least 200% of the liquidation value of the outstanding Preferred Shares
(i.e., the liquidation value may not exceed 50% of the Fund's Managed Assets).
In addition, the Fund is not permitted to declare any cash dividend or other
distribution on its Common Shares unless, at the time of such declaration, the
value of the Fund's Managed Assets is at least 200% of such liquidation value.
If Preferred Shares are issued, the Fund intends, to the extent possible, to
purchase or redeem Preferred Shares from time to time to the extent necessary in
order to maintain coverage of any Preferred Shares of at least 200%. In
addition, as a condition to obtaining ratings on the Preferred Shares, the terms
of any Preferred Shares issued are expected to include asset coverage
maintenance provisions which will require the redemption of the Preferred Shares
in the event of non-compliance by the Fund and may also prohibit dividends and
other distributions on the Common Shares in such circumstances. In order to meet
redemption requirements, the Fund may have to liquidate portfolio securities.
Such liquidations and redemptions would cause the Fund to incur related
transaction costs and could result in capital losses to the Fund. Prohibitions
on dividends and other distributions on the Common Shares could impair the
Fund's ability to qualify as a regulated investment company under the Code. If
the Fund has Preferred Shares outstanding, two of the Fund's trustees will be
elected by the holders of Preferred Shares as a class. The remaining trustees of
the Fund will be elected by holders of Common Shares and Preferred Shares voting
together as a single class. In the event the Fund failed to pay dividends on
Preferred Shares for two years, holders of Preferred Shares would be entitled to
elect a majority of the trustees of the Fund.

The Fund may also 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.

EFFECTS OF LEVERAGE

Assuming that the Leverage Instruments will represent approximately 33-1/3%
of the Fund's capital and pay dividends or interest at an annual combined
average rate of 2.80%, the income generated by the Fund's portfolio (net of
estimated expenses) must exceed .93% in order to cover the dividend or interest
payments specifically related to the Leverage Instruments. Of course, these
numbers are merely estimates used for illustration. Actual dividend or interest
rates on the Leverage Instruments will vary frequently and may be significantly
higher or lower than the rate estimated above.

The following table is furnished in response to requirements of the
Securities and Exchange Commission. It is designed to illustrate the effect of
leverage on Common Share total return, assuming investment portfolio total
returns (comprised of income and changes in the value of securities held in the
Fund's portfolio) of (10%), (5%), 0%, 5% and 10%. These assumed investment
portfolio returns are hypothetical figures and are not necessarily indicative of
the investment portfolio returns experienced or expected to be experienced by
the Fund. See "Risks."

The table further reflects the issuance of Leverage Instruments
representing 33-1/3% of the Fund's capital, net of expenses, and the Fund's
currently projected annual dividend or interest on its Leverage Instruments of
2.80%.

Page 21

Assumed Portfolio Total Return (Net of Expenses) ......... (10)% (5)% 0% 5% 10%
Common Share Total Return ................................ (16.32)% (8.85)% (1.38)% 6.09% 13.55%

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

RISKS

Risk is inherent in all investing. The following discussion summarizes the
principal risks that you should consider before deciding whether to invest in
the Fund. For additional information about the risks associated with investing
in the Fund, see "Additional Information About the Fund's Investments" in the
SAI.

NO OPERATING HISTORY

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

INVESTMENT AND MARKET RISK

An investment in Common Shares is subject to investment risk, including the
possible loss of the entire principal amount that you invest. Your investment in
Common Shares represents an indirect investment in the securities owned by the
Fund. The value of these securities, like other market investments, may move up
or down, sometimes rapidly and unpredictably. The value of the securities in
which the Fund invests will affect the value of the Common Shares. Your Common
Shares at any point in time may be worth less than your original investment,
even after taking into account the reinvestment of Fund dividends and
distributions.

MANAGEMENT RISK

The Fund is subject to management risk because it is an actively managed
portfolio. The Adviser and the Sub-Adviser 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.

NON-INVESTMENT GRADE SECURITIES RISK

The Fund may invest up to 60% of its Managed Assets in non-investment grade
securities. Non-investment grade securities are rated below "Baa3" by Moody's,
below "BBB-" by S&P, or comparably rated by another NRSRO or, if unrated,
determined by the Sub-Adviser to be of comparable credit quality. Non-investment
grade debt instruments are commonly referred to as "high yield" or "junk" bonds
and are considered speculative with respect to the issuer's capacity to pay
interest and principal and are susceptible to default or decline in market value
due to adverse economic and business developments. The market values for high
yield securities tend to be very volatile, and these securities are less liquid
than investment grade debt securities. For these reasons, your investment in the
Fund is subject to the following specific risks:

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

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

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

o a negative perception of the high yield market may depress the
price and liquidity of high yield securities.

Adverse changes in economic conditions are more likely to lead to a
weakened capacity of a high yield issuer to make principal payments and interest
payments than an investment grade issuer. An economic downturn could severely
affect the ability of highly leveraged issuers to service their debt obligations
or to repay their obligations upon maturity.

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

Page 22

difficult to sell these securities or may be able to sell the securities only at
prices lower than if such securities were widely traded. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances,
may be less than the prices used in calculating the Fund's NAV.

FIXED-INCOME SECURITIES RISK

In addition to the risks discussed above, debt securities, including high
yield securities, are subject to certain risks, including:

o Issuer Risk. The value of fixed-income 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.

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

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

o Credit Risk. Credit risk is the risk that a security in the Fund's
portfolio will decline in price or the issuer fails to make
interest payments when due because the issuer of the security
experiences a decline in its financial status.

INTEREST RATE RISK

Interest rate risk is the risk that fixed-income securities will decline in
value because of changes in market interest rates. When market interest rates
rise, the market value of such securities generally will fall. Because the Fund
will invest in securities that pay a fixed rate of return, the NAV and market
price of the Common Shares will tend to decline if the market interest rates
applicable to such investments were to rise. During periods of rising interest
rates, the average life of certain types of securities may be extended because
of slower than expected prepayments pursuant to call provisions. This may lock
in a below market yield, increase the security's duration and reduce the value
of the security. Investments in debt securities with long-term maturities may
experience significant price declines if long-term interest rates increase.
Market interest rates in the United States and in certain other countries in
which the Fund may invest currently are near historically low levels.

NON-U.S. SECURITIES RISK

The Fund intends to invest a substantial portion of its assets in
securities of non-U.S. issuers. Investing in securities of non-U.S. issuers,
which are generally denominated in non-U.S. currencies, may involve certain
risks not typically associated with investing in securities of U.S. issuers.
These risks include: (i) there may be less publicly available information about
non-U.S. issuers or markets due to less rigorous disclosure or accounting
standards or regulatory practices; (ii) non-U.S. markets may be smaller, less
liquid and more volatile than the U.S. market; (iii) potential adverse effects
of fluctuations in currency exchange rates or controls on the value of the
Fund's investments; (iv) the economies of non-U.S. countries may grow at slower
rates than expected or may experience a downturn or recession; (v) the impact of
economic, political, social or diplomatic events; (vi) certain non-U.S.
countries may impose restrictions on the ability of non-U.S. issuers to make
payments of principal and interest to investors located in the United States due
to blockage of non-U.S. currency exchanges or otherwise; and (vii) withholding
and other non-U.S. taxes may decrease the Fund's return. These risks may be more
pronounced to the extent that the Fund invests a significant amount of its
assets in companies located in one region and to the extent that the Fund
invests in securities of issuers in emerging markets.

GOVERNMENT SECURITIES RISK

The ability of a government issuer, especially in an emerging market
country, to make timely and complete payments on its debt obligations will be
strongly influenced by the government issuer's balance of payments, including
export performance, its access to international credits and investments,
fluctuations of interest rates and the extent of its foreign reserves. A country
whose exports are concentrated in a few commodities or whose economy depends on
certain strategic imports could be vulnerable to fluctuations in international
prices of these commodities or imports. To the extent that a country receives
payment for its exports in currencies other than U.S. dollars, its ability to
make debt payments denominated in U.S. dollars could be adversely affected. If a
government issuer cannot generate sufficient earnings from foreign trade to
service its external debt, it may need to depend on continuing loans and aid
from foreign governments, commercial banks, and multinational organizations.
There are no bankruptcy proceedings similar to those in the United States by
which defaulted government debt may be collected. Additional factors that may
influence a government issuer's ability or willingness to service debt include,
but are not limited to, a country's cash flow situation, the availability of

Page 23

sufficient foreign exchange on the date a payment is due, the relative size of
its debt service burden to the economy as a whole, and the issuer's policy
towards the International Monetary Fund, the International Bank for
Reconstruction and Development and other international agencies to which a
government debtor may be subject.

NON-U.S. GOVERNMENT SECURITIES RISK

Economies and social and political climates in individual countries may
differ unfavorably from the United States. Non-U.S. economies may have less
favorable rates of growth of gross domestic product, rates of inflation,
currency valuation, capital reinvestment, resource self-sufficiency and balance
of payments positions. Many countries have experienced extremely high rates of
inflation for many years. Unanticipated economic, political and social
developments may also affect the values of the Fund's investments and limit the
availability of additional investments in such countries. Furthermore, such
developments may significantly disrupt the financial markets or interfere with
the Fund's ability to enforce its rights against non-U.S. government issuers.

A substantial portion of the Fund's Managed Assets are expected to be
invested in debt instruments of issuers located in countries considered to be
emerging markets, and investments in such securities are considered speculative.
Heightened risks of investing in emerging markets government debt include:
smaller market capitalization of securities markets, which may suffer periods of
relative illiquidity; significant price volatility; restrictions on foreign
investment; and possible repatriation of investment income and capital.
Furthermore, foreign investors may be required to register the proceeds of sales
and future economic or political crises could lead to price controls, forced
mergers, expropriation or confiscatory taxation, seizure, nationalization or
creation of government monopolies. The currencies of emerging market countries
may experience significant declines against the U.S. dollar, and devaluation may
occur subsequent to investments in these currencies by the Fund. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.

COUNTRY RISK

This risk arises as the Fund may have exposure of up to 30% of its Managed
Assets to issuers in any one country. The impact on the Fund's NAV of specific
risks relating to investment in non-U.S. issuers, such as political, regulatory,
interest rate, currency and inflation, may be magnified due to the concentration
of the Fund's investments in a particular country.

CURRENCY RISK

The value of securities denominated or quoted in foreign currencies may be
adversely affected by fluctuations in the relative currency exchange rates and
by exchange control regulations. The Fund's investment performance may be
negatively affected by a devaluation of a currency in which the Fund's
investments are denominated or quoted. Further, the Fund's investment
performance may be significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of securities denominated
or quoted in another currency will increase or decrease in response to changes
in the value of such currency in relation to the U.S. dollar. Certain of the
Fund's non-U.S. dollar-denominated securities may be hedged into U.S. dollars.
However, as discussed in "Risks--Derivatives Risk," hedging may not alleviate
all currency risks.

MARKET DISCOUNT FROM NET ASSET VALUE

Shares of closed-end investment companies frequently trade at a discount
from their net asset value. This characteristic is a risk separate and distinct
from the risk that the Fund's NAV could decrease as a result of its investment
activities and may be greater for investors expecting to sell their Common
Shares in a relatively short period following completion of this offering. The
NAV of the Common Shares will be reduced immediately following the offering as a
result of the payment of certain offering costs. Although the value of the
Fund's net assets is generally considered by market participants in determining
whether to purchase or sell Common Shares, whether investors will realize gains
or losses upon the sale of the Common Shares will depend entirely upon whether
the market price of the Common Shares at the time of sale is above or below the
investor's purchase price for the Common Shares. Because the market price of the
Common Shares will be determined by factors such as net asset value, dividend
and distribution levels (which are dependent, in part, on expenses), supply of
and demand for the Common Shares, stability of dividends or distributions,
trading volume of the Common Shares, general market and economic conditions and
other factors beyond the control of the Fund, the Fund cannot predict whether
the Common Shares will trade at, below or above NAV or at, below or above the
initial public offering price.

LEVERAGE RISK

The Fund may borrow an amount up to 33-1/3% (or such other percentage as
permitted by law) of its Managed Assets (including the amount borrowed) less all
liabilities other than borrowings. The Fund may also issue Preferred Shares in
an amount up to 50% of the Fund's Managed Assets (including the proceeds from
Leverage Instruments). However, the Fund intends, under normal circumstances, to
utilize leverage in an amount up to 33-1/3% of the Fund's Managed Assets.
Borrowings and the issuance of Preferred Shares are referred to in this
prospectus collectively as "leverage." The Fund may use leverage for investment

Page 24

purposes, to finance the repurchase of its Common Shares, and to meet cash
requirements. Although the use of leverage by the Fund may create an opportunity
for increased return for the Common Shares, it also results in additional risks
and can magnify the effect of any losses. If the income and gains earned on the
securities and investments purchased with leverage proceeds are greater than the
cost of the leverage, the Common Shares' return will be greater than if leverage
had not been used. Conversely, if the income and gains from the securities and
investments purchased with such proceeds does not cover the cost of leverage,
the return to the Common Shares will be less than if leverage had not been used.
There is no assurance that a leveraging strategy will be successful. Leverage
involves risks and special considerations for Common Shareholders including:

o the likelihood of greater volatility of NAV and market price of the
Common Shares than a comparable portfolio without leverage;

o the risk that fluctuations in interest rates on borrowings and
short-term debt or in the dividend rates on any Preferred Shares
that the Fund may pay will reduce the return to the Common
Shareholders or will result in fluctuations in the dividends paid
on the Common Shares;

o the effect of leverage in a declining market, which is likely to
cause a greater decline in the NAV of the Common Shares than if the
Fund were not leveraged, which may result in a greater decline in
the market price of the Common Shares; and

o when the Fund uses financial leverage, the investment advisory fee
payable to the Adviser (and by the Adviser to the Sub-Adviser) will
be higher than if the Fund did not use leverage.

The Sub-Adviser, in its judgment, nevertheless may determine to continue to
use leverage if it expects that the benefits to the Fund's shareholders of
maintaining the leveraged position will outweigh the current reduced return.

The funds borrowed pursuant to a leverage borrowing program (such as a
credit line or commercial paper program), or obtained through the issuance of
Preferred Shares, constitute a substantial lien and burden by reason of their
prior claim against the income of the Fund and against the net assets of the
Fund in liquidation. The rights of lenders to receive payments of interest on
and repayments of principal on any borrowings made by the Fund under a leverage
borrowing program are senior to the rights of Common Shareholders and the
holders of Preferred Shares, with respect to the payment of dividends or upon
liquidation. The Fund may not be permitted to declare dividends or other
distributions, including dividends and distributions with respect to Common
Shares or Preferred Shares or purchase Common Shares or Preferred Shares, unless
at the time thereof the Fund meets certain asset coverage requirements and no
event of default exists under any leverage program. In addition, the Fund may
not be permitted to pay dividends on Common Shares unless all dividends on the
Preferred Shares and/or accrued interest on borrowings have been paid, or set
aside for payment. In an event of default under a leverage borrowing program,
the lenders have the right to cause a liquidation of collateral (i.e., sell
securities and other assets of the Fund) and, if any such default is not cured,
the lenders may be able to control the liquidation as well. Certain types of
leverage may result in the Fund being subject to covenants relating to asset
coverage and Fund composition requirements. The Fund may be subject to certain
restrictions on investments imposed by guidelines of one or more rating
agencies, which may issue ratings for the Preferred Shares or other leverage
securities issued by the Fund. These guidelines may impose asset coverage or
Fund composition requirements that are more stringent than those imposed by the
1940 Act. The Sub-Adviser does not believe that these covenants or guidelines
will impede it from managing the Fund's portfolio in accordance with the Fund's
investment objectives and policies.

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

DERIVATIVES RISK

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

Page 25

There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.

There are several risks associated with the use of futures contracts and
futures options. The purchase or sale of a futures contract may result in losses
in excess of the amount invested in the futures contract. While the Fund may
enter into futures contracts and options on futures contracts for hedging
purposes, the use of futures contracts and options on futures contracts might
result in a poorer overall performance for the Fund than if it had not engaged
in any such transactions. There may be an imperfect correlation between the
Fund's portfolio holdings and futures contracts or options on futures contracts
entered into by the Fund, which may prevent the Fund from achieving the intended
hedge or expose the Fund to risk of loss. The degree of imperfection of
correlation depends on circumstances such as variations in market demand for
futures, options on futures and their related securities, including technical
influences in futures and futures options trading, and differences between the
securities markets and the securities underlying the standard contracts
available for trading. Further, the Fund's use of futures contracts and options
on futures contracts to reduce risk involves costs and will be subject to the
Sub-Adviser's ability to correctly predict changes in interest rate
relationships or other factors.

Depending on whether the Fund would be entitled to receive net payments
from the counterparty on a swap or cap, which in turn would depend on the
general state of short-term interest rates at that point in time, a default by a
counterparty could negatively impact the performance of the Common Shares. In
addition, at the time an interest rate swap or cap transaction reaches its
scheduled termination date, there is a risk that the Fund would not be able to
obtain a replacement transaction or that the terms of the replacement would not
be as favorable as on the expiring transaction. If this occurs, it could have a
negative impact on the performance of the Common Shares. If the Fund fails to
maintain any required asset coverage ratios in connection with any use by the
Fund of financial leverage, the Fund may be required to redeem or prepay some or
all of the financial leverage. Such redemption or prepayment would likely result
in the Fund seeking to terminate early all or a portion of any swap or cap
transaction. Early termination of a swap could result in a termination payment
by or to the Fund. Early termination of a cap could result in a termination
payment to the Fund. The Fund intends to maintain, in a segregated account, cash
or liquid securities having a value at least equal to the Fund's net payment
obligations under any swap transaction, marked to market daily. The Fund will
not enter into interest rate swap or cap transactions having a notional amount
that exceeds the outstanding amount of the Fund's leverage.

The Fund may purchase credit derivative instruments for the purposes of
hedging the Fund's credit risk exposure to certain issuers of securities that
the Fund owns. For example, the Fund may enter into credit swap default
contracts for hedging purposes where the Fund would be the buyer of such a
contract. The Fund would be 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 to 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.

The Fund may enter into currency exchange transactions to hedge the Fund's
exposure to foreign currency exchange rate risk to the extent the Fund invests
in non-U.S. denominated securities of non-U.S. issuers. The Fund's currency
transactions will be limited to portfolio hedging involving portfolio positions.
Portfolio hedging is the use of a forward contract with respect to a portfolio
security position denominated or quoted in a particular currency. A forward
contract is an agreement to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks, foreign
exchange dealers or broker-dealers, are not exchange-traded, and are usually for
less than one year, but may be renewed.

At the maturity of a forward contract to deliver a particular currency, the
Fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.

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

Page 26

If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.

Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.

The use of interest rate swaps and caps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. Depending on market conditions in
general, the Fund's use of swaps or caps could enhance or harm the overall
performance of the Common Shares. To the extent there is a decline in interest
rates, the value of the interest rate swap or cap could decline, and could
result in a decline in the NAV of the Common Shares. In addition, if short-term
interest rates are lower than the Fund's fixed rate of payment on the interest
rate swap, the swap will reduce Common Share net earnings. If, on the other
hand, short-term interest rates are higher than the fixed rate of payment on the
interest rate swap, the swap will enhance Common Share net earnings. Buying
interest rate caps could decrease the net earnings of the Common Shares in the
event that the premium paid by the Fund to the counterparty exceeds the
additional amount the Fund would have been required to pay had it not entered
into the cap agreement. The Fund has no current intention of selling an interest
rate swap or cap.

Interest rate swaps and caps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments that
the Fund is contractually obligated to make. If the counterparty defaults, the
Fund would not be able to use the anticipated net receipts under the swap or cap
to offset any declines in the value of the Fund's portfolio assets being hedged.
Depending on whether the Fund would be entitled to receive net payments from the
counterparty on the swap or cap, which in turn would depend on the general state
of the market rates at that point in time, such a default could negatively
impact the performance of the Common Shares.

CREDIT LINKED NOTES RISK

The Fund may invest in Credit Linked Notes. Credit Linked Notes are
securities that are collateralized by one or more credit default swaps on
designated debt securities that are referred to as "reference securities."
Through the purchase of a Credit Linked Note, the buyer assumes the risk of the
default or, in some cases, other declines in credit quality of the referenced
securities. The buyer also takes on exposure to the issuer of the Credit Linked
Note in the full amount of the purchase price of the note. The issuer of a
Credit Linked Note normally will have hedged its risk on the reference
securities without acquiring any additional credit exposure. The Fund has the
right to receive periodic interest payments from the issuer of the Credit Linked
Note at an agreed upon interest rate, and, if there has been no default or, if
applicable, other declines in credit quality, a return of principal at the
maturity date.

Credit Linked Notes are subject to credit risk of the reference securities
underlying the credit default swaps. If one of the underlying reference
securities defaults or suffers certain other declines in credit quality, the
Fund may, instead of receiving repayment of principal in whole or in part,
receive the security that has defaulted.

Credit Linked Notes typically are privately negotiated transactions between
two or more parties. The Fund bears the risk that the issuer of the credit
linked note will default or become bankrupt. The Fund bears the risk of loss of
the principal amount it invested and the periodic interest payments expected to
be received for the duration of its investment in the credit linked note.

The market for Credit Linked Notes may suddenly become illiquid. The other
parties to the transaction may be the only investors with sufficient
understanding of the derivative to be interested in bidding for it. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Credit Linked Notes. In certain cases, a market price for a Credit
Linked Note may not be available.

Page 27

PORTFOLIO TURNOVER RISK

The Fund's annual portfolio turnover rate may vary greatly from year to
year. Although the Fund cannot accurately predict its annual portfolio turnover
rate, it is not expected to exceed 100% under normal circumstances. However,
portfolio turnover rate is not considered a limiting factor in the execution of
investment decisions for the Fund. High portfolio turnover may result in the
Fund's recognition of gains that will be taxable as ordinary income to the Fund.
A high portfolio turnover may increase the Fund's current and accumulated
earnings and profits, resulting in a greater portion of the Fund's distributions
being treated as a dividend to the Fund's Common Shareholders. In addition, a
higher portfolio turnover rate results in correspondingly greater brokerage
commissions and other transactional expenses that are borne by the Fund. See
"The Fund's Investments--Investment Practices--Portfolio Turnover" and "Tax
Matters."

MARKET DISRUPTION RISK

The terrorist attacks in the United States on September 11, 2001 had a
disruptive effect on the securities markets. The ongoing U.S. military and
related action in Iraq and events in the Middle East, as well as the continuing
threat of terrorist attacks, could have significant adverse effects on the U.S.
economy, the stock market and world economies and markets generally. The Fund
cannot predict the effects of similar events in the future on the U.S. and world
economies, the value of the Common Shares or the NAV of the Fund.

INFLATION RISK

Inflation risk is the risk that the value of assets or income from
investments 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 can decline. In addition, during any periods of rising inflation,
the dividend rates or borrowing costs associated with the Fund's use of
financial leverage would likely increase, which would tend to further reduce
returns to Common Shareholders.

ILLIQUID/RESTRICTED SECURITIES RISK

The Fund may invest up to 10% of its Managed Assets in securities that, at
the time of investment, are illiquid (determined using the Securities and
Exchange Commission's standard applicable to investment companies, i.e.,
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the value at which the Fund has valued the
securities). The Fund may also invest, without limit, in restricted securities.
However, restricted securities determined by the Sub-Adviser to be illiquid are
subject to the limitations set forth above. The Sub-Adviser, under the
supervision of the Board of Trustees, will determine whether restricted
securities are illiquid (that is, not readily marketable) and thus subject to
the Fund's limit of investing no more than 10% of its Managed Assets in illiquid
securities. Investments in restricted securities could have the effect of
increasing the amount of the Fund's assets invested in illiquid securities if
qualified institutional buyers are unwilling to purchase these securities.
Illiquid and restricted securities may be difficult to dispose of at a fair
price at the times when the Fund believes it is desirable to do so. The market
price of illiquid and restricted securities generally is more volatile than that
of more liquid securities, which may adversely affect the price that the Fund
pays for or recovers upon the sale of such securities. Illiquid and restricted
securities are also more difficult to value and the Sub-Adviser's judgment may
play a greater role in the valuation process. Investment of the Fund's assets in
illiquid and restricted securities may restrict the Fund's ability to take
advantage of market opportunities. The risks associated with illiquid and
restricted securities may be particularly acute in situations in which the
Fund's operations require cash and could result in the Fund borrowing to meet
its short-term needs or incurring losses on the sale of illiquid or restricted
securities. In order to dispose of an unregistered security, the Fund, where it
has contractual rights to do so, may have to cause such security to be
registered. A considerable period may elapse between the time the decision is
made to sell the security and the time the security is registered, therefore
enabling the Fund to sell it. Contractual restrictions on the resale of
securities vary in length and scope and are generally the result of a
negotiation between the issuer and acquiror of the securities. In either case,
the Fund would bear market risks during that period.

CERTAIN AFFILIATIONS

Certain broker-dealers may be considered to be affiliated persons of the
Fund or First Trust Advisors. Absent an exemption from the Securities and
Exchange Commission or other regulatory relief, the Fund is generally precluded
from effecting certain principal transactions with affiliated brokers, and its
ability to utilize affiliated brokers for agency transactions is subject to
restrictions. This could limit the Fund's ability to engage in securities
transactions and take advantage of market opportunities. In addition, unless and
until the underwriting syndicate is broken in connection with the initial public
offering of the Common Shares, the Fund will be precluded from effecting
principal transactions with brokers who are members of the syndicate.

Page 28

ANTI-TAKEOVER PROVISIONS

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

SECONDARY MARKET FOR THE FUND'S SHARES

The issuance of Common Shares through the Fund's Dividend Reinvestment Plan
may have an adverse effect on the secondary market for the Fund's Common Shares.
The increase in the number of outstanding Common Shares resulting from issuances
pursuant to the Fund's Dividend Reinvestment Plan and the discount to the market
price at which such Common Shares may be issued, may put downward pressure on
the market price for the Common Shares. Common Shares will not be issued
pursuant to the Dividend Reinvestment Plan at any time when Common Shares are
trading at a lower price than the Fund's NAV per Common Share. When the Fund's
Common Shares are trading at a premium, the Fund may also issue Common Shares
that may be sold through private transactions effected on the NYSE or through
broker-dealers. The increase in the number of outstanding Common Shares
resulting from these offerings may put downward pressure on the market price for
Common Shares.

LENDING PORTFOLIO SECURITIES

To generate additional income, the Fund may lend portfolio securities in an
amount up to 33-1/3% of Managed Assets to broker-dealers, major banks or other
recognized domestic institutional borrowers of securities. As with other
extensions of credit, there are risks of delay in the recovery or even loss of
rights in the collateral should a borrower default or fail financially. The Fund
intends to engage in lending portfolio securities only when such lending is
fully secured by investment grade collateral held by an independent agent.

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

The Board of Trustees is responsible for the management of the Fund,
including supervision of the duties performed by the Adviser and the
Sub-Adviser. There are five trustees of the Fund, one of whom is an "interested
person" (as defined in the 1940 Act) and four of whom are not "interested
persons." The names and business addresses of the trustees and officers of the
Fund and their principal occupations and other affiliations during the past five
years are set forth under "Management of the Fund" in the SAI.

INVESTMENT ADVISER

First Trust Advisors, 1001 Warrenville Road, Suite 300, Lisle, Illinois
60532, is the investment adviser to the Fund and is responsible for selecting
and supervising the Sub-Adviser. First Trust Advisors serves as investment
adviser or portfolio supervisor to investment portfolios with approximately
$14.0 billion in assets which it managed or supervised as of September 30, 2004.

First Trust Advisors is also responsible for the ongoing monitoring of the
Fund's investment portfolio, managing the Fund's business affairs and providing
certain clerical, bookkeeping and other administrative services.

First Trust Advisors, a registered investment adviser, is an Illinois
limited partnership formed in 1991 and an investment adviser registered with the
Securities and Exchange Commission under the Investment Advisers Act of 1940
(the "Advisers Act"). First Trust Advisors is a limited partnership with one
limited partner, Grace Partners of DuPage L.P. ("Grace Partners"), and one
general partner, The Charger Corporation. Grace Partners is a limited
partnership with one general partner, The Charger Corporation, and a number of
limited partners. Grace Partners' and The Charger Corporation's primary business
is investment advisory and broker-dealer services through their interests. The
Charger Corporation is an Illinois corporation controlled by the Robert Donald
Van Kampen family. First Trust Advisors is controlled by Grace Partners and The
Charger Corporation.

For additional information concerning First Trust Advisors, including a
description of the services provided, see the SAI.

SUB-ADVISER

Aberdeen Asset Management Inc. will serve as the Fund's Sub-Adviser.
Aberdeen was incorporated in 1993 and has been registered as an investment
adviser under the Advisers Act since August 1995. Aberdeen's principal business
focus is to provide investment management services with regard to investment in
global securities. Aberdeen managed approximately $885 million of assets as of
September 30, 2004. Aberdeen is located at 300 S.E. 2nd Street, Suite 820, Ft.
Lauderdale, Florida 33301.

Page 29

Aberdeen is a wholly owned subsidiary of Aberdeen Asset Management PLC,
which is the parent company of an asset management group managing approximately
$39.99 billion of assets for a range of pension funds, financial institutions,
investment trusts, unit trusts, offshore funds, charities and private clients,
in addition to U.S. registered investment companies as of September 30, 2004.
Aberdeen PLC was formed in 1983 and was first listed on the London Stock
Exchange in 1991 and obtained a secondary listing on the Singapore Stock
Exchange in November 1997. At December 2003, the firm was 8.78% owned by
management and staff.

Affiliates of Aberdeen manage three closed-end funds in the United States.
The three U.S. funds, Aberdeen Asia-Pacific Income Fund, Inc. (AMEX: "FAX"),
Aberdeen Australia Equity Fund, Inc. (AMEX: "IAF") and Aberdeen Global Income
Fund, Inc. (AMEX: "FCO") have net assets of approximately $2.5 billion as of
June 30, 2004.

In rendering investment advisory services, the Sub-Adviser may use the
resources of wholly owned investment adviser subsidiaries of Aberdeen Asset
Management PLC. In particular, the subsidiaries which may provide resources are
Aberdeen Asset Management Asia Limited ("Aberdeen Singapore"), a Singapore
corporation which is a U.S. registered investment adviser, and Aberdeen Asset
Managers Limited ("Aberdeen UK"), which is not a U.S. registered adviser.
Aberdeen UK and Aberdeen Singapore have entered into a Memorandum of
Understanding ("MOU") with the Sub-Adviser pursuant to which both are considered
"Participating Affiliates" of the Sub-Adviser as that term is used in relief
granted by the staff of the Securities and Exchange Commission allowing U.S.
registered advisers to use portfolio management and trading resources of
advisory affiliates subject to the supervision of a registered adviser.
Investment professionals from each affiliate may render portfolio management,
research or trading services to clients of the Sub-Adviser, including the Fund,
as Affiliated Associated Persons of the Sub-Adviser under the MOU, and are
subject to supervision by the Sub-Adviser.

There is no one individual primarily responsible for portfolio management
decisions for the Fund. Investments are made under the direction of a committee
in accordance with the Fund's investment strategy. For additional information
concerning Aberdeen, including a description of the services provided, see
"Sub-Adviser" in the SAI.

INVESTMENT MANAGEMENT AGREEMENT

Pursuant to an investment management agreement between the Adviser and the
Fund, the Fund has agreed to pay a fee for the services and facilities provided
by the Adviser at the annual rate of 1.0% of Managed Assets.

For purposes of calculation of the management fee, the Fund's "Managed
Assets" means the average daily gross asset value of the Fund (which includes
assets attributable to the Fund's Preferred Shares, if any, and the principal
amount of borrowings), minus the sum of the Fund's accrued and unpaid dividends
on any outstanding Preferred Shares and accrued liabilities (other than the
principal amount of any borrowings incurred, commercial paper or notes issued by
the Fund).

In addition to the management fee, the Fund pays all other costs and
expenses of its operations including the compensation of its trustees (other
than those affiliated with the Adviser), custodian, transfer agency,
administrative, accounting and dividend disbursing expenses, legal fees,
leverage expenses, rating agency fees, listing fees and expenses, expenses of
independent auditors, expenses of repurchasing Common Shares, expenses of
preparing, printing and distributing shareholder reports, notices, proxy
statements and reports to governmental agencies and taxes, if any.

The Sub-Adviser receives a portfolio management fee at the annual rate of
.50% of Managed Assets, which is paid by the Adviser out of the Adviser's
management fee.

The Adviser has agreed to pay (i) all organizational expenses and (ii) all
offering costs of the Fund (other than sales load, but including the partial
reimbursement of certain underwriter expenses) that exceed .2% (or $.04 per
Common Share) of the Fund's offering price. The Sub-Adviser has agreed to
reimburse the Adviser for one-half of such organizational expenses and offering
costs of the Fund that exceed .2% (or $.04 per Common Share) of the Fund's
offering price. The Sub-Adviser has also agreed to reimburse the Adviser for
one-half of the quarterly incentive fee payable by the Adviser to A.G. Edwards
as described in "Underwriting--Additional Compensation and Other Relationships."

Because the fee paid to the Adviser (and by the Adviser to the Sub-Adviser)
will be calculated on the basis of the Fund's Managed Assets, which include the
proceeds of leverage, the dollar amount of the Adviser's and Sub-Adviser's fees
will be higher (and the Adviser and Sub-Adviser will be benefited to that
extent) when leverage is utilized. In this regard, if the Fund uses leverage in
the amount equal to 33-1/3% of the Fund's Managed Assets (after their issuance),
the Fund's management fee would be 1.49% of net assets attributable to Common
Shares. See "Summary of Fund Expenses."

Page 30

NET ASSET VALUE

The NAV of the Common Shares of the Fund will be computed based upon the
value of the Fund's portfolio securities and other assets. The NAV will be
determined as of the close of regular trading on the NYSE (normally 4:00 p.m.
New York City time) on each day the NYSE is open for trading. Domestic debt
securities and foreign securities will normally be priced using data reflecting
the earlier closing of the principal markets for those securities. The Fund
calculates NAV per Common Share by subtracting the Fund's liabilities (including
accrued expenses, dividends payable and any borrowings of the Fund) and the
liquidation value of any outstanding Preferred Shares from the Fund's Managed
Assets (the value of the securities and other investments the Fund holds plus
cash or other assets, including interest accrued but not yet received) and
dividing the result by the total number of Common Shares outstanding.

The assets in the Fund's portfolio will be valued daily in accordance with
valuation procedures adopted by the Board of Trustees. The Sub-Adviser
anticipates that a majority of the Fund's assets will be valued using market
information supplied by third parties. In the event that market quotations are
not readily available, the pricing service does not provide a valuation for a
particular asset, or the valuations are deemed unreliable, or if events
occurring after the close of the principal markets for particular securities
(e.g., domestic debt and foreign securities), but before the Fund values its
assets, would call into doubt whether the earlier market quotations represent
fair value, the Fund may use a fair value method in good faith to value the
Fund's securities and investments. The use of fair value pricing by the Fund
will be governed by valuation procedures established by the Fund's Board of
Trustees, and in accordance with the provisions of the 1940 Act.

Fair Value. When applicable, fair value of securities of an issuer is
determined by the Board or a committee of the Board or a designee of the Board.
In fair valuing the Fund's investments, consideration is given to several
factors, which may include, among others, the following:

o the fundamental business data relating to the issuer;

o an evaluation of the forces which influence the market in which the
securities of the issuer are purchased and sold;

o the type, size and cost of the security;

o the financial statements of the issuer;

o the credit quality and cash flow of the issuer, based on the
Sub-Adviser's or external analysis;

o the information as to any transactions in or offers for the
security;

o the price and extent of public trading in similar securities (or
equity securities) of the issuer, or comparable companies;

o the coupon payments;

o the quality, value and saleability of collateral, if any, securing
the security;

o the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management;

o the prospects for the issuer's industry, and multiples (of earnings
and/or cash flow) being paid for similar businesses in that
industry; and

o other relevant factors.

Other Securities. Securities for which the primary market is a national
securities exchange or the NASDAQ National Market System are valued at the last
reported sale price (NASDAQ Official Closing Price for NASDAQ National Market
Securities) on the day of valuation. Listed securities for which no sale was
reported on that date are valued at the mean between the most recent bid and
asked prices. Securities traded in the over-the-counter market are valued at
their closing bid prices. Valuation of short-term cash equivalent investments
will be at amortized cost.

DISTRIBUTIONS

The Fund's present policy, which may be changed at any time by the Fund's
Board of Trustees, is to distribute to Common Shareholders monthly dividends of
all or a portion of its net income after payment of dividends and interest in
connection with leverage used by the Fund. It is expected that the initial
monthly dividend on the Fund's Common Shares will be declared approximately 45
days, and paid approximately 60 to 90 days, after the completion of this
offering, depending on market conditions. The Fund expects that all or a portion
of any capital gains will be distributed at least annually.

Various factors will affect the level of the Fund's income, including the
asset mix, the average maturity of the Fund's portfolio, the amount of leverage
utilized by the Fund and the Fund's use of hedging. To permit the Fund to
maintain a more stable monthly distribution, the Fund may from time to time
distribute less than the entire amount of income earned in a particular period.

Page 31

The undistributed income would be available to supplement future distributions.
As a result, the distributions paid by the Fund for any particular monthly
period may be more or less than the amount of income actually earned by the Fund
during that period. Undistributed income will add to the Fund's NAV and,
correspondingly, distributions from undistributed income will decrease the
Fund's NAV. Shareholders will automatically have all dividends and distributions
reinvested in Common Shares issued by the Fund or purchased in the open market
in accordance with the Fund's dividend reinvestment plan unless an election is
made to receive cash. See "Dividend Reinvestment Plan."

DIVIDEND REINVESTMENT PLAN

If your Common Shares are registered directly with the Fund or if you hold
your Common Shares with a brokerage firm that participates in the Fund's
Dividend Reinvestment Plan (the "Plan"), unless you elect to receive cash
distributions, all dividends, including any capital gain dividends, on your
Common Shares will be automatically reinvested by PFPC Inc. (the "Plan Agent"),
in additional Common Shares under the Plan. If you elect to receive cash
distributions, you will receive all distributions in cash paid by check mailed
directly to you by PFPC Inc., as dividend paying agent.

If you decide to participate in the Plan, the number of Common Shares you
will receive will be determined as follows:

(1) If the Common Shares are trading at or above NAV at the time of
valuation, the Fund will issue new shares at a price equal to the greater of (i)
NAV per Common Share on that date or (ii) 95% of the market price on that date.

(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and will purchase
Common Shares in the open market, on the NYSE or elsewhere, for the
participants' accounts. It is possible that the market price for the Common
Shares may increase before the Plan Agent has completed its purchases.
Therefore, the average purchase price per share paid by the Plan Agent may
exceed the market price at that time of valuation, resulting in the purchase of
fewer shares than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and distributions
received in cash to purchase Common Shares in the open market within 30 days of
the valuation date except where temporary curtailment or suspension of purchases
is necessary to comply with federal securities laws. Interest will not be paid
on any uninvested cash payments.

You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (800) 331-1710, in
accordance with such reasonable requirements as the Plan Agent and Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.

The Plan Agent maintains all Common Shareholders' accounts in the Plan and
gives written confirmation of all transactions in the accounts, including
information you may need for tax records. Common Shares in your account will be
held by the Plan Agent in non-certificated form. The Plan Agent will forward to
each participant any proxy solicitation material and will vote any shares so
held only in accordance with proxies returned to the Fund. Any proxy you receive
will include all Common Shares you have received under the Plan.

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

Automatically reinvesting dividends and distributions will not affect a
Common Shareholder's tax liability on those dividends and distributions. See
"Tax Matters."

If you hold your Common Shares with a brokerage firm that does not
participate in the Plan, you will not be able to participate in the Plan and any
dividend reinvestment may be effected on different terms than those described
above. Consult your financial advisor for more information.

The Fund reserves the right to amend or terminate the Plan if in the
judgment of the Board of Trustees the change is warranted. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
Additional information about the Plan may be obtained from PFPC Inc., 301
Bellevue Parkway, Wilmington, Delaware 19809.

DESCRIPTION OF SHARES

COMMON SHARES

The Declaration of Trust authorizes the issuance of an unlimited number of
Common Shares. The Common Shares being offered have a par value of $.01 per
share and subject to the rights of the holders of Preferred Shares, if issued,
have equal rights to the payment of dividends and the distribution of assets
upon liquidation. The Common Shares being offered will, when issued, be fully

Page 32

paid and, subject to matters discussed in "Certain Provisions in the Declaration
of Trust," non-assessable, and currently have no preemptive or conversion rights
(except as may otherwise be determined by the Board of Trustees in their sole
discretion) or rights to cumulative voting.

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

NAV will be reduced immediately following the offering by the amount of the
sales load and offering expenses paid by the Fund. The Adviser has agreed to pay
(i) all organizational expenses and (ii) all offering costs of the Fund (other
than sales load, but including a partial reimbursement of certain underwriter
expenses) that exceed .2% (or $.04 per Common Share) of the Fund's offering
price. The Sub-Adviser has agreed to reimburse the Adviser for one-half of such
organizational expenses and offering costs of the Fund that exceed .2% (or $.04
per Common Share) of the Fund's offering price. See "Use of Proceeds."

Unlike open-end funds, closed-end funds like the Fund do not continuously
offer shares and do not provide daily redemptions. Rather, if a shareholder
determines to buy additional Common Shares or sell shares already held, the
shareholder may conveniently do so by trading on the exchange through a broker
or otherwise. Shares of closed-end investment companies may frequently trade on
an exchange at prices lower than net asset value. Shares of closed-end
investment companies like the Fund have during some periods traded at prices
higher than net asset value and during other periods have traded at prices lower
than net asset value. Because the market value of the Common Shares may be
influenced by such factors as dividend levels (which are in turn affected by
expenses), dividend stability, portfolio credit quality, net asset value,
relative demand for and supply of such shares in the market, general market and
economic conditions, and other factors beyond the control of the Fund, the Fund
cannot assure you that Common Shares will trade at a price equal to or higher
than NAV in the future. The Common Shares are designed primarily for long-term
investors, and investors in the Common Shares should not view the Fund as a
vehicle for trading purposes.

PREFERRED SHARES

The Declaration of Trust provides that the Fund's Board of Trustees may
authorize and issue Preferred Shares with rights as determined by the Board of
Trustees, by action of the Board of Trustees without the approval of the Common
Shareholders. Common Shareholders have no preemptive right to purchase any
Preferred Shares that might be issued.

The Fund may elect to issue Preferred Shares as part of its leverage
strategy. The Fund currently intends to issue Leverage Instruments, which may
include Preferred Shares, representing up to 33-1/3% of the Fund's Managed
Assets immediately after the Leverage Instruments are issued. The Board of
Trustees also reserves the right to issue Preferred Shares to the extent
permitted by the 1940 Act, which currently limits the aggregate liquidation
preference of all outstanding Preferred Shares plus the principal amount of any
outstanding leverage consisting of debt to 50% of the value of the Fund's
Managed Assets less liabilities and indebtedness of the Fund (other than
leverage consisting of debt). We cannot assure you, however, that any Preferred
Shares will be issued. Although the terms of any Preferred Shares, including
dividend rate, liquidation preference and redemption provisions, will be
determined by the Board of Trustees, subject to applicable law and the
Declaration of Trust, it is likely that the Preferred Shares will be structured
to carry a relatively short-term dividend rate reflecting interest rates on
short-term bonds, by providing for the periodic redetermination of the dividend
rate at relatively short intervals through an auction, remarketing or other
procedure. The Fund also believes that it is likely that the liquidation
preference, voting rights and redemption provisions of the Preferred Shares will
be similar to those stated below.

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

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

Page 33

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

Redemption, Purchase and Sale of Preferred Shares by the Fund. The terms of
any Preferred Shares issued are expected to provide that (1) they are redeemable
by the Fund in whole or in part at the original purchase price per share plus
accrued dividends per share, (2) the Fund may tender for or purchase Preferred
Shares and (3) the Fund may subsequently resell any shares so tendered for or
purchased. Any redemption or purchase of Preferred Shares by the Fund will
reduce the leverage applicable to the Common Shares, while any resale of shares
by the Fund will increase that leverage.

The discussion above describes the possible offering of Preferred Shares by
the Fund. If the Board of Trustees determines to proceed with such an offering,
the terms of the Preferred Shares may be the same as, or different from, the
terms described above, subject to applicable law and the Fund's Declaration of
Trust. The Board of Trustees, without the approval of the Common Shareholders,
may authorize an offering of Preferred Shares or may determine not to authorize
such an offering, and may fix the terms of the Preferred Shares to be offered.

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST

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

The Declaration of Trust includes provisions that could limit the ability
of other entities or persons to acquire control of the Fund or to convert the
Fund to open-end status. Generally, the Declaration of Trust requires a vote by
holders of at least two-thirds of the Common Shares and Preferred Shares, if
any, voting together as a single class, except as described below and in the
Declaration of Trust, to authorize: (1) a conversion of the Fund from a
closed-end to an open-end investment company; (2) a merger or consolidation of
the Fund with any corporation, association, trust or other organization,
including a series or class of such other organization (subject to a limited
exception if the acquiring fund is not an operating entity immediately prior to
the transaction); (3) a sale, lease or exchange of all or substantially all of
the Fund's assets (other than in the regular course of the Fund's investment
activities, in connection with the termination of the Fund, and other limited
circumstances set forth in the Declaration of Trust); (4) in certain
circumstances, a termination of the Fund; (5) a removal of trustees by Common
Shareholders; or (6) certain transactions in which a Principal Shareholder (as
defined in the Declaration of Trust) is a party to the transaction. However,
with respect to (1) above, if there are Preferred Shares outstanding, the
affirmative vote of the holders of two-thirds of the Preferred Shares voting as
a separate class shall also be required. With respect to (2) above, except as
otherwise may be required, if the transaction constitutes a plan of
reorganization which adversely affects Preferred Shares, if any, then an
affirmative vote of two-thirds of the Preferred Shares voting together as a
separate class is required as well. With respect to (1) through (3), if such
transaction has already been authorized by the affirmative vote of two-thirds of
the trustees, then the affirmative vote of the majority of the outstanding
voting securities, as defined in the 1940 Act (a "Majority Shareholder Vote"),
is required, provided that when only a particular class is affected (or, in the
case of removing a trustee, when the trustee has been elected by only one
class), only the required vote of the particular class will be required. Such
affirmative vote or consent shall be in addition to the vote or consent of the
holders of the Fund's shares otherwise required by law or any agreement between
the Fund and any national securities exchange. Approval of Fund shareholders is
not required, however, for any transaction, whether deemed a merger,
consolidation, reorganization, exchange of shares or otherwise whereby the Fund
issues shares in connection with the acquisition of assets (including those
subject to liabilities) from any other investment company or similar entity.
None of the foregoing provisions may be amended except by the vote of at least
two-thirds of the Common Shares and Preferred Shares, if any, outstanding and
entitled to vote. See the SAI under "Certain Provisions in the Declaration of
Trust."

The provisions of the Declaration of Trust described above could have the
effect of depriving the Common Shareholders of opportunities to sell their
Common Shares at a premium over the then current market price of the Common

Page 34

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

Reference should be made to the Declaration of Trust on file with the
Securities and Exchange Commission for the full text of these provisions.

STRUCTURE OF THE FUND; COMMON SHARE REPURCHASES
AND CONVERSION TO OPEN-END FUND

CLOSED-END STRUCTURE

Closed-end funds differ from open-end management investment companies
(commonly referred to as mutual funds) in that closed-end funds generally list
their shares for trading on a securities exchange and do not redeem their shares
at the option of the shareholder. By comparison, mutual funds issue securities
redeemable at net asset value at the option of the shareholder and typically
engage in a continuous offering of their shares. Mutual funds are subject to
continuous asset in-flows and out-flows that can complicate portfolio
management, whereas closed-end funds generally can stay more fully invested in
securities consistent with the closed-end fund's investment objective and
policies. In addition, in comparison to open-end funds, closed-end funds have
greater flexibility in their ability to make certain types of investments,
including investments in illiquid securities.

However, shares of closed-end investment companies listed for trading on a
securities exchange frequently trade at a discount from net asset value, but in
some cases trade at a premium. The market price may be affected by trading
volume of the shares, general market and economic conditions and other factors
beyond the control of the closed-end fund. The foregoing factors may result in
the market price of the Common Shares being greater than, less than or equal to
net asset value. The Board of Trustees has reviewed the structure of the Fund in
light of its investment objectives and policies and has determined that the
closed-end structure is in the best interests of the shareholders. As described
below, however, the Board of Trustees will review periodically the trading range
and activity of the Fund's shares with respect to its net asset value and the
Board may take certain actions to seek to reduce or eliminate any such discount.
Such actions may include open market repurchases or tender offers for the Common
Shares at net asset value or the possible conversion of the Fund to an open-end
fund. 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.
In addition, as noted above, the Board of Trustees has determined in connection
with this initial offering of Common Shares of the Fund 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.

REPURCHASE OF COMMON SHARES AND TENDER OFFERS

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 shareholders, the Fund's Board of Trustees, in consultation with the
Adviser, Sub-Adviser and any financial adviser that the Adviser may retain, from
time to time will review possible actions to reduce any such discount. The Board
of Trustees of the Fund will consider from time to time open market repurchases
of and/or tender offers for Common Shares to seek to reduce any market discount
from net asset value that may develop. In connection with its consideration from
time to time of open-end repurchases of and/or tender offers for Common Shares,
the Board of Trustees of the Fund will consider whether to commence a tender
offer or share-repurchase program at the first quarterly Board meeting following
a calendar year in which the Fund's Common Shares have traded at an average
weekly discount from net asset value of more than 10% in the last 12 weeks of
that calendar year. After any consideration of potential actions to seek to
reduce any significant market discount, the Board may, subject to its fiduciary
obligations and compliance with applicable state and federal laws, authorize the
commencement of a share-repurchase program or tender offer. The size and timing
of any such share repurchase program or tender offer will be determined by the
Board of Trustees in light of the market discount of the Common Shares, trading
volume of the Common Shares, information presented to the Board of Trustees
regarding the potential impact of any such share repurchase program or tender
offer, and general market and economic conditions. There can be no assurance
that the Fund will in fact effect repurchases of or tender offers for any of its
Common Shares. The Fund may, subject to its investment limitation with respect
to borrowings, incur debt to finance such repurchases or a tender offer or for
other valid purposes. Interest on any such borrowings would increase the Fund's
expenses and reduce the Fund's net income.

There can be no assurance that repurchases of Common Shares or tender
offers, if any, will cause the Common Shares to trade at a price equal to or in
excess of their net asset value. Nevertheless, the possibility that a portion of
the Fund's outstanding Common Shares may be the subject of repurchases or tender
offers may reduce the spread between market price and net asset value that might

Page 35

otherwise exist. In the opinion of the Fund, sellers may be less inclined to
accept a significant discount in the sale of their Common Shares if they have a
reasonable expectation of being able to receive a price of net asset value for a
portion of their Common Shares in conjunction with an announced repurchase
program or tender offer for the Common Shares.

Although the Board of Trustees believes that repurchases or tender offers
generally would have a favorable effect on the market price of the Common
Shares, the acquisition of Common Shares by the Fund will decrease the Managed
Assets of the Fund and therefore will have the effect of increasing the Fund's
expense ratio and decreasing the asset coverage with respect to any Preferred
Shares outstanding. Because of the nature of the Fund's investment objectives,
policies and portfolio, the Adviser and the Sub-Adviser do not anticipate that
repurchases of Common Shares or tender offers should interfere with the ability
of the Fund to manage its investments in order to seek its investment
objectives, and do not anticipate any material difficulty in borrowing money or
disposing of portfolio securities to consummate repurchases of or tender offers
for Common Shares, although no assurance can be given that this will be the
case.

CONVERSION TO OPEN-END FUND

The Fund may be converted to an open-end investment company at any time if
approved by the holders of two-thirds of the Fund's shares outstanding and
entitled to vote; provided, however, that such vote shall be by Majority
Shareholder Vote if the action in question was previously approved by the
affirmative vote of two-thirds of the Board of Trustees. Such affirmative vote
or consent shall be in addition to the vote or consent of the holders of the
shares otherwise required by law or any agreement between the Fund and any
national securities exchange. In the event of conversion, the Common Shares
would cease to be listed on the NYSE or other national securities exchange or
market system. Any Preferred Shares or borrowings would need to be redeemed or
repaid upon conversion to an open-end investment company. The Board of Trustees
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 of Trustees would vote to convert the Fund to an
open-end investment company. Shareholders of an open-end investment company may
require the company to redeem their shares at any time (except in certain
circumstances as authorized by or under the 1940 Act) at their net asset value,
less such redemption charge or contingent deferred sales charge, if any, as
might be in effect at the time of a redemption. The Fund expects to pay all such
redemption requests in cash, but intends to reserve the right to pay redemption
requests in a combination of cash or securities. If such partial payment in
securities were made, investors may incur brokerage costs in converting such
securities to cash. If the Fund were converted to an open-end fund, it is likely
that new Common Shares would be sold at net asset value plus a sales load.

TAX MATTERS

The following discussion of federal income tax matters is based on the
advice of Chapman and Cutler LLP, counsel to the Fund.

This section and the discussion in the SAI summarize some of the main U.S.
federal income tax consequences of owning shares of the Fund. This section is
current as of the date of this prospectus. Tax laws and interpretations change
frequently, and this summary does not describe all of the tax consequences to
all taxpayers. For example, this summary generally does not describe your
situation or the tax consequences to you if you are a bank or a financial
institution, an insurance company, a dealer in securities, a non-U.S.
shareholder, a tax-exempt or tax-deferred plan, account or entity, a shareholder
that is subject to the alternative minimum tax or a shareholder that holds its
shares as or in a hedge against currency risk, constructive sale or a conversion
transaction or other investor with special circumstances. In addition, this
section does not describe your state, local or foreign taxes. Investors should
consult their own tax advisors regarding the tax consequences of investing in
the Fund.

Fund Status. The Fund intends to elect and to qualify annually as a
"regulated investment company" under the federal tax laws. To qualify, the Fund
must, among other things, satisfy certain requirements relating to the source
and nature of its income and the diversification of its assets. If the Fund
qualifies as a regulated investment company and distributes all of its income,
the Fund generally will not pay federal income or excise taxes.

Distributions. Fund distributions will constitute dividends to the extent
of the Fund's current and accumulated earnings and profits. After the end of
each year, you will receive a tax statement that separates your Fund's
distributions into two categories, ordinary income distributions and capital
gains dividends. Ordinary income distributions are generally taxed at your
ordinary tax rate, but, as further discussed below, if the Fund holds equity
securities, under the "Jobs and Growth Tax Relief Reconciliation Act of 2003"
(the "Tax Act"), certain ordinary income distributions received from the Fund
may be taxed at new tax rates equal to those applicable to net capital gains.
Generally, you will treat all capital gains dividends as long-term capital gains
regardless of how long you have owned your shares. To determine your actual tax
liability for your capital gains dividends, you must calculate your total net
capital gain or loss for the tax year after considering all of your other
taxable transactions, as described below. In addition, to the extent that the
Fund makes distributions in excess of its current and accumulated earnings and
profits, such distributions will represent a return of capital for tax purposes
to the extent of your tax basis in the shares and thus will generally not be
taxable to you and will thereafter constitute a capital gain. The tax status of
your distributions from the Fund is not affected by whether you reinvest your
distributions in additional shares or receive them in cash. The tax laws may
require you to treat distributions made to you in January as if you had received
them on December 31 of the previous year.

Page 36

Dividends Received Deduction. A corporation that owns shares generally will
not be entitled to the dividends received deduction with respect to dividends
received from the Fund because the dividends received deduction is generally not
available for distributions from regulated investment companies. However, if the
Fund holds equity securities, certain ordinary income dividends on shares that
are attributable to dividends received by the Fund from certain domestic
corporations may be designated by the Fund as being eligible for the dividends
received deduction but this amount is not expected to be significant.

If You Sell Shares. If you sell your shares, you will generally recognize a
taxable gain or loss. To determine the amount of this gain or loss, you must
subtract your tax basis in your shares from the amount you receive in the
transaction. Your tax basis in your shares is generally equal to the cost of
your shares, generally including sales charges. In some cases, however, you may
have to adjust your tax basis after you purchase your shares. Any loss realized
upon a taxable disposition of the shares may be disallowed if other
substantially identical shares are acquired within a 61-day period beginning 30
days before and ending 30 days after the date the original shares are disposed
of. If disallowed, the loss will be reflected by an upward adjustment to the
basis of the shares acquired. In addition, the ability to deduct capital losses
may otherwise be limited.

Taxation of Capital Gains and Losses and Certain Ordinary Income Dividends.
Under the Tax Act, if you are an individual, the maximum marginal federal tax
rate for net capital gain is generally 15% (generally 5% for certain taxpayers
in the 10% and 15% tax brackets). These capital gains rates are generally
effective for taxable years beginning before January 1, 2009. For periods not
covered by the Tax Act, if you are an individual, the maximum marginal federal
tax rate for capital gains is generally 20% (10% for certain taxpayers in the
10% and 15% tax brackets). For tax years not covered by the Tax Act, the 20%
rate is reduced to 18% and the 10% rate is reduced to 8% for net capital gains
from most property acquired after December 31, 2000, with a holding period of
more than five years.

Net capital gain equals net long-term capital gain minus net short-term
capital loss for the taxable year. Capital gain or loss is long-term if the
holding period for the asset is more than one year and is short-term if the
holding period for the asset is one year or less. You must exclude the date you
purchase your shares to determine your holding period. However, if you receive a
capital gain dividend from the Fund and sell your share at a loss after holding
it for six months or less, the loss will be recharacterized as long-term
capital loss to the extent of the capital gain dividend received. The tax rates
for capital gains realized from assets held for one year or less are generally
the same as for ordinary income. In addition, the Code treats certain capital
gains as ordinary income in special situations.

Pursuant to the Tax Act, if the Fund holds equity securities, a portion of
the ordinary income dividends received by an individual shareholder from a
regulated investment company such as the Fund generally will be taxed at the
same new rates that apply to net capital gain (as discussed above), but only if
certain holding period requirements are satisfied and the dividends are
attributable to qualified dividends received by the Fund itself. These special
rules relating to the taxation of ordinary income dividends from regulated
investment companies generally apply to taxable years beginning before January
1, 2009. The Fund generally does not expect to generate qualifying dividends
eligible for the new capital gains tax rates.

Foreign Tax Credit. If the Fund invests in any foreign securities, the tax
statement that you receive may include an item showing foreign taxes the Fund
paid to other countries. In this case, dividends taxed to you will include your
share of the taxes the Fund paid to other countries. You may be able to deduct
or receive a tax credit for your share of these taxes.

Backup Withholding. The Fund may be required to withhold, for U.S. federal
income taxes, a portion of all taxable dividends and redemption proceeds payable
to shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or who otherwise fail to make required certifications, or
if the Fund or a shareholder has been notified by the Internal Revenue Service
that such shareholder is subject to backup withholding. Corporate shareholders
and certain other shareholders under federal tax laws are generally exempt from
such backup withholding. Backup withholding is not an additional tax. Any
amounts withheld will be allowed as a refund or credit against the shareholder's
federal income tax liability if the appropriate information is provided to the
Internal Revenue Service.

Further Information. The SAI summarizes further federal income tax
considerations that may apply to the Fund and its shareholders and may qualify
the considerations discussed herein.

Page 37

UNDERWRITING

Subject to the terms and conditions stated in a purchase agreement dated ,
2004, each Underwriter named below, for which Merrill Lynch, Pierce, Fenner &
Smith Incorporated is acting as representative, has severally agreed to
purchase, and the Fund has agreed to sell to such Underwriter, the number of
Common Shares set forth opposite the name of such Underwriter.

NUMBER OF
UNDERWRITER COMMON SHARES
----------- -------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ....................................
A.G. Edwards & Sons, Inc. ...................................
Wachovia Capital Markets, LLC ...............................
Advest, Inc. ...............................................
Robert W. Baird & Co. Incorporated ..........................
Ferris, Baker Watts, Incorporated ...........................
Fixed Income Securities, L.P. ...............................
RBC Capital Markets Corporation .............................

SunTrust Capital Markets, Inc. ..............................

Wedbush Morgan Securities Inc. ..............................
Wells Fargo Securities, LLC .................................
-------------
Total ...........................................
=============

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

COMMISSIONS AND DISCOUNTS

The Underwriters propose to initially offer some of the Common Shares
directly to the public at the public offering price set forth on the cover page
of this prospectus and some of the Common Shares to certain dealers at the
public offering price less a concession not in excess of $ per Common Share. The
sales load the Fund will pay of $.90 per Common Share is equal to 4.5% of the
initial offering price. The Underwriters may allow, and the dealers may reallow,
a discount not in excess of $ per Common Share on sales to other dealers.
Notwithstanding the foregoing, certain Underwriters may pay up to an additional
$ per Common Share from the sales load to certain dealers pursuant to existing
arrangements with such dealers. After the initial public offering, the public
offering price, concession and discount may be changed. Investors must pay for
any Common Shares purchased on or before , 2004.

The following table shows the public offering price, estimated offering
expenses, sales load and proceeds 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.................................... $20.00 $ $
Sales load............................................... $.90 $ $
Estimated offering expenses.............................. $.04 $ $
Proceeds, after expenses, to the Fund.................... $19.06 $ $

The Fund will pay its Common Share offering costs up to and including $.04
per Common Share. The Fund has agreed to pay the Underwriters $.00667 per Common
Share 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 .03335% of the total price to the public of the
Common Shares sold in this offering. The Fund has also agreed to pay certain
fees to counsel to the Underwriters in an amount up to $7,500, which will not
exceed % of the total price to the public of the Common Shares sold in this
offering. The Adviser has agreed to pay (i) all organizational costs and (ii)
all offering costs of the Fund (other than sales load, but including the partial
reimbursement of certain underwriter expenses described above) that exceed .2%
(or $.04 per Common Share) of the Fund's offering price. The Sub-Adviser has
agreed to reimburse the Adviser for one-half of such organizational expenses and
offering costs of the Fund that exceed .2% (or $.04 per Common Share) of the

Page 38

Fund's offering price. To the extent that aggregate offering expenses are less
than $.04 per Common Share, up to .10% of the public offering price of the
securities sold in this offering, up to such expense limit, will be paid to
First Trust Portfolios, L.P. as reimbursement for the distribution services it
provides to the Fund (the "Contingent Reimbursement Amount"). First Trust
Portfolios, L.P. is an affiliate of the Adviser.

OVERALLOTMENT OPTION

The Fund has granted the Underwriters an option to purchase up to
additional Common Shares at the public offering price, less the sales load,
within 45 days from the date of this prospectus solely to cover any
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 Common 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 Common Shares is complete, Securities and
Exchange Commission rules may limit Underwriters and selling group members from
bidding for and purchasing the Common Shares. However, the representatives may
engage in transactions that stabilize the price of the Common Shares, such as
bids or purchases to peg, fix or maintain that price.

If the Underwriters create a short position in the Common Shares in
connection with the offering, i.e., if they sell more Common Shares than are
listed on the cover of this prospectus, the representative may reduce that short
position by purchasing Common Shares in the open market. The representative may
also elect to reduce any short position by exercising all or part of the
overallotment option described above. The Underwriters also may impose a penalty
bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Shares sold in this offering for their
account may be reclaimed by the syndicate if such Common Shares are repurchased
by the syndicate in stabilizing or covering transactions. Purchases of the
Common Shares to stabilize the price or to reduce a short position may cause the
price of the Common Shares to be higher than it might be in the absence of such
purchases.

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

The Fund has agreed not to offer or sell any additional Common Shares for a
period of 180 days after the date of the purchase agreement without the prior
written consent of the Underwriters, except for the sale of the Common Shares to
the Underwriters pursuant to the purchase agreement and certain transactions
relating to the Fund's Dividend Reinvestment Plan.

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

Common Shares will be sold so as to ensure that New York Stock Exchange
distribution standards (i.e., round lots, public shares and aggregate market
value) will be met.

ADDITIONAL COMPENSATION AND OTHER RELATIONSHIPS

The Adviser (and not the Fund) has agreed to pay from its own assets
additional compensation to Merrill Lynch. This additional compensation will be
payable quarterly at the annual rate of .15% of the Fund's Managed Assets during
the continuance of the Investment Management Agreement or other investment
management agreement between the Adviser and the Fund. Merrill Lynch has agreed
to provide, as requested by the Adviser, specified after-market support services
designed to maintain the visibility of the Fund on an ongoing basis; relevant
information, studies or reports regarding the Fund and the closed-end investment
company industry; and consultation regarding market discounts of the Fund. The
total amount of these additional compensation payments to Merrill Lynch, which
are considered underwriting compensation, will not exceed % of the total price
to the public of the Common Shares sold in this offering.

The Adviser (and not the Fund) has also agreed to pay from its own assets
to A.G. Edwards & Sons, Inc. ("A.G. Edwards") a quarterly incentive fee at an
annual rate of up to .10% of the Fund's Managed Assets attributable to Common
Shares sold by A.G. Edwards in this offering, provided it meets a certain sales
target established by the Adviser. This fee will be payable during the
continuance of the Investment Management Agreement or other investment
management agreement between the Adviser and the Fund. The amount of the
quarterly incentive fee paid to A.G. Edwards, which is considered underwriting
compensation, will not exceed % of the total price to the public of the Common
Shares sold in this offering.

Page 39

First Trust Portfolios, L.P., an affiliate of the Adviser, will provide
distribution assistance in connection with the sale of the Common Shares of the
Fund, and may pay compensation to its respective employees who assist in
marketing securities. In connection with this distribution assistance, to the
extent the offering expenses payable by the Fund are less than .2% (or $.04 per
Common Share) of the Fund's offering price, the Fund will pay the Contingent
Reimbursement Amount of up to .10% of the amount of the total price to the
public of the Common Shares sold in this offering, up to such expense limit, to
First Trust Portfolios, L.P. as reimbursement for its distribution assistance.
Accordingly, the Contingent Reimbursement Amount will not exceed .10% of the
total price to the public of the Common Shares sold in this offering. Any
compensation paid by First Trust Portfolios, L.P. to its respective employees
who assist in marketing securities will be paid first from the Contingent
Reimbursement Amount, if any, and then from First Trust Portfolios, L.P.'s
assets (and not the assets of the Fund).

The total amount of the additional compensation payments to Merrill Lynch
and A.G. Edwards described above, plus the amounts paid by the Fund as the
$.00667 per Common Share partial reimbursement to the Underwriters, the payment
of certain fees to counsel to the Underwriters and the Contingent Reimbursement
Amount payable to First Trust Portfolios, L.P., will not exceed 4.5% (or $.90
per Common Share) of the total price to the public of the Common Shares sold in
this offering. The sum total of all compensation to or reimbursement of
Underwriters and First Trust Portfolios, L.P. in connection with this public
offering of Common Shares, including sales load and all forms of additional
compensation to Underwriters, will be limited to 9% (or $1.80 per Common Share)
of the total price to the public of the Common Shares sold in this offering.

The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is 4
World Financial Center, New York, New York 10080. The address of A.G. Edwards &
Sons, Inc. is One North Jefferson Avenue, St. Louis, Missouri 63101.

ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT

The custodian of the assets of the Fund is PFPC Trust Company, 301 Bellevue
Parkway, Wilmington, Delaware 19809. The Fund's transfer, shareholder services
and dividend paying agent is PFPC Inc., 301 Bellevue Parkway, Wilmington,
Delaware 19809. Pursuant to an Administration and Accounting Services Agreement,
PFPC Inc. also provides certain administrative and accounting services to the
Fund, including maintaining the Fund's books of account, records of the Fund's
securities transactions, and certain other books and records; acting as liaison
with the Fund's independent registered public accounting firm by providing such
accountant with various audit-related information with respect to the Fund; and
providing other continuous accounting and administrative services. As
compensation for these services, the Fund has agreed to pay PFPC Inc. an annual
fee, calculated daily and payable on a monthly basis, of .06% of the Fund's
first $250 million of average Managed Assets, subject to decrease with respect
to additional Fund Managed Assets.

LEGAL OPINIONS

Certain legal matters in connection with the Common Shares will be passed
upon for the Fund by Chapman and Cutler LLP, Chicago, Illinois, and for the
Underwriters by Clifford Chance US LLP, New York, New York. Chapman and Cutler
LLP and Clifford Chance US LLP may rely as to certain matters of Massachusetts
law on the opinion of Bingham McCutchen LLP.

Page 40

TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION

PAGE
----
Use of Proceeds........................................................... 1
Investment Objectives..................................................... 1
Investment Restrictions................................................... 1
Investment Policies and Techniques........................................ 3
Additional Information About the Fund's Investments and
Investment Risks....................................................... 11
Other Investment Policies and Techniques.................................. 28
Management of the Fund.................................................... 37
Investment Adviser........................................................ 42
Proxy Voting Procedures................................................... 45
Sub-Adviser............................................................... 45
Portfolio Transactions and Brokerage...................................... 47
Description of Shares..................................................... 49
Certain Provisions in the Declaration of Trust............................ 51
Repurchase of Fund Shares; Conversion to Open-End Fund.................... 53
Federal Income Tax Matters................................................ 55
Performance Related and Comparative Information........................... 60
Independent Registered Public Accounting Firm............................. 62
Custodian, Administrator and Transfer Agent............................... 62
Additional Information.................................................... 63
Report of Independent Registered Public Accounting Firm................... 64
Financial Statements...................................................... 65
Appendix A--Description of Ratings........................................ A-1
Appendix B--Aberdeen Asset Management Inc. Proxy Voting Policy............ B-1

Page 41

THIS PAGE IS INTENTIONALLY LEFT BLANK.

Page 42

[BLANK PAGE]

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

FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY
INCOME FUND

COMMON SHARES
$20.00 PER SHARE

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

MERRILL LYNCH & CO.
A.G. EDWARDS
WACHOVIA SECURITIES
ADVEST, INC.
ROBERT W. BAIRD & CO.
FERRIS, BAKER WATTS
INCORPORATED
FIXED INCOME SECURITIES, L.P.
RBC CAPITAL MARKETS

SUNTRUST ROBINSON HUMPHREY

WEDBUSH MORGAN SECURITIES INC.
WELLS FARGO SECURITIES, LLC

, 2004
================================================================================

Back Cover

SUBJECT TO COMPLETION, DATED NOVEMBER 23, 2004

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

FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY INCOME FUND

STATEMENT OF ADDITIONAL INFORMATION

First Trust/Aberdeen Global Opportunity Income Fund (the "Fund") is a
newly organized, closed-end, diversified management investment company.

This Statement of Additional Information relating to the common shares
of beneficial interest of the Fund (the "Common Shares") is not a prospectus,
but should be read in conjunction with the Fund's Prospectus dated November 23,
2004 (the "Prospectus"). This Statement of Additional Information does not
include all information that a prospective investor should consider before
purchasing Common Shares. Investors should obtain and read the Prospectus prior
to purchasing such shares. A copy of the Fund's Prospectus may be obtained
without charge by calling (800) 988-5891. You also may obtain a copy of the
Prospectus on the Securities and Exchange Commission's web site
(http://www.sec.gov). Capitalized terms used but not defined in this Statement
of Additional Information have the meanings ascribed to them in the Prospectus.

This Statement of Additional Information is dated November 23, 2004.

TABLE OF CONTENTS

PAGE

USE OF PROCEEDS..............................................................1
INVESTMENT OBJECTIVES........................................................1
INVESTMENT RESTRICTIONS......................................................1
INVESTMENT POLICIES AND TECHNIQUES...........................................3
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS AND
INVESTMENT RISKS.........................................................11
OTHER INVESTMENT POLICIES AND TECHNIQUES....................................28
MANAGEMENT OF THE FUND......................................................37
INVESTMENT ADVISER..........................................................42
PROXY VOTING PROCEDURES.....................................................45
SUB-ADVISER.................................................................45
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................47
DESCRIPTION OF SHARES.......................................................49
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST..............................51
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND......................53
FEDERAL INCOME TAX MATTERS..................................................55
PERFORMANCE RELATED AND COMPARATIVE INFORMATION.............................60
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM...............................62

-i-

CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT.................................62
ADDITIONAL INFORMATION......................................................63

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.................... 64
FINANCIAL STATEMENTS....................................................... 65
APPENDIX A DESCRIPTION OF RATINGS..................................A-1
APPENDIX B ABERDEEN ASSET MANAGEMENT INC. PROXY VOTING POLICY......B-1

-ii-

USE OF PROCEEDS

The net proceeds of the offering of Common Shares of the Fund will be
approximately $_____________ ($_____________ if the Underwriters exercise the
overallotment option in full) after payment of the estimated organizational
expenses and offering costs. The Fund expects it will be able to invest
substantially all of the net proceeds in securities and other instruments that
meet the investment objective and policies within two months after completion of
the offering. Pending such investment, it is anticipated that the proceeds will
be invested in cash or cash equivalents.

For the Fund, First Trust Advisors L.P. ("First Trust Advisors" or
"Adviser") has agreed to pay (i) all organizational expenses and (ii) all
offering costs of the Fund (other than sales load, but including a partial
reimbursement of underwriter expenses) that exceed $0.04 per Common Share.
Aberdeen Asset Management Inc. ("Aberdeen" or "Sub-Adviser") has agreed to
reimburse the Adviser for one-half of such organizational expenses and offering
costs of the Fund that exceed $.04 per Common Share.

INVESTMENT OBJECTIVES

Investment Objectives. The Fund's primary investment objective is to
seek a high level of current income. As a secondary objective, the Fund will
seek capital appreciation. The Fund will pursue those objectives by investing in
the world bond markets through a diversified portfolio of investment grade and
below-investment grade government and corporate debt securities.

"Managed Assets" means the gross asset value of the Fund (including
assets attributable to the Fund's Preferred Shares (defined below), if any, and
the principal amount of borrowings) minus the sum of the Fund's accrued and
unpaid dividends on any outstanding Preferred Shares and accrued liabilities
(other than the principal amount of any borrowings incurred or of commercial
paper or notes issued by the Fund). For purposes of determining Managed Assets,
the liquidation preference of preferred shares of beneficial interest
("Preferred Shares") is not treated as a liability. Percentage limitations
described in this Statement of Additional Information are as of the time of
investment by the Fund and may be exceeded on a going-forward basis as a result
of market value fluctuations of the Fund's portfolio and other events.

The Common Shares may trade at a discount or premium to net asset value
("NAV"). An investment in the Fund may not be appropriate for all investors and
is not intended to be a complete investment program. No assurance can be given
that the Fund will achieve its investment objectives. For further discussion of
the Fund's portfolio composition and associated special risk considerations, see
"The Fund's Investments" and "Risks" in the Prospectus.

INVESTMENT RESTRICTIONS

The Fund's investment objectives and certain investment policies of the
Fund are described in the Prospectus. The Fund, as a fundamental policy, may
not:

-1-

1. With respect to 75% of its total assets, purchase any
securities if, as a result, more than 5% of the Fund's total assets
would then be invested in securities of any single issuer or if, as a
result, the Fund would hold more than 10% of the outstanding voting
securities of any single issuer; provided, that Government securities
(as defined in the Investment Company Act of 1940 (the "1940 Act")),
securities issued by other investment companies and cash items
(including receivables) shall not be counted for purposes of this
limitation;

2. Purchase any security if, as a result of the purchase,
25% or more of the Fund's total assets (taken at current value) would
be invested in the securities of Borrowers and other issuers having
their principal business activities in the same industry; provided,
that this limitation shall not apply with respect to obligations issued
or guaranteed by the U.S. Government or by its agencies or
instrumentalities;

3. Borrow money, except as permitted by the 1940 Act, the
rules thereunder and interpretations thereof or pursuant to a
Securities and Exchange Commission exemptive order;

4. 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%;
(iii) the borrowings permitted by investment restriction 3 above, or
(iv) pursuant to a Securities and Exchange Commission exemptive order;

5. Make loans of funds or other assets, other than by
entering into repurchase agreements, lending portfolio securities and
through the purchase of debt securities in accordance with its
investment objectives, policies and limitations;

6. Act as underwriter of another issuer's securities, except
to the extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities;

7. Purchase or sell real estate, but this shall not prevent
the Fund from investing in securities of companies that deal in real
estate or are engaged in the real estate business, including real
estate investment trusts, and securities secured by real estate or
interests therein and the Fund may hold and sell real estate or
mortgages on real estate acquired through default, liquidation, or
other distributions of an interest in real estate as a result of the
Fund's ownership of such securities; and

8. Purchase or sell physical commodities unless acquired as
a result of ownership of securities or other instruments (but this
shall not prevent the Fund from purchasing or selling options, futures
contracts, derivative instruments or from investing in securities or
other instruments backed by physical commodities).

For the purpose of applying the limitation set forth in subparagraph
(2) above, an issuer shall be deemed the sole issuer of a security when its

-2-

assets and revenues are separate from other governmental entities and its
securities are backed only by its assets and revenues. Similarly, in the case of
a non-governmental issuer, such as an industrial corporation or a privately
owned or operated hospital, if the security is backed only by the assets and
revenues of the non-governmental issuer, then such non-governmental issuer would
be deemed to be the sole issuer. Where a security is also backed by the
enforceable obligation of a superior or unrelated governmental or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity. Where a
security is guaranteed by a governmental entity or some other facility, such as
a bank guarantee or letter of credit, such a guarantee or letter of credit would
be considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such municipal bond will be determined in
accordance with the principles set forth above.

Except as noted above, the foregoing fundamental investment policies,
together with the investment objectives of the Fund, cannot be changed without
approval by holders of a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act, which includes Common Shares and Preferred
Shares, if any, voting together as a single class, and of the holders of the
outstanding Preferred Shares voting as a single class. Under the 1940 Act a
"majority of the outstanding voting securities" means the vote of: (A) 67% or
more of the Fund's shares present at a meeting, if the holders of more than 50%
of the Fund's shares are present or represented by proxy; or (B) more than 50%
of the Fund's shares, whichever is less.

In addition to the foregoing investment policies, the Fund is also
subject to the following non-fundamental restrictions and policies, which may be
changed by the Board of Trustees. The Fund may not:

1. Sell securities short, unless the Fund owns or has the
right to obtain securities equivalent in kind and amount to the
securities sold at no added cost, and provided that transactions in
options, futures contracts, options on futures contracts, or other
derivative instruments are not deemed to constitute selling securities
short; or

2. Purchase securities of listed companies for the purpose
of exercising control.

The foregoing restrictions and limitations will apply only at the time
of purchase of securities, and the percentage limitations will not be considered
violated unless an excess or deficiency occurs or exists immediately after and
as a result of an acquisition of securities, unless otherwise indicated.

INVESTMENT POLICIES AND TECHNIQUES

The following information supplements the discussion of the Fund's
investment objectives, policies, and techniques that are described in the Fund's
Prospectus.

-3-

INVESTMENT PHILOSOPHY AND PROCESS

Under normal market conditions, the Fund will invest substantially all
of its Managed Assets in a diversified portfolio of fixed income securities,
including government and corporate bonds, of U.S. and non-U.S. issuers.

The Sub-Adviser will select securities for the portfolio employing the
investment strategies established by Aberdeen's Global Investment Grade and
Global Emerging Market teams. Aberdeen's Investment Team (consisting of the
Global Investment Grade and Global Emerging Market Teams) will regularly monitor
and make allocation decisions among issuers of various regions, countries and
credit qualities in order to achieve the Fund's investment objectives of a high
level of current income and capital appreciation measured in U.S. dollars. The
Fund has no stated maturity strategy. Rather, the Sub-Advisor will invest in
securities of various maturities which it believes offer income and total return
opportunities to the Fund. The Sub-Adviser will select government and corporate
bonds from a universe of over 65 countries, focusing on high real yields and
improving credit conditions that offer income and total return opportunities.
Allocation between investment grade and below-investment grade securities will
vary according to relative value and opportunity identified by Aberdeen's
Investment Team, with input from Aberdeen's Fixed Income Strategy Group. The
Fund's portfolio positions will be undertaken according to the quality of their
risk-adjusted potential return. Aberdeen's Investment Team will have daily
responsibility for the management of the portfolio and for the implementation of
the investment process, monitored through weekly investment committee meetings.

Investment Grade Securities. The Fund will invest no less than 40% of
its Managed Assets in securities rated "Baa3" or better by Moody's Investors
Service, Inc. ("Moody's"), "BBB-" or better by Standard & Poor's Corporation, a
division of The McGraw-Hill Companies ("S&P"), or comparably rated by another
nationally recognized statistical rating organization ("NRSRO") or, if unrated,
determined by the Sub-Adviser to be of comparable credit quality. A portfolio
containing investment grade securities that invests across many national markets
has opportunity to achieve returns in excess of a portfolio that invests in a
single domestic bond market, as the global fixed income market place is less
efficient than domestic markets. This opportunity is derived from a variety of
sources: differing regulatory environments, structural ownership patterns, less
correlated economic cycles, and other diverse local influences. Furthermore
combining several investment grade country yield curves, that have different
volatility and correlation to global events, usually results in lower overall
portfolio volatility.

Aberdeen's research process is internally driven and is predominantly
top down in nature. Each country and bond market is analyzed from the
perspectives of (1) long term structural trends, (2) medium term (strategic)
bond market valuations and (3) short-term tactical views.

-4-

Long term structural views are driven by an understanding of
demographics, political systems/cycles, fiscal sustainability, international
trade, capital market structures and regulatory regimes. These factors influence
the demand/supply for capital, and therefore have a structural impact on long
term yield patterns. Opportunities are identified by comparative country
analysis, determining which countries are likely to benefit or suffer as
economic and political cycles change.

Strategic views examine current market valuations in order to judge
whether they are consistent with economic and political environments, and how
they are likely to change given Aberdeen's forecasts over a 3-12 month period.
This market evaluation is conducted by Aberdeen's Global Economics Team and the
Fixed Income Strategy Group who use a combination of quantitative and
qualitative techniques to highlight apparent imbalances between market
valuations and underlying fundamentals. Such analysis will determine the bias of
the construction of the investment grade portion of the Fund's portfolio.

Tactical views are formed through continuous monitoring of market
developments. Relative value, technical analysis, market positioning
intelligence and portfolio flow data are used to determine the timing,
implementation and scale of positions suggested by Aberdeen's strategic views.

Underlying the investment process is consistent risk management and
stress testing of the portfolio using risk modeling and attribution techniques.
The quantitative techniques are used to identify and test market observations
and are a tool to assist in portfolio construction.

Emerging Markets and Non-Investment Grade Securities. As used in this
Statement of Additional Information, an "emerging market" country is any country
determined to have an emerging market economy, considering factors such as
whether the country has a low-to-middle-income economy according to the World
Bank or its related organizations, the country's credit rating, its political
and economic stability and the development of its financial and capital markets.
These countries generally include countries located in Latin America, the
Caribbean, Asia, Africa, the Middle East and Eastern and Central Europe. Global
emerging market countries must engage in political, structural and fiscal reform
in order to reduce the cost and volatility of their sources of borrowing. If
they successfully engage in such reform, investors in emerging market securities
can achieve strong total return through a combination of high income and capital
gain. Effective credit analysis and market structural awareness is central to
long-term performance, and a selective and active approach can enhance return
and reduce risk. Constructing a diversified portfolio means exposure to
different regional economical cycles and less correlated events, therefore
regional shifts can be exploited or avoided. Emerging market debt is one of the
earliest mechanisms available to investors to benefit from an improvement in a
country's outlook.

-5-

their credit quality due to improving fiscal, economic and funding conditions.
Improving credits also include issuers engaging in regulatory and structural
reform to strengthen their ability to manage their financing requirements
through differing interest rate and economic cycles.

There is a large variance in the return outcomes offered by different
emerging market countries, as reform succeeds or fails according to political or
economic variables. Early identification of structural strengths or weaknesses
in order to respond to these variables is required as sometimes it is difficult
to attempt to manage exposure in volatile market conditions. In addition,
behavioral characteristics can vary greatly between different countries, and
market structural factors (volumes, demand/supply, relative security value) can
have a large impact on total return outcomes. Effective and timely management of
the flow of information is required to be in a position to make informed
investment decisions.

Aberdeen's investment philosophy is therefore to pursue an active,
total return and diversified approach to constructing the emerging debt portion
of the Fund's investment portfolio. By only investing in improving credits,
identified through a disciplined investment process, Aberdeen seeks to increase
the probability of the Fund's performance.

The building block for an investment decision is to gauge debt
sustainability, and what events might improve or decrease that sustainability.
Credit improvement means lower borrowing costs in the long-term, while
deterioration in credit rarely does. Aberdeen's Country Investment Note is an
internally researched document drawing on a variety of sources that include
country research visits, dialogue with multilateral agencies/local investors/
government officials and discourse with other market participants. The purpose
of the note is a snapshot of all variables relevant to a particular issue that
assists in making an investment decision.

Global Market factors may enhance/negate those emerging market debt
opportunities according to regional or macro trends. Although emerging market
debt investment is credit oriented in nature, there are other factors (global
interest rates, swap spreads, currency moves, risk appetite indicators) that
will also contribute to performance, irrespective of underlying credit
improvement, and therefore the timing of any investment allocation may have to
be varied. The specialist teams within Aberdeen's Global Fixed Income team
exchange views through the Fixed Income Strategy Group, and the interaction of
this global view with credit, structural and market analysis contributes to
portfolio construction.

The Fund's portfolio is constructed to reflect the investment team's
credit views, on a diversified basis, and in a manner to optimize exposure
according to global market conditions. There is a specific buy/sell discipline
that relates to improving/deteriorating credits and relative valuations. Each
investment idea requires a target return and a stop-loss so the risk/reward
ratio is acceptable. Furthermore a list of qualifying indicators is used to
determine what events may change the investment rationale, so they can be
monitored on a continual basis. Underlying the investment process is consistent

-6-

risk management and stress testing of the Fund's portfolio using risk modeling
and attribution techniques, on a daily basis.

Aberdeen's philosophy is that there is continual development and
refinement of the process, and that implementation is disciplined and of a high
quality. The mechanisms for ensuring implementation consistently are weekly
investment meetings and monthly reviews of performance attribution.

PORTFOLIO COMPOSITION

The Fund's portfolio will be composed principally of the following
investments:

Government Debt Securities. The Fund will invest at least 60% of its
Managed Assets in securities issued by government, government-related and
supranational issuers ("government debt"). At least 25% of the Fund's Managed
Assets will be invested in U.S. dollar-denominated securities or non-U.S.
dollar-denominated securities that have been fully hedged into U.S. dollars. The
Fund will invest in government debt securities, including those of emerging
market issuers. These securities may be U.S. dollar-denominated or non-U.S.
dollar-denominated and include: (a) debt obligations issued or guaranteed by
foreign national, provincial, state, municipal or other governments with taxing
authority or by their agencies or instrumentalities; and (b) debt obligations of
supranational entities. Government debt includes: debt securities issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions; debt securities issued by government owned, controlled
or sponsored entities; interests in entities organized and operated for the
purpose of restructuring the investment characteristics of instruments issued by
the above-noted issuers; or debt securities issued by supranational entities
such as the World Bank or the European Union. The Fund may also invest in
securities denominated in currencies of emerging market countries. Emerging
market debt securities generally are rated in the lower rating categories of
recognized credit rating agencies or are unrated and considered to be of
comparable quality to lower rated debt securities. A non-U.S. issuer of debt or
the non-U.S. governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal or interest when due, and the Fund may
have limited recourse in the event of a default. Some of these risks do not
apply to issuers in larger, more developed countries. These risks are more
pronounced in investments in issuers in emerging markets or if the Fund invests
significantly in one country.

Corporate Bonds. The Fund may invest up to 40% of its Managed Assets in
corporate debt obligations. Corporate bonds generally are used by corporations
to borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest and normally must repay the amount borrowed on or before
maturity. Certain bonds are "perpetual" in that they have no maturity date. The
Fund may invest in non-U.S. corporate bonds which involve unique risks compared
to investing in the securities of U.S. issuers. See "Additional Information
about the Fund's Investments and Investment Risks--Non-U.S, Securities Risk."

-7-

determined by the Sub-Adviser to be of comparable credit quality. Accordingly,
the Fund may invest a significant portion of its Managed Assets in securities
that are rated non-investment grade or, if unrated, are considered to be of
comparable quality by the Sub-Adviser. Non-investment grade quality securities
are regarded as having predominately speculative characteristics with respect to
the issuers to pay interest and repay principal, and are commonly referred to as
"high yield" or "junk" bonds. Issuers of high yield securities may be highly
leveraged and may not have available to them more traditional methods of
financing. The prices of these lower grade securities typically are more
sensitive to negative developments, such as a decline in the issuer's revenues
or a general economic downturn, than the prices of higher grade securities. The
secondary market for high yield securities may not be as liquid as the secondary
market for more highly rated securities, a factor which may have an adverse
effect on the Fund's ability to dispose of a particular security. See
"Additional Information about the Fund's Investments and Investment Risks -
Non-Investment Grade Securities Risks."

Asset-Backed Securities. The Fund may invest up to 15% of its Managed
Assets in asset-backed securities. Asset-backed securities are securities that
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool or pools of similar
assets (e.g., trade receivables). The credit quality of these securities depends
primarily upon the quality of the underlying assets and the level of credit
support and/or enhancement provided. The underlying assets (e.g., loans) are
subject to prepayments which shorten the securities' weighted average maturity
and may lower their return. Losses or delays in payment may result if the credit
support or enhancement is exhausted, because the required payments of principal
and interest on the underlying assets are not made. The value of these
securities may also change because of changes in the market's perception of the
creditworthiness of the servicing agent for the pool the originator of the pool,
or the financial institution or fund providing the credit support or
enhancement.

Credit Linked Notes. The Fund may invest up to 35% of its Managed
Assets in credit linked notes ("Credit Linked Notes"), provided such securities
are issued by an institution with at least an "A" credit rating by Moody's
and/or S&P. Credit Linked Notes are structured securities typically issued by
banks whose principal and interest payments are contingent on the performance of
a specified borrower company or companies (the "Reference Issuer"). Credit
Linked Notes are created by embedding a credit default swap in a funded asset to
form an investment whose credit risk and cash flow characteristics resemble
those of a bond or loan. These notes pay an enhanced coupon to the investor for
taking on the added credit risk of the Reference Issuer.

Illiquid/Restricted Securities. The Fund may invest up to 10% of its
Managed Assets in securities that, at the time of investment, are illiquid
(determined using the Securities and Exchange Commission's standard applicable
to investment companies, i.e., securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the value at
which the Fund has valued the securities). The Fund may also invest, without
limit, in securities that are unregistered (but are eligible for purchase and
sale by certain qualified institutional buyers) or are held by control persons
of the issuer and securities that are subject to contractual restrictions on

-8-

their resale ("restricted securities"). However, restricted securities
determined by the Sub-Adviser to be illiquid are subject to the limitations set
forth above.

Short-Term Debt Securities; Temporary Defensive Position; Invest-Up
Period. During the period which the net proceeds of the offering of Common
Shares are being invested, the issuance of Preferred Shares, if any, commercial
paper or notes and/or borrowings are being invested or during periods in which
the Adviser or the Sub-Adviser determines that it is temporarily unable to
follow the Fund's investment strategy or that it is impractical to do so, the
Fund may deviate from its investment strategy and invest all or any portion of
its Managed Assets in cash and cash equivalents. The Fund's determination, in
consultation with the Adviser and the Sub-Adviser, that it is temporarily unable
to follow the Fund's investment strategy or that it is impracticable to do so
will generally occur only in situations in which a market disruption event has
occurred and where trading in the securities selected through application of the
Fund's investment strategy is extremely limited or absent. In such a case, the
Fund may not pursue or achieve its investment objectives.

The cash and cash equivalents are defined to include, without
limitation, the following:

(1) U.S. government securities, including bills, notes and
bonds differing as to maturity and rates of interest that are either
issued or guaranteed by the U.S. Treasury or by U.S. government
agencies or instrumentalities. U.S. government agency securities
include securities issued by: (a) the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States,
Small Business Administration, and the Government National Mortgage
Association, whose securities are supported by the full faith and
credit of the United States; (b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks, and the Tennessee Valley Authority, whose
securities are supported by the right of the agency to borrow from the
U.S. Treasury; (c) the Federal National Mortgage Association, whose
securities are supported by the discretionary authority of the U.S.
government to purchase certain obligations of the agency or
instrumentality; and (d) the Student Loan Marketing Association, whose
securities are supported only by its credit. While the U.S. government
provides financial support to such U.S. government-sponsored agencies
or instrumentalities, no assurance can be given that it always will do
so since it is not so obligated by law. The U.S. government, its
agencies, and instrumentalities do not guarantee the market value of
their securities. Consequently, the value of such securities may
fluctuate.

(2) Certificates of Deposit issued against funds deposited in
a bank or a savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are
normally negotiable. The issuer of a certificate of deposit agrees to
pay the amount deposited plus interest to the bearer of the certificate
on the date specified thereon. Under current FDIC regulations, the
maximum insurance payable as to any one certificate of deposit is
$100,000, therefore, certificates of deposit purchased by the Fund may
not be fully insured.

(3) Repurchase agreements, which involve purchases of debt
securities. At the time the Fund purchases securities pursuant to a

-9-

repurchase agreement, it simultaneously agrees to resell and redeliver
such securities to the seller, who also simultaneously agrees to buy
back the securities at a fixed price and time. This assures a
predetermined yield for the Fund during its holding period, since the
resale price is always greater than the purchase price and reflects an
agreed-upon market rate. Such actions afford an opportunity for the
Fund to invest temporarily available cash. Pursuant to the Fund's
policies and procedures, the Fund may enter into repurchase agreements
only with respect to obligations of the U.S. government, its agencies
or instrumentalities; certificates of deposit; or bankers' acceptances
in which the Fund may invest. Repurchase agreements may be considered
loans to the seller, collateralized by the underlying securities. The
risk to the Fund is limited to the ability of the seller to pay the
agreed-upon sum on the repurchase date; in the event of default, the
repurchase agreement provides that the Fund is entitled to sell the
underlying collateral. If the seller defaults under a repurchase
agreement when the value of the underlying collateral is less than the
repurchase price, the Fund could incur a loss of both principal and
interest. The Sub-Adviser monitors the value of the collateral at the
time the action is entered into and at all times during the term of the
repurchase agreement. The investment adviser does so in an effort to
determine that the value of the collateral always equals or exceeds the
agreed-upon repurchase price to be paid to the Fund. If the seller were
to be subject to a federal bankruptcy proceeding, the ability of the
Fund to liquidate the collateral could be delayed or impaired because
of certain provisions of the bankruptcy laws.

(4) Commercial paper, which consists of short-term unsecured
promissory notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes
are direct lending arrangements between the Fund and a corporation.
There is no secondary market for such notes. However, they are
redeemable by the Fund at any time. The Sub-Adviser will consider the
financial condition of the corporation (e.g., earning power, cash flow,
and other liquidity measures) and will continuously monitor the
corporation's ability to meet all its financial obligations, because
the Fund's liquidity might be impaired if the corporation were unable
to pay principal and interest on demand. Investments in commercial
paper will be limited to commercial paper rated in the highest
categories by a nationally recognized statistical rating organization
and which mature within one year of the date of purchase or carry a
variable or floating rate of interest.

(5) The Fund may invest in bankers' acceptances which are
short-term credit instruments used to finance commercial transactions.
Generally, an acceptance is a time draft drawn on a bank by an exporter
or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on
its maturity date. The acceptance may then be held by the accepting
bank as an asset or it may be sold in the secondary market at the going
rate of interest for a specific maturity.

(6) The Fund may invest in bank time deposits, which are
monies kept on deposit with banks or savings and loan associations for
a stated period of time at a fixed rate of interest. There may be
penalties for the early withdrawal of such time deposits, in which case
the yields of these investments will be reduced.

-10-

(7) The Fund may invest in shares of money market funds in
accordance with the provisions of the 1940 Act.

ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS AND INVESTMENT RISKS

NO OPERATING HISTORY

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

INVESTMENT AND MARKET RISK

An investment in Common Shares is subject to investment risk, including
the possible loss of the entire principal amount that you invest. Your
investment in Common Shares represents an indirect investment in the securities
owned by the Fund. The value of these securities, like other market investments,
may move up or down, sometimes rapidly and unpredictably. The value of the
securities in which the Fund invests will affect the value of the Common Shares.
Your Common Shares at any point in time may be worth less than your original
investment, even after taking into account the reinvestment of Fund dividends
and distributions.

MANAGEMENT RISK

The Fund is subject to management risk because it is an actively
managed portfolio. The Adviser and the Sub-Adviser 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.

NON-INVESTMENT GRADE SECURITIES RISK

The Fund may invest up to 60% of its Managed Assets in non-investment
grade securities. Non-investment grade securities are rated below "Baa3" by
Moody's, below "BBB-" by S&P, or comparably rated by another NRSRO or, if
unrated, are of comparable credit quality. Non-investment grade debt instruments
are commonly referred to as "high-yield" or "junk" bonds and are considered
speculative with respect to the issuer's capacity to pay interest and principal
and are susceptible to default or decline in market value due to adverse
economic and business developments. The market values for high yield securities
tend to be very volatile, and these securities are less liquid than investment
grade debt securities.

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

-11-

industries, such as the energy industry, could adversely affect the ability of
non-investment grade debt issuers in that industry to meet their obligations.
The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. Factors having an adverse impact on the market value of lower
quality securities may have an adverse effect on the Fund's NAV and the market
value of its Common Shares. In addition, the Fund may incur additional expenses
to the extent it is required to seek recovery upon a default in payment of
principal or interest on its portfolio holdings. In certain circumstances, the
Fund may be required to foreclose on an issuer's assets and take possession of
its property or operations. In such circumstances, the Fund would incur
additional costs in disposing of such assets and potential liabilities from
operating any business acquired.

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

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

Ratings of securities represent the rating agencies' opinions regarding
their credit quality and are not a guarantee of quality. Rating agencies attempt
to evaluate the safety of principal and interest payments and do not evaluate
the risks of fluctuations in market value. Also, rating agencies may fail to
make timely changes in credit ratings in response to subsequent events, so that
an issuer's current financial condition may be better or worse than a rating
indicates. Therefore, the financial history, the financial condition, the
prospects and the management of an issuer, among other things, also will be
considered in selecting securities for the Fund's portfolio. See Appendix A to
this Statement of Additional Information for a description of Moody's and S&P's
ratings.

-12-

FIXED-INCOME SECURITIES RISK

In addition to the risks discussed above, debt securities, including
high yield securities, are subject to certain risks, including:

o Issuer Risk. The value of fixed-income 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.

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

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

o Credit Risk. Credit risk is the risk that a security in the Fund's
portfolio will decline in price or the issuer fails to make
interest payments when due because the issuer of the security
experiences a decline in its financial status.

INTEREST RATE RISK

NON-U.S. SECURITIES RISK

-13-

or in U.S. dollars (including debt securities of a Governmental Entity in any
such country denominated in the currency of another such country).

A "supranational entity" is an entity constituted by the national
governments of several countries to promote economic development. Examples of
such supranational entities include, among others, the World Bank (International
Bank for Reconstruction and Development), the European Investment Bank and the
Asian Development Bank. Debt securities of "semi-governmental entities" are
issued by entities owned by a national, state, or equivalent government or are
obligations of a political unit that are not backed by the national government's
"full faith and credit" and general taxing powers. Examples of semi-government
issuers include, among others, the Province of Ontario and the City of
Stockholm.

Investment in Government Debt Can Involve a High Degree of Risk. The
Governmental Entity that controls the repayment of government debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of the debt. A Governmental Entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
Governmental Entity's policy toward the International Monetary Fund and the
political constraints to which a Governmental Entity may be subject.
Governmental Entities also may depend on expected disbursements from foreign
governments, multilateral agencies and others to reduce principal and interest
arrearages on their debt. The commitment on the part of these governments,
agencies and others to make disbursements may be conditioned on a Governmental
Entity's implementation of economic reforms and/or economic performance and the
timely service of the debtor's obligations. Failure to implement such reforms,
achieve the levels of economic performance or repay principal or interest when
due may result in the cancellation of such third parties' commitments to lend
funds to the Governmental Entity, which may further impair the debtor's ability
or willingness to service its debts in a timely manner. Consequently,
Governmental Entities may default on their government debt. Holders of
government debt (including the Fund) may be requested to participate in the
rescheduling of the debt and to extend further loans to Governmental Entities.
There is no bankruptcy proceeding by which government debt on which Governmental
Entities have defaulted may be collected in whole or in part.

Foreign Securities Involve Certain Risks. These risks include political
or economic instability in the country of issue, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange
controls, and the seizure or nationalization of foreign deposits. Such
securities also may be subject to greater fluctuations in price than securities
issued by United States corporations or issued or guaranteed by the U.S.
government, its instrumentalities or agencies. In addition, there may be less
publicly available information about a foreign issuer or government than about a
domestic issuer or the U.S. government. Foreign issuers generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic issuers. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States and, with respect to certain foreign countries,
there is a possibility of confiscatory taxation and diplomatic developments
which could affect investment. In many instances, foreign fixed-income

-14-

securities may provide higher yields than securities of domestic issuers which
have similar maturities and quality. These securities may be less liquid than
securities of U.S. issuers, its instrumentalities or agencies. Finally, in the
event of a default of any foreign debt obligations, it may be more difficult for
the Fund to obtain or to enforce a judgment against the issuers of these
securities.

Investing in the fixed-income markets of developing countries involves
exposure to economies that are generally less diverse and mature and to
political systems which can be expected to have less stability than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of developed
countries. The risks associated with investments in foreign securities may be
greater with respect to investments in developing countries and are certainly
greater with respect to investments in the securities of financially and
operationally troubled issuers.

Additional costs could be incurred in connection with the Fund's
international investment activities. Foreign countries may impose taxes on
income on foreign investments. Foreign brokerage commissions are generally
higher than U.S. brokerage commissions. Increased custodian costs as well as
administrative difficulties (such as the applicability of foreign laws to
foreign custodians in various circumstances) may be associated with the
maintenance of assets in foreign jurisdictions.

In addition, risks of investing in emerging markets securities include:
smaller market capitalization of securities markets, which may suffer periods of
relative illiquidity; significant price volatility; restrictions on foreign
investment; and possible repatriation of investment income and capital.
Furthermore, foreign investors may be required to register the proceeds of sale
and future economic or political crises could lead to price controls, forced
mergers, expropriation or confiscatory taxation, seizure, nationalization or
creation of government monopolies. The currencies of emerging market countries
may experience significant declines against the U.S. dollar, and devaluation may
occur subsequent to investments in these currencies by the Fund. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.

COUNTRY RISK

This risk arises as the Fund may have exposure up to 30% of its Managed
Assets to issuers in any one country. The impact on the Fund's NAV of specific
risks relating to investment in non-U.S. issuers, such as political, regulatory,
interest rate, currency and inflation, may be magnified due to the concentration
of the Fund's investments in a particular country.

CURRENCY RISK

-15-

performance may be significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of securities denominated
or quoted in another currency will increase or decrease in response to changes
in the value of such currency in relation to the U.S. dollar. Certain of the
Fund's non-U.S. dollar-denominated securities may be hedged into U.S. dollars.
However, as discussed in "Derivatives Risk" below, hedging may not alleviate all
currency risks.

The Fund may enter into currency exchange transactions to hedge the
Fund's exposure to foreign currency exchange rate risk. The Fund's currency
transactions will be limited to portfolio hedging involving portfolio positions.
Portfolio hedging is the use of a forward contract with respect to a portfolio
security position denominated or quoted in a particular currency. A forward
contract is an agreement to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks, foreign
exchange dealers or broker-dealers, are not exchange-traded, and are usually for
less than one year, but may be renewed.

At the maturity of a forward contract to deliver a particular currency,
the Fund may either sell the portfolio security related to such contract and
make delivery of the currency, or it may retain the security and either acquire
the currency on the spot market or terminate its contractual obligation to
deliver the currency by purchasing an offsetting contract with the same currency
trader obligating it to purchase on the same maturity date the same amount of
the currency.

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

-16-

it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.

MARKET DISCOUNT FROM NET ASSET VALUE

Shares of closed-end investment companies frequently trade at a
discount from their NAV. This characteristic is a risk separate and distinct
from the risk that the Fund's NAV could decrease as a result of its investment
activities and may be greater for investors expecting to sell their Common
Shares in a relatively short period following completion of this offering. The
NAV of the Common Shares will be reduced immediately following the offering as a
result of the payment of certain offering costs. Although the value of the
Fund's net assets is generally considered by market participants in determining
whether to purchase or sell Common Shares, whether investors will realize gains
or losses upon the sale of the Common Shares will depend entirely upon whether
the market price of the Common Shares at the time of sale is above or below the
investor's purchase price for the Common Shares. Because the market price of the
Common Shares will be determined by factors such as NAV, dividend and
distribution levels (which are dependent, in part, on expenses), supply of and
demand for the Common Shares, stability of dividends or distributions, trading
volume of the Common Shares, general market and economic conditions and other
factors beyond the control of the Fund, the Fund cannot predict whether the
Common Shares will trade at, below or above NAV or at, below or above the
initial public offering price.

LEVERAGE RISK

The Fund may borrow an amount up to 33 1/3% (or such other percentage
as permitted by law) of its Managed Assets (including the amount borrowed) less
all liabilities other than borrowings. The Fund may also issue Preferred Shares
in an amount up to 50% of the Fund's Managed Assets (including the proceeds from
Preferred Shares, commercial paper or notes and/or borrowing (each a "Leverage
Instrument" and collectively, the "Leverage Instruments")). However, the Fund
intends, under normal circumstances, to utilize leverage in an amount up to 33
1/3% of the Fund's Managed Assets. Borrowings and the issuance of Preferred
Shares or commercial paper or notes are referred to in this Statement of
Additional Information collectively as "leverage." The Fund may use leverage for
investment purposes, to finance the repurchase of its Common Shares and to meet
cash requirements. Although the use of leverage by the Fund may create an
opportunity for increased return for the Common Shares, it also results in
additional risks and can magnify the effect of any losses. If the income and
gains earned on the securities and investments purchased with leverage proceeds
are greater than the cost of the leverage, the Common Shares' return will be
greater than if leverage had not been used. Conversely, if the income or gains
from the securities and investments purchased with such proceeds does not cover
the cost of leverage, the return to the Common Shares will be less than if
leverage had not been used. There is no assurance that a leveraging strategy

-17-

will be successful. Leverage involves risks and special considerations for
Common Shareholders including:

o the likelihood of greater volatility of NAV and market price of
the Common Shares than a comparable portfolio without leverage;

o the risk that fluctuations in interest rates on borrowings and
short-term debt or in the dividend rates on any Preferred Shares
that the Fund may pay will reduce the return to the Common
Shareholders or will result in fluctuations in the dividends paid
on the Common Shares;

o the effect of leverage in a declining market, which is likely to
cause a greater decline in the NAV of the Common Shares than if
the Fund were not leveraged, which may result in a greater decline
in the market price of the Common Shares; and

o when the Fund uses financial leverage, the investment advisory fee
payable to the Adviser (and by the Adviser to the Sub-Adviser)
will be higher than if the Fund did not use leverage.

The Sub-Adviser, in its judgment, nevertheless may determine to
continue to use leverage if it expects that the benefits to the Fund's
shareholders of maintaining the leveraged position will outweigh the current
reduced return.

The funds borrowed pursuant to a leverage borrowing program (such as a
credit line or commercial paper program), or obtained through the issuance of
Preferred Shares, constitute a substantial lien and burden by reason of their
prior claim against the income of the Fund and against the net assets of the
Fund in liquidation. The rights of lenders to receive payments of interest on
and repayments of principal on any borrowings made by the Fund under a leverage
borrowing program are senior to the rights of holders of Common Shares and the
holders of Preferred Shares, with respect to the payment of dividends or upon
liquidation. The Fund may not be permitted to declare dividends or other
distributions, including dividends and distributions with respect to Common
Shares or Preferred Shares or purchase Common Shares or Preferred Shares, unless
at the time thereof the Fund meets certain asset coverage requirements and no
event of default exists under any leverage program. In addition, the Fund may
not be permitted to pay dividends on Common Shares unless all dividends on the
Preferred Shares and/or accrued interest on borrowings have been paid, or set
aside for payment. In an event of default under a leverage borrowing program,
the lenders have the right to cause a liquidation of collateral (i.e., sell and
other assets of the Fund) and, if any such default is not cured, the lenders may
be able to control the liquidation as well. Certain types of leverage may result
in the Fund being subject to covenants relating to asset coverage and Fund
composition requirements. The Fund may be subject to certain restrictions on
investments imposed by guidelines of one or more rating agencies, which may
issue ratings for the Preferred Shares or other leverage securities issued by
the Fund. These guidelines may impose asset coverage or Fund composition
requirements that are more stringent than those imposed by the 1940 Act. The
Sub-Adviser does not believe that these covenants or guidelines will impede it
from managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies.

-18-

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

DERIVATIVES RISK

The Fund may use various other investment management techniques that
also involve certain risks and special considerations, including engaging in
hedging and risk management transactions, including credit default swaps, Credit
Linked Notes, interest rate options, futures, swaps, caps, floors, and collars,
currency exchange transactions and other derivative transactions. These
strategic transactions will be entered into to seek to manage the risks of the
Fund's portfolio securities, but may have the effect of limiting the gains from
favorable market movements.

A derivative is a financial instrument whose performance is derived at
least in part from the performance of an underlying index, security or asset.
The values of certain derivatives can be affected dramatically by even small
market movements, sometimes in ways that are difficult to predict. There are
many different types of derivatives, with many different uses. The Fund expects
to enter into these transactions primarily to seek to preserve a return on a
particular investment or portion of its portfolio, and also may enter into such
transactions to seek to protect against decreases in the anticipated rate of
return on floating or variable rate financial instruments the Fund owns or
anticipates purchasing at a later date, or for other risk management strategies
such as managing the effective dollar-weighted average duration of the Fund's
portfolio. The Fund also may engage in hedging transactions to seek to protect
the value of its portfolio against declines in NAV resulting from changes in
interest rates or other market changes. Market conditions will determine whether
and in what circumstances the Fund would employ any of the hedging and risk
management techniques described below. The successful utilization of hedging and
risk management transactions requires skills different from those needed in the
selection of the Fund's portfolio securities. The Fund believes that the
Sub-Adviser possesses the skills necessary for the successful utilization of
hedging and risk management transactions. The Fund will incur brokerage and
other costs in connection with its hedging transactions.

The Fund may enter into interest rate swaps or total rate of return
swaps or purchase or sell interest rate caps or floors. Interest rate swaps
involve the exchange by the Fund with another party of their respective
obligations to pay or receive interest, e.g., an obligation to make floating
rate payments for an obligation to make fixed rate payments.

-19-

The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest at the difference of the index and the predetermined rate
on a notional principal amount (the reference amount with respect to which
interest obligations are determined although no actual exchange of principal
occurs) from the party selling the interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate, to receive payments of interest at
the difference of the index and the predetermined rate on a notional principal
amount from the party selling the interest rate floor.

In circumstances in which the Sub-Adviser anticipates that interest
rates will decline, the Fund might, for example, enter into an interest rate
swap as the floating rate payor or, alternatively, purchase an interest rate
floor. In the case of purchasing an interest rate floor, if interest rates
declined below the floor rate, the Fund would receive payments from its
counterparty which would wholly or partially offset the decrease in the payments
it would receive in respect of the portfolio assets being hedged. In the case
where the Fund purchases an interest rate swap, if the floating rate payments
fell below the level of the fixed rate payment set in the swap agreement, the
Fund's counterparty would pay the Fund amounts equal to interest computed at the
difference between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the decrease in the
payments the Fund would receive in respect of floating rate portfolio assets
being hedged.

The successful use of swaps, caps and floors to preserve the rate of
return on a portfolio of financial instruments depends on the Sub-Adviser's
ability to predict correctly the direction and extent of movements in interest
rates.

At the maturity of a forward contract to deliver a particular currency,
the Fund may either sell the portfolio security related to such contract and
make delivery of the currency, or it may retain the security and either acquire
the currency on the spot market or terminate its contractual obligation to
deliver the currency by purchasing an offsetting contract with the same currency
trader obligating it to purchase on the same maturity date the same amount of
the currency.

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

-20-

received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.

Although the Fund believes that use of the hedging and risk management
techniques described above will benefit the Fund, if the Sub-Adviser's judgment
about the direction or extent of the movement in interest rates is incorrect,
the Fund's overall performance would be worse than if it had not entered into
any such transactions.

Because these hedging transactions are entered into for good-faith risk
management purposes, the Sub-Adviser and the Fund believe these obligations do
not constitute senior securities. The Fund usually will enter into interest rate
swaps on a net basis, i.e., where the two parties make net payments with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued and an
amount of cash or liquid securities having an aggregate NAV at least equal to
the accrued excess will be maintained in a segregated account by the Fund's
custodian. If the Fund enters into a swap on other than a net basis, the Fund
will maintain in the segregated account the full amount of the Fund's
obligations under each swap. Accordingly, the Fund does not treat swaps as
senior securities. The Fund may enter into swaps, caps and floors with member
banks of the Federal Reserve System, members of the New York Stock Exchange or
other entities determined by the Adviser, pursuant to procedures adopted and
reviewed on an ongoing basis by the Board of Trustees, to be creditworthy. If a
default occurs by the other party to the transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction but
remedies may be subject to bankruptcy and insolvency laws which could affect the
Fund's rights as a creditor. The swap market has grown substantially in recent

-21-

years with a large number of banks and financial services firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps and floors are more recent
innovations and they are less liquid than swaps. There can be no assurance,
however, that the Fund will be able to enter into interest rate swaps or to
purchase interest rate caps or floors at prices or on terms the Sub-Adviser
believes are advantageous to the Fund. In addition, although the terms of
interest rate swaps, caps and floors may provide for termination, there can be
no assurance that the Fund will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.

The Fund also may engage in credit derivative transactions. Default
risk derivatives are linked to the price of reference securities or loans after
a default by the issuer or borrower, respectively. Market spread derivatives are
based on the risk that changes in market factors, such as credit spreads, can
cause a decline in the value of a security, loan or index. There are three basic
transactional forms for credit derivatives: swaps, options and structured
instruments. The use of credit derivatives is a highly specialized activity
which involves strategies and risks different from those associated with
ordinary portfolio security transactions. If the Sub-Adviser is incorrect in its
forecasts of default risks, market spreads or other applicable factors, the
investment performance of the Fund would diminish compared with what it would
have been if these techniques were not used. Moreover, even if the Sub-Adviser
is correct in its forecasts, there is a risk that a credit derivative position
may correlate imperfectly with the price of the asset or liability being hedged.
Credit derivative transaction exposure will be limited to 50% of the Managed
Assets of the Fund. Such exposure will be attained through the use of
derivatives described above and through credit default swap transactions and
credit linked securities, both of which are discussed below.

Credit Default Swap Transactions. The Fund may invest in credit default
swap transactions (as measured by the notional amounts of the swaps), including
credit linkednotes (described below) for hedging and investment purposes. The
"buyer" in a credit default contract is obligated to pay the "seller" a periodic
stream of payments over the term of the contract provided that no event of
default on an underlying reference obligation has occurred. If an event of
default occurs, the seller must pay the buyer the full notional value, or "par
value," of the reference obligation. Credit default swap transactions are either
"physical delivery" settled or "cash" settled. Physical delivery entails the
actual delivery of the reference asset to the seller in exchange for the payment
of the full par value of the reference asset. Cash settled entails a net cash
payment from the seller to the buyer based on the difference of the par value of
the reference asset and the current value of the reference asset that may have,
through default, lost some, most or all of its value. The Fund may be either the
buyer or seller in a credit default swap transaction. If the Fund is a buyer and
no event of default occurs, the Fund will have made a series of periodic
payments and recover nothing of monetary value. However, if an event of default
occurs, the Fund (if the buyer) will receive the full notional value of the
reference obligation either through a cash payment in exchange for the asset or
a cash payment in addition to owning the reference assets. As a seller, the Fund
receives a fixed rate of income throughout the term of the contract, which
typically is between six months and five years, provided that there is no event
of default. The Fund will segregate assets in the form of cash and cash
equivalents in an amount equal to the aggregate market value of the credit

-22-

default swaps of which it is the seller, marked to market on a daily basis. If
an event of default occurs, the seller must pay the buyer the full notional
value of the reference obligation through either physical settlement or cash
settlement. Credit default swap transactions involve greater risks than if the
Fund had invested in the reference obligation directly.

The Fund also may purchase credit default swap contracts in order to
hedge against the risk of default of debt securities it holds, in which case the
Fund would function as the counterparty referenced in the preceding paragraph.
This would involve the risk that the swap may expire worthless and would only
generate income in the event of an actual default by the issuer of the
underlying obligation (as opposed to a credit downgrade or other indication of
financial instability). It would also involve credit risk that the seller may
fail to satisfy its payment obligations to the Fund in the event of a default.

Credit Linked Notes. The Fund may invest in Credit Linked Notes. Credit
Linked Notes are securities that are collateralized by one or more credit
default swaps on designated debt securities that are referred to as "reference
securities". Through the purchase of a Credit Linked Note, the buyer assumes the
risk of the default or, in some cases, other declines in credit quality of the
referenced securities. The buyer also takes on exposure to the issuer of the
Credit Linked Note in the full amount of the purchase price of the note. The
issuer of a Credit Linked Note normally will have hedged its risk on the
reference securities without acquiring any additional credit exposure. The Fund
has the right to receive periodic interest payments from the issuer of the
Credit Linked Note at an agreed-upon interest rate, and, if there has been no
default or, if applicable, other declines in credit quality, a return of
principal at the maturity date.

Credit Linked Notes are subject to credit risk of the reference
securities underlying the credit default swaps. If one of the underlying
reference securities defaults, or suffers certain other declines in credit
quality, the Fund may, instead of receiving repayment of principal in whole or
in part, receive the security that has defaulted.

Credit Linked Notes typically are privately negotiated transactions
between two or more parties. The Fund bears the risk that the issuer of the
credit linked note will default or become bankrupt. The Fund bears the risk of
loss of the principal amount it invested, and the periodic interest payments
expected to be received for the duration of its investment in the credit linked
note.

The market for Credit Linked Notes may suddenly become illiquid. The
other parties to the transaction may be the only investors with sufficient
understanding of the derivative to be interested in bidding for it. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Credit Linked Notes. In certain cases, a market price for a Credit
Linked Note may not be available. The collateral for a Credit Linked Note is one
or more credit default swaps, which, as described above, are subject to
additional risk.

New financial products continue to be developed and the Fund may invest
in any products that may be developed to the extent consistent with its
investment objectives and the regulatory and federal tax requirements applicable
to investment companies.

-23-

Risks and Special Considerations Concerning Derivatives. In addition to
the foregoing, the use of derivative instruments involves certain general risks
and considerations as described below.

(1) Market Risk. Market risk is the risk that the value of
the underlying assets may go up or down. Adverse movements in the value
of an underlying asset can expose the Fund to losses. Market risk is
the primary risk associated with derivative transactions. Derivative
instruments may include elements of leverage and, accordingly,
fluctuations in the value of the derivative instrument in relation to
the underlying asset may be magnified. The successful use of derivative
instruments depends upon a variety of factors, particularly the
Sub-Adviser's ability to predict correctly changes in the relationships
of such hedge instruments to the Fund's portfolio holdings, and there
can be no assurance the Sub-Adviser's judgment in this respect will be
accurate. Consequently, the use of derivatives for hedging purposes
might result in a poorer overall performance for the Fund, whether or
not adjusted for risk, than if the Fund had not hedged its portfolio
holdings.

(2) Credit Risk. Credit risk is the risk that a loss is
sustained as a result of the failure of a counterparty to comply with
the terms of a derivative instrument. The counterparty risk for
exchange-traded derivatives is generally less than for
privately-negotiated or over-the-counter derivatives, since generally a
clearing agency, which is the issuer or counterparty to each
exchange-traded instrument, provides a guarantee of performance. For
privately-negotiated instruments, there is no similar clearing agency
guarantee. In all transactions, the Fund will bear the risk that the
counterparty will default, and this could result in a loss of the
expected benefit of the derivative transactions and possibly other
losses to the Fund. The Fund will enter into transactions in derivative
instruments only with counterparties that the Sub-Adviser reasonably
believes are capable of performing under the contract.

(3) Correlation Risk. Correlation risk is the risk that there
might be an imperfect correlation, or even no correlation, between
price movements of a derivative instrument and price movements of
investments being hedged. When a derivative transaction is used to
completely hedge another position, changes in the market value of the
combined position (the derivative instrument plus the position being
hedged) result from an imperfect correlation between the price
movements of the two instruments. With a perfect hedge, the value of
the combined position remains unchanged with any change in the price of
the underlying asset. With an imperfect hedge, the value of the
derivative instrument and its hedge are not perfectly correlated. For
example, if the value of a derivative instrument used in a short hedge
(such as buying a put option or selling a futures contract) increased
by less than the decline in value of the hedged investments, the hedge
would not be perfectly correlated. This might occur due to factors
unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which these
instruments are traded. In addition, the Fund's success in using
hedging instruments is subject to the Sub-Adviser's ability to
correctly predict changes in relationships of such hedge instruments to
the Fund's portfolio holdings, and there can be no assurance that the
Sub-Adviser's judgment in this respect will be accurate. An imperfect

-24-

correlation may prevent the Fund from achieving the intended hedge or
expose the Fund to a risk of loss.

(4) Liquidity Risk. Liquidity risk is the risk that a
derivative instrument cannot be sold, closed out, or replaced quickly
at or very close to its fundamental value. Generally, exchange
contracts are liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out
with the other party to the transaction. The Fund might be required by
applicable regulatory requirements to maintain assets as "cover,"
maintain segregated accounts and/or make margin payments when it takes
positions in derivative instruments involving obligations to third
parties (i.e., instruments other than purchase options). If the Fund is
unable to close out its positions in such instruments, it might be
required to continue to maintain such accounts or make such payments
until the position expires, matures, or is closed out. These
requirements might impair the Fund's ability to sell a security or make
an investment at a time when it would otherwise be favorable to do so,
or require that the Fund sell a portfolio security at a disadvantageous
time. The Fund's ability to sell or close out a position in an
instrument prior to expiration or maturity depends upon the existence
of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the counterparty to enter into a transaction
closing out the position. Due to liquidity risk, there is no assurance
that any derivatives position can be sold or closed out at a time and
price that is favorable to the Fund.

(5) Legal Risk. Legal risk is the risk of loss caused by the
unenforceability of a party's obligations under the derivative. While a
party seeking price certainty agrees to surrender the potential upside
in exchange for downside protection, the party taking the risk is
looking for a positive payoff. Despite this voluntary assumption of
risk, a counterparty that has lost money in a derivative transaction
may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.

(6) Systemic or "Interconnection" Risk. Systemic or
interconnection risk is the risk that a disruption in the financial
markets will cause difficulties for all market participants. In other
words, a disruption in one market will spill over into other markets,
perhaps creating a chain reaction. Much of the OTC derivatives market
takes place among the OTC dealers themselves, thus creating a large
interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create
losses for other dealers and destabilize the entire market for OTC
derivative instruments.

PORTFOLIO TURNOVER RISK

-25-

A high portfolio turnover may increase the Fund's current and accumulated
earnings and profits, resulting in a greater portion of the Fund's distributions
being treated as a dividend to the Fund's Common Shareholders. In addition, a
higher portfolio turnover rate results in correspondingly greater brokerage
commissions and other transactional expenses that are borne by the Fund. See
"Other Investment Policies and Techniques--Portfolio Turnover" and "Federal
Income Tax Matters."

MARKET DISRUPTION RISK

The terrorist attacks in the United States on September 11, 2001 had a
disruptive effect on the securities markets. The ongoing United States military
and related action in Iraq and events in the Middle East, as well as the
continuing threat of terrorist attacks, could have significant adverse effects
on the U.S. economy, the stock market and world economies and markets generally.
The Fund cannot predict the effects of similar events in the future on the U.S.
and world economies, the value of the Common Shares or the NAV of the Fund.

INFLATION RISK

Inflation risk is the risk that the value of assets or income from
investments 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 can decline. In addition, during any periods of rising inflation,
the dividend rates or borrowing costs associated with the Fund's use of
Financial Leverage would likely increase, which would tend to further reduce
returns to Common Shareholders.

ANTI-TAKEOVER PROVISIONS

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

RESTRICTIVE COVENANTS AND 1940 ACT RESTRICTIONS

With respect to a leverage borrowing program instituted by the Fund,
the credit agreements governing such a program (the "Credit Agreements") will
likely include usual and customary covenants for this type of transaction,
including, but not limited to, limits on the Fund's ability to: (i) issue
Preferred Shares; (ii) incur liens or pledge portfolio securities or
investments; (iii) change its investment objectives or fundamental investment
restrictions without the approval of lenders; (iv) make changes in any of its
business objectives, purposes or operations that could result in a material
adverse effect; (v) make any changes in its capital structure; (vi) amend the
Fund documents in a manner which could adversely affect the rights, interests or
obligations of any of the lenders; (vii) engage in any business other than the
business currently engaged in; (viii) create, incur, assume or permit to exist

-26-

certain debt except for certain specific types of debt; and (ix) permit any of
its Employment Retirement Income Security Act ("ERISA") affiliates to cause or
permit to occur an event that could result in the imposition of a lien under the
Code or ERISA. In addition, the Credit Agreements would not permit the Fund's
asset coverage ratio (as defined in the Credit Agreements) to fall below 300% at
any time.

Under the requirements of the 1940 Act, the Fund must have asset
coverage of at least 300% immediately after any borrowing, including borrowing
under any leverage borrowing program the Fund implements. For this purpose,
asset coverage means the ratio which the value of the total assets of the Fund,
less liabilities and indebtedness not represented by senior securities, bears to
the aggregate amount of borrowings represented by senior securities issued by
the Fund. The Credit Agreements would limit the Fund's ability to pay dividends
or make other distributions on the Fund's Common Shares unless the Fund complies
with the Credit Agreements' 300% asset coverage test. In addition, the Credit
Agreements will not permit the Fund to declare dividends or other distributions
or purchase or redeem Common Shares or Preferred Shares: (i) at any time that
any event of default under the Credit Agreements has occurred and is continuing;
or (ii) if, after giving effect to such declaration, the Fund would not meet the
Credit Agreements' 300% asset coverage test set forth in the Credit Agreements.

SECONDARY MARKET FOR THE FUND'S SHARES

The issuance of Common Shares through the Fund's Dividend Reinvestment
Plan may have an adverse effect on the secondary market for the Common Shares.
The increase in the number of outstanding Common Shares resulting from issuances
pursuant to the Fund's Dividend Reinvestment Plan and the discount to the market
price at which such Common Shares may be issued, may put downward pressure on
the market price for the Common Shares of the Fund. Common Shares will not be
issued pursuant to the Dividend Reinvestment Plan at any time when Common Shares
are trading at a lower price than the Fund's NAV per Common Share. When the
Fund's Common Shares are trading at a premium, the Fund may also issue Common
Shares that may be sold through private transactions effected on the New York
Stock Exchange ("NYSE") or through broker-dealers. The increase in the number of
outstanding Common Shares resulting from these offerings may put downward
pressure on the market price for Common Shares.

LENDING PORTFOLIO SECURITIES

To generate additional income, the Fund may lend portfolio securities
in an amount up to 33 1/3% of Managed Assets to broker-dealers, major banks or
other recognized domestic institutional borrowers of securities. As with other
extensions of credit, there are risks of delay in the recovery or even loss of
rights in the collateral should a borrower default or fail financially. The Fund
intends to engage in lending portfolio securities only when such lending is
fully secured by investment grade collateral held by an independent agent.

-27-

ILLIQUID/RESTRICTED SECURITIES

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities that have not been
registered under the Securities Act are referred to as restricted securities and
are purchased directly from the issuer or in the secondary market ("Direct
Placement Securities"). Limitations on resale may have an adverse effect on the
marketability of portfolio securities and the Fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices. The
Fund might also have to register the restricted securities to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede the public offering of securities.

Over time, a large institutional market has developed for certain
securities that are not registered under the Securities Act including repurchase
agreements, commercial paper, foreign securities, municipal securities,
convertible securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.

OTHER INVESTMENT POLICIES AND TECHNIQUES

HEDGING STRATEGIES

General Description of Hedging Strategies. The Fund may use derivatives
or other transactions for the purpose of hedging the Fund's exposure to an
increase in the price of a security prior to its anticipated purchase or a
decrease in the price of a security prior to its anticipated sale, to seek to

-28-

reduce interest rate risks arising from the use of any Financial Leverage by the
Fund and to mitigate risks, including interest rate, currency and credit risks.
The specific derivative instruments to be used, or other transactions to be
entered into, for such hedging purposes may include exchange-listed and
over-the-counter put and call options on currencies, securities, fixed-income,
currency and interest rate indices, and other financial instruments, financial
futures contracts and options thereon (hereinafter referred to as "Futures" or
"futures contracts"), interest rate and currency transactions such as swaps,
caps, floors or collars or credit derivative instruments.

Hedging or derivative instruments on securities generally are used to
hedge against price movements in one or more particular securities positions
that the Fund owns or intends to acquire. Such instruments may also be used to
"lock-in" recognized but unrealized gains in the value of portfolio securities.
Hedging strategies, if successful, can reduce the risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. The use of hedging instruments is subject
to applicable regulations of the Securities and Exchange Commission, the several
options and futures exchanges upon which they are traded, the CFTC and various
state regulatory authorities. In addition, the Fund's ability to use hedging
instruments may be limited by tax considerations.

General Limitations on Futures and Options Transactions. The Fund has
filed a notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the CFTC and the National Futures Association,
which regulate trading in the futures markets. Pursuant to Section 4.5 of the
regulations under the Commodity Exchange Act (the "CEA"), the Fund is not
subject to regulation as a commodity pool under the CEA.

Various exchanges and regulatory authorities have undertaken reviews of
options and Futures trading in light of market volatility. Among the possible
actions that have been presented are proposals to adopt new or more stringent
daily price fluctuation limits for Futures and options transactions and
proposals to increase the margin requirements for various types of futures
transactions.

Asset Coverage for Futures and Options Positions. The Fund will comply
with the regulatory requirements of the Securities and Exchange Commission and
the CFTC with respect to coverage of options and Futures positions by registered
investment companies and, if the guidelines so require, will set aside cash,
U.S. government securities, high grade liquid debt securities and/or other
liquid assets permitted by the Securities and Exchange Commission and CFTC in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the Futures or options position is
outstanding, unless replaced with other permissible assets, and will be
marked-to-market daily.

Options. As an anticipatory hedge, the Fund may purchase put and call
options on stock or other securities. A put option embodies the right of its
purchaser to compel the writer of the option to purchase from the option holder
an underlying security or its equivalent at a specified price at any time during
the option period. In contrast, a call option gives the purchaser the right to

-29-

buy the underlying security covered by the option or its equivalent from the
writer of the option at the stated exercise price.

As a holder of a put option, the Fund will have the right to sell the
securities underlying the option and as the holder of a call option, the Fund
will have the right to purchase the securities underlying the option, in each
case at their exercise price at any time prior to the option's expiration date.
The Fund may seek to terminate its option positions prior to their expiration by
entering into closing transactions. The ability of the Fund to enter into a
closing sale transaction depends on the existence of a liquid secondary market.
There can be no assurance that a closing purchase or sale transaction can be
effected when the Fund so desires.

Certain Considerations Regarding Options. The hours of trading for
options may not conform to the hours during which the underlying securities are
traded. To the extent that the options markets close before the markets for the
underlying securities, significant price and rate movements can take place in
the underlying markets that cannot be reflected in the options markets. The
purchase of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The purchase of options involves the risk that the
premium and transaction costs paid by the Fund in purchasing an option will be
lost as a result of unanticipated movements in prices of the securities on which
the option is based. Imperfect correlation between the options and securities
markets may detract from the effectiveness of attempted hedging. Options
transactions may result in significantly higher transaction costs and portfolio
turnover for the Fund.

Some, but not all, of the derivative instruments may be traded and
listed on an exchange. There is no assurance that a liquid secondary market on
an options exchange will exist for any particular option, or at any particular
time, and for some options no secondary market on an exchange or elsewhere may
exist. If the Fund is unable to effect a closing sale transaction with respect
to options on securities that it has purchased, it would have to exercise the
option in order to realize any profit and would incur transaction costs upon the
purchase and sale of the underlying securities.

Futures Contracts. The Fund may enter into securities-related futures
contracts, including security futures contracts as an anticipatory hedge. The
Fund's hedging may include sales of Futures as an offset against the effect of
expected declines in securities prices and purchases of Futures as an offset
against the effect of expected increases in securities prices. The Fund will not
enter into futures contracts which are prohibited under the CEA and will, to the
extent required by regulatory authorities, enter only into futures contracts
that are traded on exchanges and are standardized as to maturity date and
underlying financial instrument. A security futures contract is a legally
binding agreement between two parties to purchase or sell in the future a
specific quantity of shares of a security or of the component securities of a
narrow-based security index, at a certain price. A person who buys a security
futures contract enters into a contract to purchase an underlying security and
is said to be "long" the contract. A person who sells a security futures contact
enters into a contract to sell the underlying security and is said to be "short"
the contract. The price at which the contract trades (the "contract price") is
determined by relative buying and selling interest on a regulated exchange.

-30-

Transaction costs are incurred when a futures contract is bought or
sold and margin deposits must be maintained. In order to enter into a security
futures contract, the Fund must deposit funds with its custodian in the name of
the futures commodities merchant equal to a specified percentage of the current
market value of the contract as a performance bond. Moreover, all security
futures contracts are marked-to-market at least daily, usually after the close
of trading. At that time, the account of each buyer and seller reflects the
amount of any gain or loss on the security futures contract based on the
contract price established at the end of the day for settlement purposes.

An open position, either a long or short position, is closed or
liquidated by entering into an offsetting transaction (i.e., an equal and
opposite transaction to the one that opened the position) prior to the contract
expiration. Traditionally, most futures contracts are liquidated prior to
expiration through an offsetting transaction and, thus, holders do not incur a
settlement obligation. If the offsetting purchase price is less than the
original sale price, a gain will be realized. Conversely, if the offsetting sale
price is more than the original purchase price, a gain will be realized; if it
is less, a loss will be realized. The transaction costs must also be included in
these calculations. There can be no assurance, however, that the Fund will be
able to enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the futures contract and the Fund may not be able to realize
a gain in the value of its future position or prevent losses from mounting. This
inability to liquidate could occur, for example, if trading is halted due to
unusual trading activity in either the security futures contract or the
underlying security; if trading is halted due to recent news events involving
the issuer of the underlying security; if systems failures occur on an exchange
or at the firm carrying the position; or, if the position is on an illiquid
market. Even if the Fund can liquidate its position, it may be forced to do so
at a price that involves a large loss.

Under certain market conditions, it may also be difficult or impossible
to manage the risk from open security futures positions by entering into an
equivalent but opposite position in another contract month, on another market,
or in the underlying security. This inability to take positions to limit the
risk could occur, for example, if trading is halted across markets due to
unusual trading activity in the security futures contract or the underlying
security or due to recent news events involving the issuer of the underlying
security.

There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a Futures contract position. The Fund would
continue to be required to meet margin requirements until the position is
closed, possibly resulting in a decline in the Fund's NAV. In addition, many of
the contracts discussed above are relatively new instruments without a
significant trading history. As a result, there can be no assurance that an
active secondary market will develop or continue to exist.

Security futures contracts that are not liquidated prior to expiration
must be settled in accordance with the terms of the contract. Some security
futures contracts are settled by physical delivery of the underlying security.
At the expiration of a security futures contract that is settled through
physical delivery, a person who is long the contract must pay the final
settlement price set by the regulated exchange or the clearing organization and
take delivery of the underlying shares. Conversely, a person who is short the

-31-

contract must make delivery of the underlying shares in exchange for the final
settlement price. Settlement with physical delivery may involve additional
costs.

Other security futures contracts are settled through cash settlement.
In this case, the underlying security is not delivered. Instead, any positions
in such security futures contracts that are open at the end of the last trading
day are settled through a final cash payment based on a final settlement price
determined by the exchange or clearing organization. Once this payment is made,
neither party has any further obligations on the contract.

As noted above, margin is the amount of funds that must be deposited by
the Fund in order to initiate Futures trading and to maintain the Fund's open
positions in futures contracts. A margin deposit is intended to ensure the
Fund's performance of the futures contract. The margin required for a particular
futures contract is set by the exchange on which the futures contract is traded
and may be significantly modified from time to time by the exchange during the
term of the futures contract.

If the price of an open futures contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the respective Fund. In computing daily NAV, the
Fund will mark to market the current value of its open futures contracts. The
Fund expects to earn interest income on its margin deposits.

Because of the low margin deposits required, Futures contracts trading
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss, as well as gain, to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contracts were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount initially invested in the futures contract. However, the Fund would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying financial instrument and sold it after the
decline.

In addition to the foregoing, imperfect correlation between the futures
contracts and the underlying securities may prevent the Fund from achieving the
intended hedge or expose the Fund to risk of loss. Under certain market
conditions, the prices of security futures contracts may not maintain their
customary or anticipated relationships to the prices of the underlying security
or index. These pricing disparities could occur, for example, when the market
for the security futures contract is illiquid, when the primary market for the
underlying security is closed, or when the reporting of transactions in the
underlying security has been delayed.

-32-

In addition, the value of a position in security futures contracts
could be affected if trading is halted in either the security futures contract
or the underlying security. In certain circumstances, regulated exchanges are
required by law to halt trading in security futures contracts. For example,
trading on a particular security futures contract must be halted if trading is
halted on the listed market for the underlying security as a result of pending
news, regulatory concerns, or market volatility. Similarly, trading of a
security futures contract on a narrow-based security index must be halted under
circumstances such as where trading is halted on securities accounting for at
least 50% of the market capitalization of the index. In addition, regulated
exchanges are required to halt trading in all security futures contracts for a
specified period of time when the Dow Jones Industrial Average ("DJIA")
experiences one-day declines of 10-, 20- and 30%. The regulated exchanges may
also have discretion under their rules to halt trading in other circumstances -
such as when the exchange determines that the halt would be advisable in
maintaining a fair and orderly market.

A trading halt, either by a regulated exchange that trades security
futures or an exchange trading the underlying security or instrument, could
prevent the Fund from liquidating a position in security futures contracts in a
timely manner, which could expose the Fund to a loss.

Each regulated exchange trading a security futures contract may also
open and close for trading at different times than other regulated exchanges
trading security futures contracts or markets trading the underlying security or
securities. Trading in security futures contracts prior to the opening or after
the close of the primary market for the underlying security may be less liquid
than trading during regular market hours.

Swap Agreements. For hedging purposes, the Fund may enter into swap
agreements. A swap is a financial instrument that typically involves the
exchange of cash flows between two parties on specified dates (settlement
dates), where the cash flows are based on agreed-upon prices, rates, indices,
etc. The nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and structured to include
exposure to a variety of different types of investments or market factors, such
as interest rates, commodity prices, non-U.S. currency rates, mortgage
securities, corporate borrowing rates, security prices, indexes or inflation
rates.

Swap agreements may increase or decrease the overall volatility of the
investments of the Fund and its share price. The performance of swap agreements
may be affected by a change in the specific interest rate, currency, or other
factors that determine the amounts of payments due to and from the Fund. If a
swap agreement calls for payments by the Fund, the Fund must be prepared to make
such payments when due. In addition, if the counterparty's creditworthiness
declines, the value of a swap agreement would be likely to decline, potentially
resulting in losses.

Generally, swap agreements have fixed maturity dates that are agreed
upon by the parties to the swap. The agreement can be terminated before the
maturity date only under limited circumstances, such as default by one of the
parties or insolvency, among others, and can be transferred by a party only with
the prior written consent of the other party. The Fund may be able to eliminate
its exposure under a swap agreement either by assignment or by other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party. If the counterparty is unable to meet

-33-

its obligations under the contract, declares bankruptcy, defaults or becomes
insolvent, the Fund may not be able to recover the money it expected to receive
under the contract.

A swap agreement can be a form of leverage, which can magnify the
Fund's gains or losses. In order to reduce the risk associated with leveraging,
the Fund may cover its current obligations under swap agreements according to
guidelines established by the Securities and Exchange Commission. If the Fund
enters into a swap agreement on a net basis, it will be required to segregate
assets with a daily value at least equal to the excess, if any, of the Fund's
accrued obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If the Fund enters into a swap
agreement on other than a net basis, it will be required to segregate assets
with a value equal to the full amount of the Fund's accrued obligations under
the agreement.

Equity Swaps. In a typical equity swap, one party agrees to pay another
party the return on a security, security index or basket of securities in return
for a specified interest rate. By entering into an equity index swap, for
example, the index receiver can gain exposure to securities making up the index
of securities without actually purchasing those securities. Equity index swaps
involve not only the risk associated with investment in the securities
represented in the index, but also the risk that the performance of such
securities, including dividends, will not exceed the interest that the Fund will
be committed to pay under the swap.

LENDING OF PORTFOLIO SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend
its portfolio securities in any amount to brokers, dealers and financial
institutions, provided that loans are callable at any time by the Fund and are
at all times secured by cash or equivalent collateral that is equal to at least
the market value, determined daily, of the loaned securities. During the time
portfolio securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividend or interest paid on the securities and the Fund may
invest the cash collateral and earn additional income, or it may receive an
agreed-upon amount of interest income from the borrower. The advantage of the
loans is that the Fund continues to receive payments in lieu of the interest and
dividends of the loaned securities, while at the same time earning interest
either directly from the borrower or on the collateral which will be invested in
short-term obligations.

A loan may be terminated by the borrower on one business day's notice
or by the Fund at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
to be creditworthy. On termination of the loan, the borrower is required to
return the securities to the Fund, and any gain or loss in the market price
during the loan would inure to the Fund.

-34-

Since voting or consent rights which accompany loaned securities pass
to the borrower, the Fund will follow the policy of calling the loan, in whole
or in part as may be appropriate, to permit the exercise of its rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan. The Fund will pay reasonable
finders, administrative and custodial fees in connection with a loan of its
securities or may share the interest earned on collateral with the borrower.

PORTFOLIO TURNOVER

The Fund's annual portfolio turnover rate may vary greatly from year
to year. Although the Fund cannot accurately predict its annual portfolio
turnover rate, it is not expected to exceed 100% under normal circumstances.
Portfolio turnover rate is not considered a limiting factor in the execution of
investment decisions for the Fund. There are no limits on the rate of portfolio
turnover, and investments may be sold without regard to length of time held when
the Fund's investment strategy so dictates. A higher portfolio turnover rate
results in correspondingly greater brokerage commissions and other transactional
expenses that are borne by the Fund. High portfolio turnover may result in the
realization of net short-term capital gains by the Fund which, when distributed
to Common Shareholders, will be taxable as ordinary income. See "Federal Income
Tax Matters."

BORROWINGS AND PREFERRED SHARES

The Fund anticipates that under current market conditions it will issue
Leverage Instruments representing no more than 33 1/3% of its Managed Assets
approximately three months after the completion of this offering. If as a result
of market conditions, or any other reason, the Fund does not issue Preferred
Shares, the Fund will limit its borrowing to 33 1/3% (or such other percentage
permitted by law) of its Managed Assets. The Leverage Instruments would have
complete priority upon distribution of assets over Common Shares. The issuance
of Leverage Instruments would leverage the Common Shares. Although the timing
and other terms of the offering of Leverage Instruments and the terms of the
Leverage Instruments would be determined by the Fund's Board of Trustees, the
Fund expects to invest the proceeds derived from any Leverage Instrument
offering in securities consistent with the Fund's investment objective and
policies. If Preferred Shares are issued they would pay adjustable rate
dividends based on shorter-term interest rates, which would be redetermined
periodically by an auction process. The adjustment period for Preferred Shares
dividends could be as short as one day or as long as a year or more. So long as
the Fund's portfolio is invested in securities that provide a higher rate of
return than the dividend rate or interest rate of the Leverage Instruments,
after taking expenses into consideration, the leverage will cause Common
Shareholders to receive a higher rate of income than if the Fund were not
leveraged.

Leverage creates risk for holders of the Common Shares, including the
likelihood of greater volatility of NAV and market price of the Common Shares,
and the risk that fluctuations in interest rates on borrowings and debt or in
the dividend rates on any Preferred Shares may affect the return to the holders
of the Common Shares or will result in fluctuations in the dividends paid on the
Common Shares. To the extent total return exceeds the cost of leverage, the
Fund's return will be greater than if leverage had not been used. Conversely, if

-35-

the total return derived from securities purchased with funds received from the
use of leverage is less than the cost of leverage, the Fund's return 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. In the latter case, the Sub-Adviser in its best judgment nevertheless
may determine to maintain the Fund's leveraged position if it expects that the
benefits to the Fund's Common Shareholders of maintaining the leveraged position
will outweigh the current reduced return. Under normal market conditions, the
Fund anticipates that it will be able to invest the proceeds from leverage at a
higher rate than the costs of leverage, which would enhance returns to Common
Shareholders. The fees paid to the Adviser and Sub-Adviser will be calculated on
the basis of the Managed Assets including proceeds from borrowings for leverage
and the issuance of Preferred Shares. During periods in which the Fund is
utilizing financial leverage, the investment advisory fee payable to the Adviser
and Sub-Adviser will be higher than if the Fund did not utilize a leveraged
capital structure. The use of leverage creates risks and involves special
considerations.

The Fund's Declaration authorizes the Fund, without prior approval of
the Common Shareholders, to borrow money. In this connection, the Fund may issue
notes or other evidence of indebtedness (including bank borrowings or commercial
paper) and may secure any such borrowings by mortgaging, pledging or otherwise
subjecting as security the Fund's assets. In connection with such borrowing, the
Fund may be required to maintain minimum average balances with the lender or to
pay a commitment or other fee to maintain a line of credit. Any such
requirements will increase the cost of borrowing over the stated interest rate.
Under the requirements of the 1940 Act, the Fund, immediately after any such
borrowings, must have an "asset coverage" of at least 300% (33 1/3% of Managed
Assets after borrowings). With respect to such borrowing, asset coverage means
the ratio which the value of the total assets of the Fund, less all liabilities
and indebtedness not represented by senior securities (as defined in the 1940
Act), bears to the aggregate amount of such borrowing represented by senior
securities issued by the Fund.

The rights of lenders to the Fund to receive interest on and repayment
of principal of any such borrowings will be senior to those of the Common
Shareholders, and the terms of any such borrowings may contain provisions which
limit certain activities of the Fund, including the payment of dividends to
Common Shareholders in certain circumstances. Further, the 1940 Act does (in
certain circumstances) grant to the lenders to the Fund certain voting rights in
the event of default in the payment of interest on or repayment of principal. In
the event that such provisions would impair the Fund's status as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), the Fund, subject to its ability to liquidate its relatively illiquid
portfolio, intends to repay the borrowings. Any borrowing will likely be ranked
senior or equal to all other existing and future borrowings of the Fund.

-36-

Sub-Adviser from managing the Fund's portfolio in accordance with the Fund's
investment objective and policies.

The Fund may also 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.

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

The management of the Fund, including general supervision of the duties
performed for the Fund under the Investment Management Agreement, is the
responsibility of the Board of Trustees. The trustees set broad policies for the
Fund and choose the Fund's officers. The following is a list of the trustees and
officers of the Fund and a statement of their present positions and principal
occupations during the past five years, with the trustee who is an "interested
person" (as such term is defined in the 1940 Act) of the Fund indicated by an
asterisk.

-37-

NUMBER OF
PORTFOLIOS
TERM OF IN FUND
OFFICE AND COMPLEX OTHER
POSITION AND YEAR FIRST PRINCIPAL OVERSEEN TRUSTEESHIPS
OFFICES WITH ELECTED OR OCCUPATIONS DURING BY TRUSTEE HELD BY
NAME, ADDRESS AND AGE FUND APPOINTED PAST 5 YEARS OR OFFICER TRUSTEE
--------------------- ------------ ---------- ------------- ---------- ------------

Trustee who is an
Interested Person of
the Fund
--------------------

James A. Bowen(1)* President, o One Year(2) President, First Trust 20 Portfolios None
1001 Warrenville Road, Chairman of Portfolios and First
Suite 300 the Board, Chief o 2004 Trust Advisors; Chairman
Lisle, IL 60532 Executive Officer of the Board of Directors
D.O.B.: 09/55 and Trustee Bond Wave, LLC

Trustees who are not
Interested Persons of
the Fund
--------------------

Richard E. Erickson Trustee o One Year(2) Physician, 20 Portfolios None
c/o First Trust Sportsmed/Wheaton
Advisors L.P. o 2004 Orthopedics
1001 Warrenville Road,
Suite 300
Lisle, IL 60532
D.O.B.: 04/51

Niel B. Nielson Trustee o One Year(2) President (2002 to 20 Portfolios Director of Good
c/o First Trust to Present), Covenant News Publishers -
Advisors L.P. o 2004 College; Pastor (1997 to Crossway Books;
1001 Warrenville Road, 2002), College Church Covenant Transport
Suite 300 in Wheaton Inc.
Lisle, IL 60532
D.O.B.: 03/54

Thomas R. Kadlec Trustee o One Year(2) Vice President, Chief 20 Portfolios None
c/o First Trust Financial Officer (1990
Advisors L.P. o 2004 to Present), ADM Investor
1001 Warrenville Road, Services, Inc. (Futures
Suite 300 Commission Merchant);
Lisle, IL 60532 Registered Representative
D.O.B.: 11/57 (2000 to Present), Segerdahl
& Company, Inc., an NASD
member (Broker-Dealer)

David M. Oster Trustee o One Year(2) Trader (Self-Employed) 9 Portfolios None
c/o First Trust (1987 to Present)
Advisors L.P. o 2004 (Options Trading and
1001 Warrenville Road, Market Making)
Suite 300
Lisle, IL 60532
D.O.B.: 03/64

Officers of the Fund
--------------------

Mark R. Bradley Treasurer, o Indefinite term Chief Financial 20 Portfolios N/A
1001 Warrenville Road, Controller, Officer, Managing
Suite 300 Chief Financial o 2004 Director, First Trust
Lisle, IL 60532 Officer and Portfolios and First
D.O.B.: 11/57 Chief Accounting Trust Advisors
Officer

Susan M. Brix Assistant o Indefinite term Representative, 20 Portfolios N/A
1001 Warrenville Road, Vice President First Trust Portfolios;
Suite 300 o 2004 Assistant Portfolio
Lisle, IL 60532 Manager, First
D.O.B.: 01/60 Trust Advisors

Robert F. Carey Vice President o Indefinite term Senior Vice President, 20 Portfolios N/A
1001 Warrenville Road, First Trust Portfolios
Suite 300 o 2004 and First Trust
Lisle, IL 60532 Advisors
D.O.B.: 07/63

-38-

W. Scott Jardine Secretary and o Indefinite term General Counsel, First 20 Portfolios N/A
1001 Warrenville Road, Chief Compliance Trust Portfolios and
Suite 300 Officer o 2004 First Trust Advisors;
Lisle, IL 60532 Secretary, Bond Wave, LLC
D.O.B.: 05/60

Kristi A. Maher Assistant o Indefinite term Assistant General 20 Portfolios N/A
1001 Warrenville Road, Secretary Counsel (March 2004 to
Suite 300 o 2004 Present), First Trust
Lisle, IL 60532 Portfolios; Associate
D.O.B.: 12/66 (1995 to March 2004),
Chapman and Cutler LLP

Roger Testin Vice President o Indefinite term Vice President 20 Portfolios N/A
1001 Warrenville Road, (August 2001 to Present),
Suite 300 o 2004 First Trust Advisors;
Lisle, IL 60532 Analyst (1998 to 2001),
D.O.B.: 06/66 Dolan Capital Management

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

(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
of President of First Trust Advisors, investment adviser of the Fund.

(2) Trustees are elected each year by shareholders and serve a one year term
until their successors are elected. Mr. Bowen's officer positions with the
Fund have an indefinite term.

The Board of Trustees of the Fund has four standing committees, the
Executive Committee (and Pricing and Dividend Committee), the Nominating and
Governance Committee, the Valuation Committee and the Audit Committee. The
Executive Committee, which meets between Board meetings, is authorized to
exercise all powers of and to act in the place of the Board of Trustees to the
extent permitted by the Fund's Declaration and By-laws. The members of the
Executive Committee shall also serve as a special committee of the Board known
as the Pricing and Dividend Committee which is authorized to exercise all of the
powers and authority of the Board in respect of the issuance and sale, through
an underwritten public offering, of the Common Shares of the Fund and all other
such matters relating to such financing, including determining the price at
which such shares are to be sold and approval of the final terms of the
underwriting agreement, including approval of the members of the underwriting
syndicate. Such committee is also responsible for the declaration and setting of
dividends. Messrs. Kadlec and Bowen are members of the Executive Committee. The
Nominating and Governance Committee is responsible for appointing and nominating
non-interested persons to the Fund's Board of Trustees. Messrs. Erickson,
Nielson, Kadlec and Oster are members of the Nominating and Governance
Committee. If there is no vacancy on the Board of Trustees, the Board will not
actively seek recommendations from other parties, including Shareholders. When a
vacancy on the Board occurs and nominations are sought to fill such vacancy, the
Nominating and Governance Committee may seek nominations from those sources it
deems appropriate in its discretion, including Shareholders of the Fund. To
submit a recommendation for nomination as a candidate for a position on the
Board, Shareholders of the Fund shall mail such recommendation to W. Scott
Jardine at the Fund's address, 1001 Warrenville Road, Suite 300, Lisle, Illinois
60532. Such recommendation shall include the following information: (a) evidence
of Fund ownership of the person or entity recommending the candidate (if a Fund
Shareholder); (b) a full description of the proposed candidate's background,
including their education, experience, current employment and date of birth; (c)

-39-

names and addresses of at least three professional references for the candidate;
(d) information as to whether the candidate is an "interested person" in
relation to such Fund, as such term is defined in the 1940 Act, as amended, and
such other information that may be considered to impair the candidate's
independence; and (e) any other information that may be helpful to the Committee
in evaluating the candidate. If a recommendation is received with satisfactorily
completed information regarding a candidate during a time when a vacancy exists
on the Board or during such other time as the Nominating and Governance
Committee is accepting recommendations, the recommendation will be forwarded to
the Chair of the Nominating and Governance Committee and the outside counsel to
the independent trustees. Recommendations received at any other time will be
kept on file until such time as the Nominating and Governance Committee is
accepting recommendations, at which point they may be considered for nomination.
The Valuation Committee is responsible for the oversight of the pricing
procedures of the Fund. Messrs. Erickson, Kadlec and Oster are members of the
Valuation Committee. The Audit Committee is responsible for overseeing the
Fund's accounting and financial reporting process, the system of internal
controls, audit process and evaluating and appointing independent auditors
(subject also to Board approval). Messrs. Erickson, Nielson, Kadlec and Oster
serve on the Audit Committee. Because the Fund is newly organized, none of the
committees have met during the Fund's last fiscal year.

Messrs. Erickson, Nielson, Kadlec and Bowen are also trustees of First
Defined Portfolio Fund, LLC, an open-end fund advised by First Trust Advisors
with 11 portfolios. Messrs. Bowen, Erickson, Nielson, Kadlec and Oster are also
trustees of the First Trust Value Line(R) 100 Fund, First Trust Value Line(R)
Dividend Fund, First Trust/Four Corners Senior Floating Rate Income Fund, First
Trust/Four Corners Senior Floating Rate Income Fund II, Macquarie/First Trust
Global Infrastructure/Utilities Dividend & Income Fund, First Trust/Value
Line(R) & Ibbotson Equity Allocation Fund, Energy Income and Growth Fund, and
the First Trust/Fiduciary Asset Management Covered Call Fund, closed-end funds
advised by First Trust Advisors. None of the trustees who are not "interested
persons" of the Fund, nor any of their immediate family members, has ever been a
director, officer or employee of, or consultant to, First Trust Advisors, First
Trust Portfolios or their affiliates. In addition, Mr. Bowen and the other
officers of the Fund hold the same positions with the First Defined Portfolio
Fund, LLC, First Trust Value Line(R) 100 Fund, First Trust Value Line(R)
Dividend Fund, First Trust/Four Corners Senior Floating Rate Income Fund, First
Trust/Four Corners Senior Floating Rate Income Fund II, Macquarie/First Trust
Global Infrastructure/Utilities Dividend & Income Fund, First Trust/Value
Line(R) & Ibbotson Equity Allocation Fund, Energy Income and Growth Fund and
First Trust/ Fiduciary Asset Management Covered Call Fund (collectively, the
"First Trust Fund Complex") as they hold with the Fund.

Effective June 7, 2004, the trustees approved a revised compensation
plan. Under the revised plan, each fund in the First Trust Fund Complex pays
each trustee who is not an officer or employee of First Trust Advisors, any
sub-adviser or any of their affiliates ("Independent Trustees") an annual
retainer of $10,000 which includes compensation for all regular quarterly board
meetings and regular committee meetings. No additional meeting fees are paid in
connection with regular quarterly board meetings or regular committee meetings.
Additional fees of $1,000 and $500 are paid to Independent Trustees for special
board meetings and non-regular committee meetings, respectively. These
additional fees are shared by the funds in the First Trust Fund Complex that

-40-

participate in the particular meeting and are not per fund fees. Trustees are
also reimbursed for travel and out-of-pocket expenses in connection with all
meetings. The trustees adopted the revised plan because the increase in the
number of funds in the First Trust Fund Complex had the effect of rapidly
increasing their compensation under the previous arrangements.

The following table sets forth estimated compensation to be paid by the
Fund projected during the Fund's first full fiscal year to each of the trustees
and estimated total compensation to be paid to each of the trustees by the First
Trust Fund Complex for a full calendar year. The Fund has no retirement or
pension plans.

ESTIMATED TOTAL
COMPENSATION
ESTIMATED AGGREGATE FROM FUND AND
NAME OF TRUSTEE COMPENSATION FROM FUND (1) FUND COMPLEX(2)
James A. Bowen $0 $0
Richard E. Erickson $10,000 $90,000
Thomas R. Kadlec $10,000 $90,000
Niel B. Nielson $10,000 $90,000
David M. Oster $10,000 $80,000
--------------------
(1) The compensation estimated to be paid by the Fund to the trustees for the
first full fiscal year for services to the Fund.
(2) The total estimated compensation to be paid to Messrs. Erickson, Kadlec
and Nielson, Independent Trustees, from the Fund and Fund Complex for a
full calendar year is based on estimated compensation to be paid to these
trustees for a full calendar year for services as trustees to the First
Defined Portfolio Fund, LLC, an open-end fund (with 11 portfolios)
advised by First Trust Advisors plus estimated compensation to be paid to
these trustees by the First Value Line(R) 100 Fund, the First Trust Value
Line(R) Dividend Fund, the First Trust/Four Corners Senior Floating Rate
Income Fund, the First Trust/Four Corners Senior Floating Rate Income
Fund II, the Macquarie/First Trust Global Infrastructure/Utilities
Dividend & Income Fund, the First Trust/Value Line(R) & Ibbotson Equity
Allocation Fund, the Energy Income and Growth Fund, the First
Trust/Fiduciary Asset Management Covered Call Fund and the Fund for a
full calendar year. Mr. Oster is currently not a trustee of the First
Defined Portfolio Fund, LLC. Accordingly, his estimated total
compensation is based on the estimated compensation to be paid by the
First Trust Value Line(R) 100 Fund, the First Trust/Four Corners Senior
Floating Rate Income Fund II, the First Trust Value Line(R) Dividend
Fund, the First Trust/Four Corners Senior Floating Rate Income Fund, the
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income
Fund, the First Trust/Value Line(R) & Ibbotson Equity Allocation Fund,
the Energy Income and Growth Fund, the First Trust/Fiduciary Asset
Management Covered Call Fund and the Fund for a full calendar year.

The Fund has no employees. Its officers are compensated by First Trust
Advisors. The Shareholders of the Fund will elect trustees at the next annual
meeting of shareholders.

The following table sets forth the dollar range of equity securities
beneficially owned by the trustees in the Fund and in other funds overseen by
the trustees in the First Trust Fund Complex as of July 31, 2004:

-41-

AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES IN ALL
DOLLAR RANGE OF REGISTERED INVESTMENT COMPANIES
EQUITY SECURITIES OVERSEEN BY TRUSTEE IN
TRUSTEE IN THE FUND FIRST TRUST FUND COMPLEX
------------ ----------------- --------------------------------
Mr. Bowen None Over $100,000
Mr. Erickson None $ 1-$10,000
Mr. Kadlec None $ 50,001-$100,000
Mr. Nielson None $10,001-$50,000
Mr. Oster None $ 50,001-$100,000

As of July 31, 2004, the trustees of the Fund who are not "interested
persons" of the Fund and immediate family members do not own beneficially or of
record any class of securities of an investment adviser or principal underwriter
of the Fund or any person directly or indirectly controlling, controlled by, or
under common control with an investment adviser or principal underwriter of the
Fund.

As of November 23, 2004, First Trust Portfolios L.P. owned both
beneficially and of record all of the Common Shares of the Fund.

INVESTMENT ADVISER

First Trust Advisors L.P., 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532, is the investment adviser to the Fund. As investment adviser,
First Trust Advisors provides the Fund with professional investment supervision
and selects the Fund's Sub-Adviser (with the approval of the Board of Trustees)
and permits any of its officers or employees to serve without compensation as
trustees or officers of the Fund if elected to such positions. First Trust
Advisors supervises the activities of the Fund's Sub-Adviser and provides the
Fund with certain other services necessary with the management of the portfolio.

First Trust Advisors is an Illinois limited partnership formed in 1991
and an investment adviser registered with the Securities and Exchange Commission
under the Investment Advisers Act of 1940 (the "Advisers Act"). First Trust
Advisors is a limited partnership with one limited partner, Grace Partners of
DuPage L.P. ("Grace Partners"), and one general partner, The Charger
Corporation. Grace Partners is a limited partnership with one general partner,
The Charger Corporation, and a number of limited partners. Grace Partners' and
The Charger Corporation's primary business is investment advisory and
broker/dealer services through their interests. The Charger Corporation is an
Illinois corporation controlled by the Robert Donald Van Kampen family. First
Trust Advisors is controlled by Grace Partners and The Charger Corporation.

First Trust Advisors is also adviser or sub-adviser to eight mutual
funds and seven closed-end funds (including the Fund) and is the portfolio
supervisor of certain unit investment trusts sponsored by First Trust
Portfolios. First Trust Portfolios specializes in the underwriting, trading and

-42-

distribution of unit investment trusts and other securities. First Trust
Portfolios, an Illinois limited partnership formed in 1991, acts as sponsor for
successive series of The First Trust Combined Series, FT Series (formerly known
as The First Trust Special Situations Trust), the First Trust Insured Corporate
Trust, The First Trust of Insured Municipal Bonds and The First Trust GNMA.
First Trust Portfolios introduced the first insured unit investment trust in
1974 and to date, more than $48 billion in gross assets have been deposited in
First Trust Portfolios unit investment trusts.

First Trust Advisors acts as investment adviser to the Fund pursuant to
an Investment Management Agreement. The Investment Management Agreement
continues in effect for the Fund from year to year after its initial two-year
term so long as its continuation is approved at least annually by the trustees
including a majority of the Independent Trustees, or the vote of a majority of
the outstanding voting securities of the Fund. It may be terminated at any time
without the payment of any penalty upon 60 days' written notice by either party,
or by a majority vote of the outstanding voting securities of the Fund
(accompanied by appropriate notice), and will terminate automatically upon
assignment. The Investment Management Agreement also may be terminated, at any
time, without payment of any penalty, by the Board or by vote of a majority of
the outstanding voting securities of the Fund, in the event that it shall have
been established by a court of competent jurisdiction that the Adviser, or any
officer or director of the Adviser, has taken any action which results in a
breach of the covenants of the Adviser set forth in the Investment Management
Agreement. The Investment Management Agreement provides that First Trust
Advisors shall not be liable for any loss sustained by reason of the purchase,
sale or retention of any security, whether or not the purchase, sale or
retention shall have been based upon the investigation and research made by any
other individual, firm or corporation, if the recommendation shall have been
selected with due care and in good faith, except loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the Investment Management
Agreement. As compensation for its services, the Fund pays First Trust Advisors
a fee as described in the Prospectus. Provisions regarding expense limitations
are described in the Prospectus. See "Management of the Fund--Investment
Management Agreement" in the Fund's Prospectus.

In addition to the fee of First Trust Advisors, the Fund pays all other
costs and expenses of its operations, including: compensation of its trustees
(other than those affiliated with First Trust Advisors); custodian, transfer
agency, administrative, accounting and dividend disbursing expenses; legal fees;
sub-licensing fee; expenses of independent auditors; expenses of preparing,
printing and distributing shareholder reports, notices, proxy statements and
reports to governmental agencies; and taxes, if any. All fees and expenses are
accrued daily and deducted before payment of dividends to investors.

On October 3, 2004, the trustees of the Fund met with representatives
of First Trust Advisors (the "Adviser") and the Sub-Adviser to consider, among
other things, the possible approval of the Investment Management Agreement
between the Fund and the Adviser and the Sub-Advisory Agreement between the
Adviser, the Sub-Adviser and the Fund. The Adviser had described the Fund's
development process at a September 2004 meeting of the Board. At the October
meeting, the Sub-Adviser described its global fixed income philosophy and
investment style and reviewed related materials that had been provided to the
Board. The Sub-Adviser reviewed with the trustees the background of those who

-43-

would be involved in providing investment advisory services to the Fund, and the
trustees met with one of the senior members of the investment team. The
Sub-Adviser reviewed with the Board members the structure of the Fund and the
process that would be used for managing the Fund's investments. The Sub-Adviser
provided information on the performance of other similar accounts that it
managed over one-, three- and five-year periods, including that of other
closed-end funds, against the performance of a benchmark index. The trustees
also reviewed the Sub-Adviser's registration as filed with the Securities and
Exchange Commission and the brochure that the Sub-Adviser provides to clients.

The trustees reviewed data compiled by the Adviser from an independent
source that showed advisory fees and expense ratios for comparable closed-end
funds. The Independent Trustees then met in executive session with their
independent legal counsel to review the terms of the proposed Investment
Management Agreement and Sub-Advisory Agreement. They reviewed the services to
be provided by the Adviser, the Adviser's affiliate, First Trust Portfolios, and
the Sub-Adviser.

The Independent Trustees compared the proposed fees to be paid under
the Investment Management Agreement with fees paid to the Adviser by other
closed-end funds for which it acts as investment adviser, as well as the
advisory fees paid by global fixed income closed-end funds. They concluded that
the proposed advisory fee was reasonable, as it was in the middle of the range
of fees paid by comparable funds. They also discussed the Adviser's estimated
profitability for serving as the Adviser to the Fund. The Independent Trustees
reviewed the fees charged by the Sub-Adviser to other closed-end funds as well
as separate account clients with global fixed income and emerging market debt
mandates, noting that the proposed fee was within this range. The Independent
Trustees discussed other information that the Adviser had provided with respect
to its services, the estimated expense ratio for the Fund as compared to the
expense ratios of comparable funds and any "fall-out" benefits that the Adviser
might receive from its relationship with the Fund. The Independent Trustees
noted that the Adviser and Sub-Adviser had agreed to each pay one-half of the
Fund's organizational costs as well as the offering costs of the Fund (other
than the sales load, but including the reimbursement of underwriter expenses as
described in the prospectus) that exceed $.04 per Common Share. The Independent
Trustees noted that the fee schedule did not include breakpoints designed to
reflect economies of scale as the Fund grows, but noted that the management fees
for many comparable funds also did not include breakpoints. The trustees,
including the Independent Trustees, determined that the terms of the Investment
Management and Sub-Advisory Agreements are fair and reasonable and that the
Agreements are in the Fund's best interest.

CODE OF ETHICS

The Fund, Adviser and Sub-Adviser have adopted codes of ethics under
Rule 17j-1 under the 1940 Act. These codes permit personnel subject to the code
to invest in securities, including securities that may be purchased or held by
the Fund. These codes can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling the Securities
and Exchange Commission at (202) 942-8090. The codes of ethics are available on
the EDGAR Database on the Securities and Exchange Commission's web site

-44-

(http://www.sec.gov), and copies of these codes may be obtained, after paying a
duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov, or by writing the Commission Public Reference Section,
Washington, D.C. 20549-0102.

PROXY VOTING PROCEDURES

The Fund has adopted a proxy voting policy that seeks to ensure that
proxies for securities held by the Fund are voted consistently and solely in the
best economic interests of the Fund.

The Board of Trustees is responsible for oversight of the Fund's proxy
voting process. The Board has delegated day-to-day proxy voting responsibility
to Aberdeen. Aberdeen's Proxy Voting Policy is set forth in Appendix B to this
Statement of Additional Information.

When required by applicable regulations, information regarding how the
Fund voted proxies relating to portfolio securities will be available without
charge by calling (800) 988-5891 or by accessing the Securities and Exchange
Commission's website at http://www.sec.gov.

SUB-ADVISER

Aberdeen will serve as the Fund's Sub-Adviser with responsibility for
the overall management of the Fund. Its address is 300 SE 2nd Street, Suite 820,
Fort Lauderdale, Florida 33301. Aberdeen Asset Management Inc. was incorporated
in 1993 and has been registered as an investment adviser under the Advisers Act
since August 1995. Aberdeen's principal business focus is to provide investment
management services with regard to investment in global securities. Aberdeen
managed approximately $885 million of assets as of September 30, 2004.

Aberdeen is a wholly owned subsidiary of Aberdeen Asset Management PLC
which is the parent company of an asset management group managing $39.99 billion
of assets for a range of pension funds, financial institutions, investment
trusts, unit trusts, offshore funds, charities and private clients, in addition
to US registered investment companies as of September 30, 2004. Aberdeen PLC was
formed in 1983 and was first listed on the London Stock Exchange in 1991 and
obtained a secondary listing on the Singapore Stock Exchange in November 1997.
At December 2003, the firm was 8.78% owned by management and staff.

Affiliates of Aberdeen manage three closed-end funds in the United
States. The three U.S. funds, Aberdeen Asia-Pacific Income Fund, Inc. (AMEX:
"FAX"), Aberdeen Australia Equity Fund, Inc. (AMEX: "IAF") and Aberdeen Global
Income Fund, Inc. (AMEX: "FCO"), have net assets of approximately $2.5 billion
as of June 30, 2004.

In rendering investment advisory services, the Sub-Adviser may use the
resources of wholly owned investment adviser subsidiaries of Aberdeen PLC. In
particular, the subsidiaries which may provide resources are Aberdeen Asset
Management Asia Limited ("Aberdeen Singapore"), a Singapore corporation which is
a U.S. registered investment adviser, and Aberdeen Asset Managers Limited
("Aberdeen UK"), which is not a U.S. registered adviser. Aberdeen UK and

-45-

Aberdeen Singapore have entered into a Memorandum of Understanding ("MOU") with
the Sub-Adviser pursuant to which both are considered "Participating Affiliates"
of the Sub-Adviser as that term is used in relief granted by the staff of the
SEC allowing U.S. registered advisers to use portfolio management and trading
resources of advisory affiliates subject to the supervision of a registered
adviser. Investment professionals from each affiliate may render portfolio
management, research or trading services to clients of the Sub-Adviser,
including the Fund, as Affiliated Associated Persons of the Sub-Adviser under
the MOU, and are subject to supervision by the Sub-Adviser.

The Sub-Adviser, subject to the Board of Trustees' and Adviser's
supervision, provides the Fund with discretionary investment services.
Specifically, the Sub-Adviser is responsible for managing the investments of the
Fund in accordance with the Fund's investment objectives, policies, and
restrictions as provided in the Prospectus and this Statement of Additional
Information, as may be subsequently changed by the Board of Trustees. The
Sub-Adviser further agrees to conform to all applicable laws and regulations of
the Securities and Exchange Commission in all material respects and to conduct
its activities under the Sub-Advisory Agreement in accordance with applicable
regulations of any governmental authority pertaining to its investment advisory
services. In the performance of its duties, the Sub-Adviser will satisfy its
fiduciary duties to the Fund, will monitor the Fund's investments, and will
comply with the provisions of the Fund's Declaration and By-laws, as amended
from time to time, and the stated investment objectives, policies and
restrictions of the Fund. The Sub-Adviser is responsible for effecting all
security transactions for the Fund's assets. The Sub-Advisory Agreement provides
that the Sub-Adviser shall not be liable for any loss suffered by the Fund or
the Adviser (including, without limitation, by reason of the purchase, sale or
retention of any security) in connection with the performance of the
Sub-Adviser's duties under the Sub-Advisory Agreement, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Sub-Adviser in performance of its duties under such Sub-Advisory Agreement,
or by reason of its reckless disregard of its obligations and duties under such
Sub-Advisory Agreement.

Pursuant to the Sub-Advisory Agreement between the Adviser, the
Sub-Adviser and the Fund, the Adviser has agreed to pay for the services and
facilities provided by the Sub-Adviser through sub-advisory fees, as set forth
in the Fund's Prospectus.

The Sub-Advisory Agreement may be terminated without the payment of any
penalty by the Adviser, First Trust Advisors, the Fund's Board of Trustees, or a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act), upon 60 days' written notice to the Sub-Adviser.

All fees and expenses are accrued daily and deducted before payment of
dividends to investors. The Sub-Advisory Agreement has been approved by a
majority of the Independent Trustees of the Fund and the sole shareholder of the
Fund.

-46-

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to the supervision of the Board of Trustees, the Sub-Adviser
shall have authority and discretion to select brokers and dealers to execute
transactions initiated by the Sub-Adviser and to select the market in which the
transactions will be executed. In placing orders for the sale and purchase of
securities for the Fund, the Sub-Adviser's primary responsibility shall be to
seek the best execution of orders at the most favorable prices. However, this
responsibility shall not obligate the Sub-Adviser to solicit competitive bids
for each transaction or to seek the lowest available commission cost to the
Fund, so long as the Sub-Adviser reasonably believes that the broker or dealer
selected by it can be expected to obtain a "best execution" market price on the
particular transaction and determines in good faith that the commission cost is
reasonable in relation to the value of the brokerage and research services (as
defined in Section 28(e)(3) of the Securities Exchange Act of 1934) provided by
such broker or dealer to the Sub-Adviser, viewed in terms of either that
particular transaction or of the Sub-Adviser's overall responsibilities with
respect to its clients, including the Fund, as to which the Sub-Adviser
exercises investment discretion, notwithstanding that the Fund may not be the
direct or exclusive beneficiary of any such services or that another broker may
be willing to charge the Fund a lower commission on the particular transaction.

Subject to compliance with the policies and procedures adopted by the
Board of Trustees for the Fund and communicated to the Sub-Adviser and to the
extent permitted by and in conformance with applicable law (including Rule 17e-1
of the 1940 Act), the Sub-Adviser may select brokers or dealers affiliated with
Sub-Adviser.

The Sub-Adviser's objective in selecting brokers and dealers and in
effecting portfolio transactions is to seek to obtain the best combination of
price and execution with respect to its clients' portfolio transactions. Steps
associated with seeking best execution are: (1) determine each client's trading
requirements; (2) select appropriate trading methods, venues, and agents to
execute the trades under the circumstances; (3) evaluate market liquidity of
each security and take appropriate steps to avoid excessive market impact; (4)
maintain client confidentiality and proprietary information inherent in the
decision to trade; and (5) review the results on a periodic basis.

In arranging for the purchase and sale of clients' portfolio
securities, the Sub-Adviser takes numerous factors into consideration. The best
net price, giving effect to brokerage commissions, spreads and other costs, is
normally an important factor in this decision, but a number of other judgmental
factors are considered as they are deemed relevant. The factors include, but are
not limited to: the execution capabilities required by the transactions; the
ability and willingness of the broker or dealer to facilitate the accounts'
portfolio transactions by participating therein for its own account; the
importance to the account of speed, efficiency and confidentiality; the broker
or dealer's apparent familiarity with sources from or to whom particular
securities might be purchased or sold; the reputation and perceived soundness of
the broker or dealer; the Sub-Adviser's knowledge of negotiated commission rates
and spreads currently available; the nature of the security being traded; the
size and type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the desired timing of the trade; the
activity existing and expected in the market for the particular security;

-47-

confidentiality; the execution, clearance and settlement capabilities as well as
the reputation and perceived soundness of the broker-dealer selected and others
which are considered; the Sub-Adviser's knowledge of actual or apparent
operational problems of any broker-dealer; the broker-dealer's execution
services rendered on a continuing basis and in other transactions; the
reasonableness of spreads or commissions; as well as other matters relevant to
the selection of a broker or dealer for portfolio transactions for any account.
The Sub-Adviser does not adhere to any rigid formula in making the selection of
the applicable broker or dealer for portfolio transactions, but weighs a
combination of the preceding factors.

When buying or selling securities in dealer markets, the Sub-Adviser
generally prefers to deal directly with market makers in the securities. The
Sub-Adviser will typically effect these trades on a "net" basis, and will not
pay the market maker any commission, commission equivalent or markup/markdown
other than the "spread." Usually, the market maker profits from the "spread,"
that is, the difference between the price paid (or received) by the Sub-Adviser
and the price received (or paid) by the market maker in trades with other
broker-dealers or other customers.

The Sub-Adviser may use Electronic Communications Networks ("ECN") or
Alternative Trading Systems ("ATS") to effect such over-the-counter trades when,
in the Sub-Adviser's judgment, the use of an ECN or ATS may result in equal or
more favorable overall executions for the transactions.

When appropriate under its discretionary authority and consistent its
duty to obtain best execution and its adopted policies and procedures, the
Sub-Adviser may direct brokerage transactions for client accounts to
broker-dealers who provide the Sub-Adviser with research and brokerage products
and services. The brokerage commissions used to acquire research in these
arrangements are known as "soft dollars." While the Sub-Adviser currently does
not utilize soft dollars for its clients, including the Fund, and does not
anticipate doing so, the policy of the Sub-Adviser and its affiliates which are
U.S. registered investment advisers (the "Sub-Adviser's Affiliates") for such
transactions is set forth below. To the extent that the Sub-Adviser and the
Sub-Adviser's Affiliates do utilize soft dollars to acquire research, this
research may be shared across all of such advisers and any of their respective
clients whose accounts may benefit from such research.

Consistent with obtaining best execution, brokerage commissions on
accounts' portfolio transactions may be directed to broker-dealers in
recognition of research services furnished by them, as well as for services
rendered in the execution of orders by such broker-dealers. As a general matter,
such research services are used to service all of the respective accounts of the
Sub-Adviser and the Sub-Adviser's Affiliates. However, research obtained with
soft dollars may not necessarily be utilized for the specific account that
generated the soft dollars and every research service may not necessarily be
used to service every account managed by the respective adviser. The Sub-Adviser
and the Sub-Adviser's Affiliates do not usually attempt to allocate the relative
costs or benefits of research among client accounts because they believe that,
in the aggregate, the research received benefits clients and assists such
advisers in fulfilling their overall duty to their respective clients. The
Sub-Adviser will not enter into any agreement or understanding with any

-48-

broker-dealer who would obligate it to direct a specific amount of brokerage
transactions or commissions in return for research services.

Portfolio transactions for each client account will generally be
completed independently, except when the Sub-Adviser and the Sub-Adviser's
Affiliates are in the position of buying or selling the same security for a
number of clients at approximately the same time. Because of market
fluctuations, the prices obtained on such transactions within a single day may
vary substantially. In order to avoid having clients receive different prices
for the same security on the same day, the Sub-Adviser endeavors, when possible,
to use an "averaging" procedure.

Under this procedure, purchases or sales of a particular security for
clients' accounts will at times be combined or "batched" with purchases or sales
for other advisory clients by the Sub-Adviser and the Sub-Adviser's Affiliates
unless the client has expressly directed otherwise. Such batched trades may be
used to facilitate best execution, including negotiating more favorable prices,
obtaining more timely or equitable execution or reducing overall commission
charges. In such cases, the price shown on confirmations of clients' purchases
or sales will be the average execution price on all of the purchases and sales
that are aggregated for this purpose.

The Sub-Adviser may also consider the following when deciding on
allocations: 1) cash flow changes (including available cash, redemptions,
exchanges, capital additions and capital withdrawals) may provide a basis to
deviate from a pre-established allocation as long as it does not result in an
unfair advantage to specific accounts or types of accounts over time; 2)
accounts with specialized investment objectives or restrictions emphasizing
investment in a specific category of securities may be given priority over other
accounts in allocating such securities; and 3) for bond trades, street
convention and good delivery often dictate the minimum size and par amounts and
may result in small deviations from pro rata distribution.

DESCRIPTION OF SHARES

COMMON SHARES

The beneficial interest of the Fund may be divided from time to time
into shares of beneficial interest of such classes and of such designations and
par value (if any) and with such rights, preferences, privileges and
restrictions as shall be determined by the trustees in their sole discretion,
without shareholder vote. The Fund's Declaration initially authorizes the
issuance of an unlimited number of Common Shares. The Common Shares being
offered have a par value of $0.01 per share and, subject to the rights of
holders of Preferred Shares, if issued, have equal rights as to the payment of
dividends and the distribution of assets upon liquidation of the Fund. The
Common Shares being offered will, when issued, be fully paid and, subject to
matters discussed in "Certain Provisions in the Declaration of Trust,"
non-assessable, and currently have no pre-emptive or conversion rights (except
as may otherwise be determined by the trustees in their sole discretion) or
rights to cumulative voting in the election of trustees.

The Fund's Common Shares have been approved for listing on the NYSE,
subject to notice of issuance, under the symbol "FAM." The Fund intends to hold

-49-

annual meetings of shareholders so long as the Common Shares are listed on a
national securities exchange and such meetings are required as a condition to
such listing.

Shares of closed-end investment companies may frequently trade at
prices lower than NAV. NAV will be reduced immediately following the offering
after payment of the sales load and organization and offering expenses. Although
the value of the Fund's net assets is generally considered by market
participants in determining whether to purchase or sell shares, whether
investors will realize gains or losses upon the sale of Common Shares will
depend entirely upon whether the market price of the Common Shares at the time
of sale is above or below the original purchase price for the shares. Since the
market price of the Fund's Common Shares will be determined by factors beyond
the control of the Fund, the Fund cannot predict whether the Common Shares will
trade at, below, or above NAV or at, below or above the initial public offering
price. Accordingly, the Common Shares are designed primarily for long-term
investors, and investors in the Common Shares should not view the Fund as a
vehicle for trading purposes. See "Repurchase of Fund Shares; Conversion to
Open-End Fund" below and "The Fund's Investments" in the Fund's Prospectus.

PREFERRED SHARE AUTHORIZATION

Under the terms of the Declaration, the Board of Trustees has the
authority in its sole discretion, without shareholder vote, to authorize the
issuance of Preferred Shares in one or more classes or series with such rights
and terms, including voting rights, dividend rates, redemption provisions,
liquidation preferences and conversion provisions as determined by the Board of
Trustees.

BORROWINGS

The Declaration authorizes the Fund, without prior approval of the
shareholders of Common Shares, to borrow money. In this connection, the Fund may
issue notes or other evidence of indebtedness (including bank borrowings or
commercial paper) ("Borrowings") and may secure any such borrowings by
mortgaging, pledging or otherwise subjecting as security the Fund's assets. In
connection with such borrowing, the Fund may be required to maintain average
balances with the lender or to pay a commitment or other fee to maintain a line
of credit. Any such requirements will increase the cost of borrowing over the
stated interest rate.

Limitations on Borrowings. Under the requirements of the 1940 Act, the
Fund, immediately after any Borrowings, must have an asset coverage of at least
300%. With respect to any Borrowings, asset coverage means the ratio which the
value of the total assets of the Fund, less all liabilities and indebtedness not
represented by senior securities (as defined in the 1940 Act), bears to the
aggregate amount of such Borrowings represented by senior securities issued by
the Fund. Certain types of Borrowings may result in the Fund being subject to
covenants in credit agreements relating to asset coverages or portfolio
composition or otherwise. In addition, the Fund may be subject to certain
restrictions imposed by guidelines of one or more NRSROs which may issue ratings
for commercial paper or notes issued by the Fund. Such restrictions may be more
stringent than those imposed by the 1940 Act.

-50-

Distribution Preference. The rights of lenders to the Fund to receive
interest on and repayment of principal of any such Borrowings will be senior to
those of the Common Shareholders, and the terms of any such Borrowings may
contain provisions which limit certain activities of the Fund, including the
payment of dividends to Common Shareholders in certain circumstances.

Voting Rights. The 1940 Act grants (in certain circumstances) to the
lenders to the Fund certain voting rights in the event the asset coverage falls
below specified levels. In the event that the Fund elects to be treated as a
regulated investment company under the Code and such provisions would impair the
Fund's status as a regulated investment company, the Fund, subject to its
ability to liquidate its portfolio, intends to repay the Borrowings. Any
Borrowings will likely be ranked senior or equal to all other existing and
future borrowings of the Fund.

The discussion above describes the Fund's Board of Trustees' present
intention with respect to an offering of Borrowings. If authorized by the Board
of Trustees, the terms of any Borrowings may be the same as, or different from,
the terms described above, subject to applicable law and the Fund's Declaration.

CERTAIN PROVISIONS IN THE DECLARATION OF TRUST

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

The Declaration includes provisions that could limit the ability of
other entities or persons to acquire control of the Fund or to convert the Fund
to open-end status. Specifically, the Declaration requires the affirmative vote
or consent by holders of at least two-thirds of the shares outstanding and
entitled to vote, except as described below, to authorize (1) a conversion of
the Fund from a closed-end to an open-end investment company, (2) a merger or
consolidation of the Fund with any corporation, association, trust or other
organization, including a series or class of such other organization (other than
a merger, consolidation, reorganization or sale of assets with an acquiring fund
that is not an operating entity immediately prior to the transaction), (3) a
sale, lease or exchange of all or substantially all of the Fund's assets (other
than in the regular course of business of the Fund, sales of assets in
connection with the termination of the Fund as provided in the Declaration, or
sale of assets with an acquiring fund that is not an operating entity
immediately prior to the transaction), (4) in certain circumstances, a
termination of the Fund, (5) removal of trustees by shareholders, or (6) certain
transactions in which a Principal Shareholder (as defined below) is a party to
the transactions. However, with respect to items (1), (2) and (3) above, if the
applicable transaction has been already approved by the affirmative vote of

-51-

two-thirds of the trustees, then the majority of the outstanding voting
securities as defined in the 1940 Act (a "Majority Shareholder Vote") is
required. In addition, if there are then Preferred Shares outstanding, with
respect to (1) above, two-thirds of the preferred shares voting as a separate
class shall also be required unless the action has already been approved by
two-thirds of the trustees, in which case then a Majority Shareholder Vote is
required. Such affirmative vote or consent shall be in addition to the vote or
consent of the holders of the shares otherwise required by law or by the terms
of any class or series of preferred shares, whether now or hereafter authorized,
or any agreement between the Fund and any national securities exchange. Further,
in the case of items (2) or (3) that constitute a plan of reorganization (as
such term is used in the 1940 Act) which adversely affects the Preferred Shares
within the meaning of section 18(a)(2)(D) of the 1940 Act, except as may
otherwise be required by law, the approval of the action in question will also
require the affirmative vote of two-thirds of the Preferred Shares voting as a
separate class provided, however, that such separate class vote shall be by a
Majority Shareholder Vote if the action in question has previously been approved
by the affirmative vote of two-thirds of the trustees.

Approval of shareholders is not required, however, for any transaction,
whether deemed a merger, consolidation, reorganization or otherwise whereby the
Fund issues shares in connection with the acquisition of assets (including those
subject to liabilities) from any other investment company or similar entity.
None of the foregoing provisions may be amended except by the vote of at least
two-thirds of the Shares outstanding and entitled to vote.

As noted above, pursuant to the Declaration, the affirmative approval
of two-thirds of the Shares outstanding and entitled to vote, subject to certain
exceptions, shall be required for the following transactions in which a
Principal Shareholder (as defined below) is a party: (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 other than pursuant to a dividend reinvestment or
similar plan available to all shareholders; (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); (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). However, shareholder approval for the foregoing transactions shall not
be applicable to (i) any transaction, including, without limitation, any rights
offering, made available on a pro rata basis to all shareholders of the Fund or
class thereof unless the trustees specifically make such transaction subject to
this voting provision, (ii) any transaction if the trustees shall by resolution
have approved a memorandum of understanding with such Principal Shareholder with
respect to and substantially consistent with such transaction or (iii) any such
transaction with any corporation of which a majority of the outstanding shares
of all classes of stock normally entitled to vote in elections of directors is
owned of record or beneficially by the Fund and its subsidiaries. As described
in the Declaration, a Principal Shareholder shall mean any corporation, person
or other entity which is the beneficial owner, directly or indirectly, of more
than 5% of the outstanding shares and shall include any affiliate or associate

-52-

(as such terms are defined in the Declaration) of a Principal Shareholder. The
above affirmative vote shall be in addition to the vote of the shareholders
otherwise required by law or by the terms of any class or series of preferred
shares, whether now or hereafter authorized, or any agreement between the Fund
and any national securities exchange.

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

Reference should be made to the Declaration on file with the Securities
and Exchange Commission for the full text of these provisions.

The Declaration provides that the obligations of the Fund are not
binding upon the trustees of the Fund individually, but only upon the assets and
property of the Fund, and that the trustees shall not be liable to any person in
connection with the Fund property or the affairs of the Fund or for any neglect
or wrongdoing of any officer, employee or agent of the Fund or for the act or
omission of any other trustee. Nothing in the Declaration, however, protects a
trustee against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office with or on behalf of the
Fund.

REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND

The Fund is a closed-end investment company and as such its
shareholders will not have the right to cause the Fund to redeem their shares.
Instead, the Fund's Common Shares will trade in the open market at a price that
will be a function of several factors, including dividend levels (which are in
turn affected by expenses), NAV, call protection, price, dividend stability,
relative demand for and supply of such shares in the market, general market and
economic conditions and other factors. Because shares of a closed-end investment
company may frequently trade at prices lower than NAV, the trustees, in
consultation with the Fund's Adviser, Sub-Adviser and any corporate finance
services and consulting agent that the Adviser may retain, from time to time may
review possible actions to reduce any such discount. Actions may include the
repurchase of such shares in the open market or in private transactions, the
making of a tender offer for such shares, or the conversion of the Fund to an
open-end investment company. There can be no assurance, however, that the
trustees will decide to take any of these actions, or that share repurchases or
tender offers, if undertaken, will reduce a market discount. After any
consideration of potential actions to seek to reduce any significant market
discount, the trustees may, subject to their fiduciary obligations and
compliance with applicable state and federal laws, authorize the commencement of

-53-

a share-repurchase program or tender offer. The size and timing of any such
share repurchase program or tender offer will be determined by the trustees in
light of the market discount of the Common Shares, trading volume of the Common
Shares, information presented to the trustees regarding the potential impact of
any such share repurchase program or tender offer, and general market and
economic conditions. There can be no assurance that the Fund will in fact effect
repurchases of or tender offers for any of its Common Shares. In addition, any
service fees incurred in connection with any tender offer made by the Fund will
be borne by the Fund and will not reduce the stated consideration to be paid to
tendering Shareholders. Before deciding whether to take any action if the Fund's
Common Shares trade below NAV, the trustees would consider all relevant factors,
including the extent and duration of the discount, the liquidity of the Fund's
portfolio, the impact of any action that might be taken on the Fund or its
Shareholders and market considerations. Based on these considerations, even if
the Fund's shares should trade at a discount, the trustees may determine that,
in the interest of the Fund and its Shareholders, no action should be taken.

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

Although the decision to take action in response to a discount from NAV
will be made by the trustees at the time they consider such issue, it is the
trustees' present policy, which may be changed by the trustees, not to authorize
repurchases of Common Shares or a tender offer for such shares if (1) such
transactions, if consummated, would (a) result in the delisting of the Common
Shares from the New York Stock Exchange, or (b) impair status as a registered
closed-end investment company under the 1940 Act; (2) the Fund would not be able
to liquidate portfolio securities in an orderly manner and consistent with the
Fund's investment objectives and policies in order to repurchase shares; or (3)
there is, in the Board's judgment, any (a) material legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Fund, (b) general suspension of or limitation on prices
for trading securities on the New York Stock Exchange, (c) declaration of a
banking moratorium by Federal or state authorities or any suspension of payment
by United States or state banks in which the Fund invests, (d) material
limitation affecting the Fund or the issuers of its portfolio securities by
Federal or state authorities on the extension of credit by lending institutions
or on the exchange of non-U.S. currency, (e) commencement of war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or (f) other event or condition which would have a
material adverse effect (including any adverse tax effect) on the Fund or its
shareholders if shares were repurchased. The trustees may in the future modify
these conditions in light of experience with respect to the Fund.

Conversion to an open-end company would require the approval of the
holders of at least two-thirds of the Fund's shares outstanding and entitled to
vote; provided, however, that unless otherwise provided by law, if there are
Preferred Shares outstanding, the affirmative vote of two-thirds of the

-54-

Preferred Shares voting as a separate class shall be required; provided,
however, that such votes shall be by the affirmative vote of the majority of the
outstanding voting securities, as defined in the 1940 Act, if the action in
question was previously approved by the affirmative vote of two-thirds of the
trustees. Such affirmative vote or consent shall be in addition to the vote or
consent of the holders of the shares otherwise required by law or by the terms
of any class or series of preferred shares, whether now or hereafter authorized,
or any agreement between the Fund and any national securities exchange. See the
Prospectus under "Closed-End Fund Structure" for a discussion of voting
requirements applicable to conversion of the Fund to an open-end company. If the
Fund converted to an open-end company, the Fund's Common Shares would no longer
be listed on the New York Stock Exchange. Any Preferred Shares or other
Borrowings would need to be redeemed or repaid upon conversion to an open-end
investment company. Shareholders of an open-end investment company may require
the company to redeem their shares on any business day (except in certain
circumstances as authorized by or under the 1940 Act) at their NAV, less such
redemption charge or contingent deferred sales change, if any, as might be in
effect at the time of redemption. In order to avoid maintaining large cash
positions or liquidating favorable investments to meet redemptions, open-end
companies typically engage in a continuous offering of their shares. Open-end
companies are thus subject to periodic asset in-flows and out-flows that can
complicate portfolio management. The trustees may at any time propose conversion
of the Fund to an open-end company depending upon their judgment as to the
advisability of such action in light of circumstances then prevailing.

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

In addition, a purchase by the Fund of its Common Shares will decrease
the Fund's Managed Assets which would likely have the effect of increasing the
Fund's expense ratio.

FEDERAL INCOME TAX MATTERS

The following discussion of federal income tax matters is based upon
the advice of Chapman and Cutler LLP, counsel to the Fund.

GENERAL

Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Fund and the purchase, ownership and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances. This discussion also does not address the tax
consequences to shareholders that are subject to special rules, including
without limitation, banks or financial institutions, insurance companies,
dealers in securities, non-U.S. shareholders, tax-exempt or tax-deferred plans,

-55-

accounts or entities, shareholders that are subject to the alternative minimum
tax or shareholders that holds their shares as or in a hedge against currency
risk, constructive sale or a conversion transaction. Unless otherwise noted,
this discussion assumes you are a U.S. shareholder and that you hold your shares
as a capital asset. This discussion is based upon present provisions of the
Code, the regulations promulgated thereunder, and judicial and administrative
ruling authorities, all of which are subject to change, which change may be
retroactive. In addition, this discussion does not address state, local or
foreign tax consequences. Prospective investors should consult their own tax
advisors with regard to the federal tax consequences of the purchase, ownership,
or disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, locality, non-U.S. country, or other taxing jurisdiction.

The Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Code and to comply with applicable
distribution requirements so that it will not pay federal income tax on income
and capital gains distributed to its shareholders.

To qualify for the favorable U.S. federal income tax treatment
generally accorded to regulated investment companies, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer generally
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Fund's total assets and not greater than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities (other than U.S. government
securities or the securities of other regulated investment companies) of any one
issuer, or two or more issuers which the Fund controls and are engaged in the
same, similar or related trades or businesses; and (c) distribute at least 90%
of its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses) and at least 90% of its net tax-exempt interest income each
taxable year.

As a regulated investment company, the Fund generally will not be
subject to U.S. federal income tax on its investment company taxable income (as
that term is defined in the Code, but without regard to the deduction for
dividends paid) and net capital gain (the excess of net long-term capital gain
over net short-term capital loss), if any, that it distributes to shareholders.
The Fund intends to distribute to its shareholders, at least annually,
substantially all of its investment company taxable income and net capital gain.
If the Fund retains any net capital gain or investment company taxable income,
it will generally be subject to federal income tax at regular corporate rates on
the amount retained. In addition, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax unless, generally, the Fund distributes during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar

-56-

year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the one-year period ending October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. To prevent application of
the excise tax, the Fund intends to make its distributions in accordance with
the calendar year distribution requirement. A distribution will be treated as
paid on December 31 of the current calendar year if it is declared by the Fund
in October, November or December with a record date in such a month and paid by
the Fund during January of the following calendar year. These distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.

If the Fund failed to qualify as a regulated investment company or
failed to satisfy the 90% distribution requirement in any taxable year, the Fund
would be taxed as an ordinary corporation on its taxable income (even if such
income were distributed to its shareholders) and all distributions out of
earnings and profits would be taxed to shareholders as ordinary income.

DISTRIBUTIONS

Dividends paid out of the Fund's investment company taxable income
generally are taxable to a shareholder as ordinary income to the extent of the
Fund's earnings and profits, whether paid in cash or reinvested in additional
shares. However, pursuant to the "Jobs and Growth Tax Relief Reconciliation Act
of 2003" (the "Tax Act"), if the Fund holds equity securities, certain ordinary
income distributions that are designated by the Fund and received from the Fund
may be taxed at new lower tax rates. In particular, under the Tax Act, a portion
of the ordinary income dividends received by an individual shareholder from a
regulated investment company such as the Fund are generally taxed at the same
new rates that apply to net capital gain, provided certain holding period
requirements are satisfied and provided the dividends are attributable to
"qualified dividends" received by the Fund itself (i.e., generally 15%, or 5%
for taxpayers in the 10% and 15% tax brackets). Dividends received by the Fund
from REITs and foreign corporations are qualified dividends eligible for this
lower tax rate only in certain circumstances. These special rules relating to
the taxation of ordinary income dividends from regulated investment companies
generally apply to taxable years beginning before January 1, 2009. The Fund
generally does not expect to generate qualified dividends eligible for the new
lower tax rates.

Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any, properly designated as capital
gain dividends are taxable to a shareholder as long-term capital gains,
regardless of how long the shareholder has held Fund shares. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a cost basis in each such share equal to the value of a
share of the Fund on the reinvestment date. A distribution of an amount in
excess of the Fund's current and accumulated earnings and profits will be
treated by a shareholder as a return of capital which is applied against and
reduces the shareholder's tax basis in his or her shares. To the extent that the
amount of any distribution exceeds the shareholder's basis in his or her shares,
the excess will be treated by the shareholder as gain from a sale or exchange of
the shares.

-57-

Shareholders will be notified annually as to the U.S. federal income
tax status of distributions, and shareholders receiving distributions in the
form of additional shares will receive a report as to the value of those shares.

DIVIDENDS RECEIVED DEDUCTION

A corporation that owns shares generally will not be entitled to the
dividends received deduction with respect to dividends received from the Fund
because the dividends received deduction is generally not available for
distributions from regulated investment companies. However, if the Fund holds
equity securities, certain ordinary income dividends on shares that are
attributable to dividends received by the Fund from certain domestic
corporations may be designated by the Fund as being eligible for the dividends
received deduction but this amount is not expected to be significant.

SALE OR EXCHANGE OF FUND SHARES

Upon the sale or other disposition of shares of the Fund, which a
shareholder holds as a capital asset, a shareholder may realize a capital gain
or loss which will be long-term or short-term, depending upon the shareholder's
holding period for the shares. Generally, a shareholder's gain or loss will be a
long-term gain or loss if the shares have been held for more than one year.

Any loss realized on a sale or exchange will be disallowed to the
extent that shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after disposition of shares or to the extent that the shareholder, during
such period, acquires or enters into an option or contract to acquire,
substantially identical stock or securities. In this case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gain received by the
shareholder with respect to the shares.

NATURE OF THE FUND'S INVESTMENTS

Certain of the Fund's investment practices may be subject to special
and complex federal income tax provisions that may, among other things, (1)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (2) convert lower taxed long-term capital gain into higher taxed
short-term capital or ordinary income, (3) convert an ordinary loss or a
deduction into a capital loss (the deductibility of which is more limited), (4)
cause the Fund to recognize income or gain without a corresponding receipt of
cash, (5) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (6) adversely alter the characterization of
certain complex financial transactions. The Fund will monitor its transactions,
will make the appropriate tax elections and take appropriate actions in order to
mitigate the effect of these rules and prevent disqualification of the Fund from
being taxed as a regulated investment company (including disposing of certain

-58-

investments to generate cash or borrowing cash to satisfy its distribution
requirements). The ability to deduct capital losses may otherwise be limited.

INVESTMENT IN SECURITIES OF UNCERTAIN TAX CHARACTER

The Fund may invest in preferred securities or other securities the
U.S. federal income tax treatment of which may not be clear or may be subject to
recharacterization by the Internal Revenue Service. To the extent the tax
treatment of such securities or the income from such securities differs from the
tax treatment expected by the Fund, it could affect the timing or character of
income recognized by the Fund, requiring the Fund to purchase or sell
securities, or otherwise change its portfolio, in order to comply with the tax
rules applicable to regulated investment companies under the Code.

INVESTMENT IN NON-U.S. SECURITIES

The Fund's investment in non-U.S. securities may be subject to non-U.S.
withholding taxes. In that case, the Fund's yield on those securities would be
decreased. Shareholders will generally not be entitled to claim a credit or
deduction with respect to foreign taxes paid by the Fund. In addition, if the
Fund acquires an equity interest in "passive foreign investment companies,"
which are generally certain foreign corporations that receive at least 75% of
their annual gross income from passive sources (such as interest, dividends,
certain rents and royalties or capital gains) or that hold at least 50% of their
assets in investments producing such passive income , the Fund could be subject
to U.S. federal income tax and additional interest charges on gains and certain
distributions with respect to those equity interests, even if all the income or
gain is timely distributed to its shareholders. The Fund will not be able to
pass through to its shareholders any credit or deduction for such taxes. An
election would generally be available to ameliorate these adverse tax
consequences, but any such election could require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. These investments could
also result in the treatment of capital gains as ordinary income. The Fund
intends to manage its holdings to limit the tax liability from these
investments.

BACKUP WITHHOLDING

The Fund may be required to withhold U.S. federal income tax from all
taxable distributions and sale proceeds payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. The withholding percentage
is 28% until 2011, when the percentage will revert to 31% unless amended by
Congress. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from backup withholding. This withholding is not an
additional tax. Any amounts withheld may be credited against the shareholder's
U.S. federal income tax liability.

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PERFORMANCE RELATED AND COMPARATIVE INFORMATION

The Fund may quote certain performance-related information and may
compare certain aspects of its portfolio and structure to other substantially
similar closed-end funds. In reports or other communications to shareholders of
the Fund or in advertising materials, the Fund may compare its performance with
that of (i) other investment companies listed in the rankings prepared by
Lipper, Inc. ("Lipper"), Morningstar Inc. or other independent services;
publications such as Barrons, Business Week, Forbes, Fortune, Institutional
Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual Fund Values,
The New York Times, The Wall Street Journal and USA Today; or other industry or
financial publications or (ii) the Standard & Poor's Index of 500 Stocks, the
Dow Jones Industrial Average, Nasdaq Composite Index and other relevant indices
and industry publications. The Fund may also compare the historical volatility
of its portfolio to the volatility of such indices during the same time periods.
(Volatility is a generally accepted barometer of the market risk associated with
a portfolio of securities and is generally measured in comparison to the stock
market as a whole -- the beta -- or in absolute terms -- the standard
deviation.) Comparison of the Fund to an alternative investment should be made
with consideration of differences in features and expected performance. The Fund
may obtain data from sources or reporting services, such as Bloomberg Financial
("Bloomberg") and Lipper, that the Fund believes to be generally accurate.

The Fund may, from time to time, show the standard deviation of either
the Fund or the Fund's investment strategy and the standard deviation of the
Fund's benchmark index. Standard deviation is a statistical measure of the
historical volatility of a portfolio. Standard deviation is the measure of
dispersion of historical returns around the mean rate of return.

From time to time, the Fund may quote the Fund's total return,
aggregate total return or yield in advertisements or in reports and other
communications to shareholders. The Fund's performance will vary depending upon
market conditions, the composition of its portfolio and its operating expenses.
Consequently any given performance quotation should not be considered
representative of the Fund's performance in the future. In addition, because
performance will fluctuate, it may not provide a basis for comparing an
investment in the Fund with certain bank deposits or other investments that pay
a fixed yield for a stated period of time. Investments comparing the Fund's
performance with that of other investment companies should give consideration to
the quality and type of the respective investment companies' portfolio
securities.

The Fund's "average annual total return" is computed according to a
formula prescribed by the Securities and Exchange Commission. The formula can be
expressed as follows:

Average Annual Total Return will be computed as follows:

-60-

ERV = P(1+T)/n/

Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or 10-year
periods at the end of the 1-, 5-, or 10-year periods (or
fractional portion).

The Fund may also quote after-tax total returns to show the impact of
assumed federal income taxes on an investment in the Fund. The Fund's total
return "after taxes on distributions" shows the effect of taxable distributions,
but not any taxable gain or loss, on an investment in shares of the Fund for a
specified period of time. The Fund's total return "after taxes on distributions
and sale of Fund shares" shows the effect of both taxable distributions and any
taxable gain or loss realized by the shareholder upon the sale of fund shares at
the end of a specified period. To determine these figures, all income,
short-term capital gain distributions, and long-term capital gains distributions
are assumed to have been taxed at the highest marginal individualized federal
tax rate then in effect. Those maximum tax rates are applied to distributions
prior to reinvestment and the after-tax portion is assumed to have been
reinvested in the Fund. State and local taxes are ignored.

Actual after-tax returns depend on a shareholder's tax situation and
may differ from those shown. After-tax returns reflect past tax effects and are
not predictive of future tax effects.

Average Annual Total Return (After Taxes on Distributions) will be
computed as follows:

ATV/D/ = P(1+T)/n/

Where: P = a hypothetical initial investment of $1,000
T = average annual total return (after taxes on distributions)
n = number of years
ATV/D/ = ending value of a hypothetical $1,000 investment made
at the beginning of the period, at the end of the period
(or fractional portion thereof), after taxes on fund
distributions but not after taxes on redemptions.

Average Annual Total Return (After Taxes on Distributions and Sale of
Fund Shares) will be computed as follows:

ATV/DR/ = P(1+T)/n/

Where: P = a hypothetical initial investment of $1,000
T = average annual total return (after taxes on distributions
and redemption)
n = number of years
ATV/DR/ = ending value of a hypothetical $1,000 investment made
at the beginning periods, at the end of the periods (or
fractional portion thereof), after taxes on fund
distributions and redemptions.

-61-

Quotations of yield for the Fund will be based on all investment income
per share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:

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

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

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

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Financial Statements of the Fund as of ________________, appearing
in this Statement of Additional Information have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as set forth in
their report thereon appearing elsewhere herein, and is included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing. Deloitte & Touche LLP audits and reports on the Fund's annual
financial statements, and performs other professional accounting, auditing and
advisory services when engaged to do so by the Fund. The principal business
address of Deloitte & Touche LLP is 180 North Stetson Avenue, Chicago, Illinois
60601.

CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT

PFPC Trust Company, 301 Bellevue Parkway, Wilmington, Delaware 19809,
serves as custodian for the Fund. As such, PFPC Trust Company has custody of all
securities and cash of the Fund and attends to the collection of principal and
income and payment for and collection of proceeds of securities bought and sold
by the Fund. PFPC Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809 is the
transfer, registrar, dividend disbursing agent and shareholder servicing agent
for the Fund and provides certain clerical, bookkeeping, shareholder servicing
and administrative services necessary for the operation of the Fund and
maintenance of shareholder accounts. PFPC Inc. also provides certain accounting
and administrative services to the Fund pursuant to an Administration and
Accounting Services Agreement, including maintaining the Fund's books of
account, records of the Fund's securities transactions, and certain other books
and records; acting as liaison with the Fund's independent registered public
accounting firm by providing such accountant certain Fund accounting
information; and providing other continuous accounting and administrative
services.

-62-

ADDITIONAL INFORMATION

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

-63-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholder of
First Trust/Aberdeen Global Opportunity Income Fund:

We have audited the accompanying statement of assets and liabilities of First
Trust/Global Opportunity Income Fund (the "Fund"), as of November 16, 2004. This
statement of assets and liabilities is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this statement of
assets and liabilities based on our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the statement
of assets and liabilities is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. Our procedures included confirmation of cash owned as
of November 16, 2004, by correspondence with the Fund's custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of First
Trust/Aberdeen Global Opportunity Income Fund as of November 16, 2004, in
conformity with accounting principles generally accepted in the United States of
America.

DELOITTE & TOUCHE LLP

Chicago, Illinois
November 19, 2004

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FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES

NOVEMBER 16, 2004

ASSETS:

Cash $100,008
Offering costs $600,000
----------
$700,008
----------
LIABILITIES:

Offering costs payable $600,000
----------
Net Assets $100,008
----------

NET ASSETS - Applicable to 5,236 shares $100,008
----------

NET ASSET VALUE PER SHARE (net assets divided by
5,236 shares.) $19.10
==========

MAXIMUM OFFERING PRICE PER SHARE (net asset
value plus sales charge of 4.5% of offering price.) $20.00
----------

Notes to Statement of Assets and Liabilities:

Note 1. Organization

First Trust/Aberdeen Global Opportunity Income Fund (the "Fund") is a newly
organized, diversified, closed-end management investment company registered
under the Investment Company Act of 1940 (the "1940 Act"). The Fund was
organized as a Massachusetts business trust on September 7, 2004, pursuant to a
Declaration of Trust governed by the laws of the Commonwealth of Massachusetts.
As a newly organized entity, the Fund has no operating history. The Fund has had
no operations through November 16, 2004 other than those relating to
organizational matters and the sale and issuance of 5,236 common shares of
beneficial interest to First Trust Advisors L.P. (the "Adviser").

Note 2. Significant Accounting Policies

The Adviser has assumed organization costs estimated to be $50,000. The Adviser
has also agreed to assume offering costs in excess of $.04 a share, if any.

The Fund's statement of assets and liabilities is prepared in conformity with
accounting principles generally accepted in the United States of America which
require management to make estimates and assumptions that affect the reported
amounts and disclosures in the statement of assets and liabilities. Actual
results could differ from those estimates.

The Fund intends to comply in its initial fiscal year and thereafter with
provisions of the Internal Revenue Code applicable to regulated investment
companies and as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) distributed to
shareholders.

Offering costs will be charged to paid-in-capital in proportion to the number of
shares sold during the offering period.

Note 3. Fees and Other Transactions with Affiliated Parties

On October 3 2004, the Fund's Board of Trustees approved an Investment
Management Agreement with the Adviser. The Fund has agreed to pay an annual
management fee for the services and facilities provided by the Adviser, payable
on a monthly basis, equal to the annual rate of 1.00% of the Fund's average
daily managed assets.

Aberdeen Asset Management Inc. (the "Sub-Adviser") receives a portfolio
management fee equal to 0.50% of the Fund's average daily managed assets. The
Sub-Adviser's fee is paid by the Adviser out of the Adviser's management fee.

-65-

FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY INCOME FUND

________ COMMON SHARES

STATEMENT OF ADDITIONAL INFORMATION

NOVEMBER 23, 2004

BACK COVER

APPENDIX A

DESCRIPTION OF RATINGS

Standard & Poor's Corporation -- A brief description of the applicable
Standard & Poor's Corporation, a division of The McGraw-Hill Companies
("Standard & Poor's" or "S&P") rating symbols and their meanings (as published
by S&P) follows:

A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program. It
takes into consideration the creditworthiness of guarantors, insurers, or other
forms of credit enhancement on the obligation. The issue credit rating is not a
recommendation to purchase, sell, or hold a financial obligation, inasmuch as it
does not comment as to market price or suitability for a particular investor.

Issue credit ratings are based on current information furnished by the
obligors or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
credit rating and may, on occasion, rely on unaudited financial information.
Credit ratings may be changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or based on other circumstances.

Issue credit ratings can be either long-term or short-term. Short-term
ratings are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days-including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term rating addresses the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.

LONG-TERM ISSUE CREDIT RATINGS

Issue credit ratings are based in varying degrees, on the following
considerations:

Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms of the
obligation;

Nature of and provisions of the obligation; and

Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.

The issue ratings definitions are expressed in terms of default risk.
As such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.

A-1

"AAA"

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

"AA"

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

"A"

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

"BBB"

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

"BB", "B", "CCC", "CC", AND "C"

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

"BB"

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

"B"

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

A-2

"CCC"

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

"CC"

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

"C"

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

"D"

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

PLUS ("+") OR MINUS ("-")

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

"C"

The "c" subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.

"P"

The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful, 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.

A-3

"*"

Continuance of the ratings is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.

"R"

The "r" highlights derivative, hybrid, and certain other obligations
that Standard & Poor's believes may experience high volatility or high
variability in expected returns as a result of noncredit risks. Examples of such
obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.

"N.R."

Not rated.

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

BOND INVESTMENT QUALITY STANDARDS

Under present commercial bank regulations issued by the Comptroller of
the Currency, bonds rated in the top four categories ("AAA", "A", "A", "BBB",
commonly known as investment-grade ratings) generally are regarded as eligible
for bank investment. Also, the laws of various states governing legal
investments impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies, and
fiduciaries in general.

SHORT-TERM ISSUE CREDIT RATINGS

Notes. A Standard & Poor's note ratings reflects the liquidity factors
and market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment:

o Amortization schedule -- the larger the final maturity
relative to other maturities, the more likely it will be
treated as a note; and

o Source of payment -- the more dependent the issue is on
the market for its refinancing, the more likely it will
be treated as a note.

A-4

Note rating symbols are as follows:

"SP-1"

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

"SP-2"

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

"SP-3"

Speculative capacity to pay principal and interest.

COMMERCIAL PAPER

An S&P 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-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:

"A-1"

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

"A-2"

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

"A-3"

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

A-5

"B"

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

"C"

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

"D"

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

Moody's Investors Service, Inc. -- A brief description of the
applicable Moody's Investors Service, Inc. ("Moody's") rating symbols and their
meanings (as published by Moody's) follows:

Municipal Ratings are opinions of the investment quality of issuers and
issues in the US municipal and tax-exempt markets. As such, these ratings
incorporate Moody's assessment of the default probability and loss severity of
these issuers and issues. The default and loss content for Moody's municipal
long-term rating scale differs from Moody's general long-term rating scale.

Municipal Ratings are based upon the analysis of four primary factors
relating to municipal finance: economy, debt, finances, and
administration/management strategies. Each of the factors is evaluated
individually and for its effect on the other factors in the context of the
municipality's ability to repay its debt.

MUNICIPAL LONG-TERM RATING DEFINITIONS

"Aaa"

Issuers or issues rated "Aaa" demonstrate the strongest
creditworthiness relative to other US municipal or tax-exempt issuers or issues.

A-6

"Aa"

Issuers or issues rated "Aa" demonstrate very strong creditworthiness
relative to other US municipal or tax-exempt issuers or issues.

"A"

Issuers or issues rated "A" present above-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.

"Baa"

Issuers or issues rated "Baa" represent average creditworthiness
relative to other US municipal or tax- exempt issuers or issues.

"Ba"

Issuers or issues rated "Ba" demonstrate below-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.

"B"

Issuers or issues rated "B" demonstrate weak creditworthiness relative
to other US municipal or tax- exempt issuers or issues.

"Caa"

Issuers or issues rated "Caa" demonstrate very weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.

"Ca"

Issuers or issues rated "Ca" demonstrate extremely weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.

"C"

Issuers or issues rated "C" demonstrate the weakest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.

Note: Moody's appends numerical modifiers "1", "2", and "3" to each
generic rating category from "Aa" through "Caa." The modifier "1" indicates that
the issuer or obligation ranks in the higher end of its generic rating category;
the modifier "2" indicates a mid-range ranking; and the modifier "3" indicates a
ranking in the lower end of that generic rating category.

A-7

SHORT-TERM DEBT RATINGS

There are three rating categories for short-term municipal obligations
that are considered investment grade. These ratings are designated as Municipal
Investment Grade ("MIG") and are divided into three levels -- "MIG 1" through
"MIG 3." In addition, those short-term obligations that are of speculative
quality are designated "SG", or speculative grade. "MIG" ratings expire at the
maturity of the obligation.

"MIG 1"

This designation denotes superior credit quality. Excellent protection
is afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.

"MIG 2"

This designation denotes strong credit quality. Margins of protection
are ample, although not as large as in the preceding group.

"MIG 3"

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

"SG"

This designation denotes speculative-grade credit quality. Debt
instruments in this category may lack sufficient margins of protection.

DEMAND OBLIGATION RATINGS

In the case of variable rate demand obligations ("VRDOs"), a
two-component rating is assigned; a long or short-term debt rating and a demand
obligation rating. The first element represents Moody's evaluation of the degree
of risk associated with scheduled principal and interest payments. The second
element represents Moody's evaluation of the degree of risk associated with the
ability to receive purchase price upon demand ("demand feature"), using a
variation of the "MIG" rating scale, the Variable Municipal Investment Grade or
"VMIG" rating. When either the long- or short-term aspect of a "VRDO" is not
rated, that piece is designated NR, e.g., "Aaa/NR" or "NR/VMIG 1." "VMIG" rating
expirations are a function of each issue's specific structural or credit
features.

"VMIG 1"

This designation denotes superior credit quality. Excellent protection
is afforded by the superior short-term credit strength of the liquidity provider
and structural and legal protections that ensure the timely payment of purchase
price upon demand.

A-8

"VMIG 2"

This designation denotes strong credit quality. Good protection is
afforded by the strong short-term credit strength of the liquidity provider and
structural and legal protections that ensure the timely payment of purchase
price upon demand.

"VMIG 3"

This designation denotes acceptable credit quality. Adequate protection
is afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.

"SG"

This designation denotes speculative-grade credit quality. Demand
features rated in this category may supported by a liquidity provider that does
not have an investment grade short-term rating or may lack the structural and/or
legal protections necessary to ensure the timely payment of purchase price upon
demand.

COMMERCIAL PAPER

Moody's short-term ratings are opinions of the ability of issuers to
honor short-term financial obligations. Ratings may be assigned to issuers,
short-term programs or to individual short-term debt instruments. Such
obligations generally have an original maturity not exceeding thirteen months,
unless explicitly noted.

Moody's employs the following designations to indicate the relative
repayment ability of rated issuers:

"P-1"

Issuers (or supporting institutions) rated "Prime-1" have a superior
ability to repay short-term debt obligations.

"P-2"

Issuers (or supporting institutions) rated "Prime-2" have a strong
ability to repay short-term debt obligations.

"P-3"

Issuers (or supporting institutions) rated "Prime-3" have an acceptable
ability to repay short-term obligations.

A-9

"NP"

Issuers (or supporting institutions) rated "Not Prime" do not fall
within any of the Prime rating categories.

Note: Canadian issuers rated "P-1" or "P-2" have their short-term
ratings enhanced by the senior-most long-term rating of the issuer, its
guarantor or support-provider.

Fitch Ratings -- A brief description of the applicable Fitch Ratings
("Fitch") ratings symbols and meanings (as published by Fitch) follows:

LONG-TERM CREDIT RATINGS

International Long-Term Credit Ratings are more commonly referred to as
simply "Long-Term Ratings." The following scale applies to foreign currency and
local currency ratings.

International credit ratings assess the capacity to meet foreign or
local currency commitments. Both foreign and local currency ratings are
internationally comparable assessments. The local currency rating measures the
probability of payment only within the sovereign state's currency and
jurisdiction.

"AAA"

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

"AA"

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

"A"

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

"BBB"

Good credit quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in

A-10

economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

"BB"

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

"B"

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

"CCC", "CC", "C"

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

"DDD", "DD", "D"

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

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

A-11

SHORT-TERM CREDIT RATINGS

International Short-Term Credit Ratings are more commonly referred to
as simply "Short-Term Ratings." The following scale applies to foreign currency
and local currency ratings.

A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.

"F1"

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

"F2"

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

"F3"

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

"B"

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

"C"

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

"D"

Default. Denotes actual or imminent payment default.

A-12

Notes to Long-term and Short-term ratings:

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

"NR" indicates that Fitch does not rate the issuer or issue in
question.

"Withdrawn": A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.

Rating Watch: Ratings are placed on Rating Watch to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. Rating Watch is typically resolved
over a relatively short period.

A Rating Outlook indicates the direction a rating is likely to move
over a one to two year period. Outlooks may be positive, stable, or negative. A
positive or negative Rating Outlook does not imply a rating change is
inevitable. Similarly, ratings for which outlooks are "stable" could be
downgraded before an outlook moves to positive or negative if circumstances
warrant such an action. Occasionally, Moody's may be unable to identify the
fundamental trend. In these cases, the Rating Outlook may be described as
evolving.

A-13

APPENDIX B

ABERDEEN U.S. REGISTERED ADVISERS

PROXY VOTING POLICIES AND PROCEDURES

The following are proxy voting policies and procedures ("Policies and
Procedures") adopted by affiliated investment advisers registered with the U.S.
Securities and Exchange Commission ("SEC") under the Investment Advisers Act of
1940, as amended ("Advisers Act"), that are subsidiaries of Aberdeen Asset
Management PLC ("AAM"); including, specifically, Aberdeen Asset Management Inc.,
a Delaware Corporation, ("Aberdeen FL"), Aberdeen Asset Management Asia Limited,
a Singapore Corporation ("Aberdeen Singapore"), Aberdeen Asset Management
Limited, an Australian Corporation ("Aberdeen AU"), and Aberdeen Asset Managers
(C.I.) Limited, a Channel Islands corporation ("Aberdeen Jersey") (collectively
referred to herein as "Aberdeen Advisers" and each an "Aberdeen Adviser")
(collectively with AAM, "Aberdeen").1 Pursuant to a Memorandum of Understanding
("MOU"), Aberdeen Asset Managers Limited ("Aberdeen UK"), a non-U.S. registered
adviser, and Aberdeen Jersey provide advisory resources to certain U.S. clients
of Aberdeen Asia and Aberdeen AU. In addition, Aberdeen UK provides advisory
resources to certain U.S. clients of Aberdeen FL pursuant to another MOU. Under
these MOUs, the affiliates of the Aberdeen Advisers may provide various
portfolio management resources, including substantive advice on voting proxies
for certain equity securities. To the extent that Aberdeen UK and Aberdeen
Jersey provide advisory services to any clients of Aberdeen FL or to U.S.
clients of Aberdeen Singapore or Aberdeen AU, Aberdeen UK and Aberdeen Jersey
will be subject to the control and supervision of the registered adviser and
will follow these Policies and Procedures as part of providing such advisory
services. These Policies and Procedures are adopted to ensure compliance by the
Aberdeen Advisers with Rule 206(4)-6 under the Advisers Act and other applicable
fiduciary obligations under rules and regulations of the SEC and interpretations
of its staff with respect to proxies for voting securities held by client
portfolios.

Clients may consist of investment companies registered under the Investment
Company Act of 1940, as amended ("1940 Act") ("Funds" and each a "Fund"), and
other U.S. residents as well as non-U.S. registered funds or clients. Any
Aberdeen Adviser located in the United States follows these Policies and
Procedures for each of its respective clients as required under the Advisers Act
and other applicable law, unless expressly directed by a client in writing to
refrain from voting that client's proxies or to vote in accordance with the
client's proxy voting policies and procedures. Aberdeen Advisers located outside
the U.S. may provide proxy voting services to their non-U.S. based clients in
accordance with the jurisdiction in which the client is located. Aberdeen
Advisers who advise or subadvise the Funds follow both these Policies and
---------------
1 These policies and procedures address proxy voting considerations under U.S.
law and regulation and do not address the laws or requirements of other
jurisdictions.

B-1

Procedures and the proxy voting policies and procedures adopted by the Funds and
their Boards of Directors.

I. DEFINITIONS

A. "Best interest of clients". Clients' best economic interests over the
long term -- that is, the common interest that all clients share in
seeing the value of a common investment increase over time. Clients may
have differing political or social interests, but their best economic
interest is generally uniform.

B. "Material conflict of interest". Circumstances when an Aberdeen Adviser
or any member of senior management, portfolio manager or portfolio
analyst knowingly does business with a particular proxy issuer or
closely affiliated entity, which may appear to create a material
conflict between the interests of the Aberdeen Adviser and the
interests of its clients in how proxies of that issuer are voted. A
material conflict of interest might also exist in unusual circumstances
when Aberdeen has actual knowledge of a material business arrangement
between a particular proxy issuer or closely affiliated entity and an
affiliate of an Aberdeen Adviser.

II. GENERAL VOTING POLICIES

A. Client's Best Interest. These Policies and Procedures are designed and
implemented in a way that is reasonably expected to ensure that proxies
are voted in the best interests of clients. Proxies are voted with the
aim of furthering the best economic interests of clients, promoting
high levels of corporate governance and adequate disclosure of company
policies, activities and returns, including fair and equal treatment of
stockholders.

B. Shareholder Activism. Aberdeen Advisers seek to develop relationships
with the management of portfolio companies to encourage transparency
and improvements in the treatment of employees, owners and
stakeholders. Thus, Aberdeen Advisers may engage in dialogue with the
management of portfolio companies with respect to pending proxy voting
issues.

B-2

C. Case-by-Case Basis. These Policies and Procedures are guidelines. Each
vote is ultimately cast on a case-by-case basis, taking into
consideration the contractual obligations under the advisory agreement
or comparable document, and all other relevant facts and circumstances
at the time of the vote. Aberdeen Advisers may cast proxy votes in
favor of management proposals or seek to change the views of
management, considering specific issues as they arise on their merits.
Aberdeen Advisers may also join with other investment managers in
seeking to submit a shareholder proposal to a company or to oppose a
proposal submitted by the company. Such action may be based on
fundamental, social, environmental or human rights grounds.

D. Individualized. These Policies and Procedures are tailored to suit
Aberdeen's advisory business and the types of securities portfolios
Aberdeen Advisers manage. To the extent that clients (e.g., investment
companies, corporations, pension plans) have adopted their own
procedures, Aberdeen Advisers may vote the same securities differently
depending upon clients' directions.

E. Material Conflicts of Interest. Material conflicts are resolved in the
best interest of clients. When a material conflict of interest between
an Aberdeen Adviser and its respective client(s) is identified, the
Aberdeen Adviser will choose among the procedures set forth in Section
IV.B.2. below, to resolve such conflict.

F. Limitations. The circumstances under which Aberdeen may take a limited
role in voting proxies, include the following:

B-3

1. No Responsibility. Aberdeen Advisers will not vote proxies for
client accounts in which the client contract specifies that Aberdeen
will not vote. Under such circumstances, the clients' custodians are
instructed to mail proxy material directly to such clients.

2. Limited Value. Aberdeen Advisers may abstain from voting a client
proxy if the effect on shareholders' economic interests or the value of
the portfolio holding is indeterminable or insignificant. Aberdeen
Advisers may also abstain from voting the proxies of portfolio
companies held in their passively managed funds. Proxies with respect
to securities that have been sold before the date of the shareholders
meeting and are no longer held by a client generally will not be voted.

3. Unjustifiable Costs. Aberdeen may abstain from voting a client proxy
for cost reasons (e.g., non-U.S. securities).

4. Securities Lending Arrangements. If voting securities are part of a
securities lending program, Aberdeen may be unable to vote while the
securities are on loan.

5. Share Blocking. Certain jurisdictions may impose share blocking
restrictions at various times which may prevent Aberdeen from
exercising its voting authority.

6. Special Considerations. Aberdeen's responsibilities for voting
proxies are determined generally by its obligations under each advisory
contract or similar document. If a client requests in writing that an
Aberdeen Adviser vote its proxy in a manner inconsistent with these
Policies and Procedures, Aberdeen may follow the client's direction or
may request that the client vote the proxy directly.

G. Sources of Information. Aberdeen may conduct research internally and/or
use the resources of an independent research consultant. Aberdeen may
consider legislative materials, studies of corporate governance and
other proxy voting issues, and/or analyses of shareholder and
management proposals by a certain sector of companies, e.g., Fortune
500 companies.

H. Subadvisers. To the extent that an Aberdeen Adviser may rely on
subadvisers, whether affiliated or unaffiliated, to manage any client
portfolio on a discretionary basis, the Aberdeen Adviser will delegate
responsibility for voting proxies to the subadviser. However, such
subadvisers will be required either to follow these Policies and
Procedures or to demonstrate that their proxy voting policies and
procedures are consistent with these Policies and Procedures or
otherwise implemented in the best interests of Aberdeen clients.

B-4

I. Availability of Policies and Procedures. Aberdeen Advisers will provide
clients with a copy of these Policies and Procedures, as revised from
time to time, upon request.

J. Disclosure of Vote. As disclosed in Part II of each Aberdeen Adviser's
Form ADV, a client may obtain information on how its proxies were voted
by requesting such information from its Aberdeen Adviser. Aberdeen
Advisers do not generally disclose client proxy votes to third parties,
other than as required for Funds, unless specifically requested, in
writing, by the client.

III. SPECIFIC VOTING POLICIES

A. General Philosophy.

o Support existing management on votes on the financial
statements of a company and the election of the Board of
Directors;

o Vote for the acceptance of the accounts unless there are
grounds to suspect that either the accounts as presented or
audit procedures used, do not present an accurate picture of
company results; and

o Support routine issues such as the appointment of independent
auditors, allocation of income and the declaration of stock
(scrip) dividend proposals provided there is a cash
alternative.

B. Anti-takeover Measures. Aberdeen Advisers vote on anti-takeover
measures on a case-by-case basis taking into consideration such factors
as the long-term financial performance of the target company relative
to its industry competition. Key measures of performance will include
the growth rates for sales, operating income, net income and total
shareholder returns. Other factors which will be considered include
margin analysis, cash flow and debt levels.

C. Proxy Contests for Control. Aberdeen Advisers vote on proxy contests
for control on a case-by-case basis taking into consideration such
factors as long-term financial performance of the target company
relative to its industry, management's track record, background to the
proxy contest, qualifications of director nominees, evaluation of what
each side is offering shareholders as well as the likelihood that the
proposed objectives and goals can be met, and stock ownership
positions.

B-5

D. Contested Elections. Aberdeen Advisers vote on contested elections on a
case-by-case basis taking into consideration such factors as the
qualifications of all director nominees. Aberdeen Advisers also
consider the independence of board and key committee members and the
corporate governance practices of the company.

E. Executive compensation proposals. Aberdeen Advisers consider such
proposals on a case-by-case basis taking into consideration such
factors as executive pay and spending perquisites, particularly in
conjunction with sub-par performance and employee layoffs.

F. Shareholder Proposals. Aberdeen Advisers consider such proposals on a
case-by-case basis. Aberdeen Advisers support those proposals which
will improve the company's corporate governance or business profile at
a reasonable cost, but may oppose proposals which result in significant
cost being incurred with little or no benefit to the company or its
shareholders.

IV. PROXY VOTING PROCEDURES

This section applies to each Aberdeen Adviser except to the extent that certain
procedures are identified as applicable only to a specific Aberdeen Adviser.

A. Obtain Proxy. Registered owners of record, e.g., trustees or custodian
banks, that receive proxy materials from the issuer or its information
agent, are instructed to sign physical proxy cards in blank and forward
directly to the relevant Aberdeen Adviser's proxy administrator ("PA").
Proxies may also be delivered electronically by custodians using proxy
services such as ProxyEdge. Each proxy received is matched to the
securities to be voted.

B. Material Conflicts of Interest.

B-6

1. Identify the existence of any material conflicts of interest
relating to the securities to be voted or the issue at hand. Portfolio
managers and research analysts (Analysts") and senior management of
each Aberdeen Adviser have an affirmative duty to disclose to the
relevant proxy committees any personal conflicts such as officer or
director positions held by them, their spouses or close relatives in
the portfolio company or attempts by the portfolio company to exert
influence over such person with respect to their vote. Conflicts based
on business relationships or dealings of affiliates of any Aberdeen
Adviser will only be considered to the extent that the Aberdeen Adviser
has actual knowledge of such business relationships.

2. When a material conflict of interest between an Aberdeen Adviser's
interests and its clients' interests appears to exist, the Aberdeen
Adviser may choose among the following options to eliminate such
conflict: (1) vote in accordance with these Policies and Procedures if
it involves little or no discretion; (2) vote as recommended by a third
party service if the Aberdeen Adviser utilizes such a service; (3)
"echo vote" or "mirror vote" the proxies in the same proportion as the
votes of other proxy holders that are not Aberdeen clients; (4) if
possible, erect information barriers around the person or persons
making voting decisions sufficient to insulate the decision from the
conflict; (5) if practical, notify affected clients of the conflict of
interest and seek a waiver of the conflict; or (6) if agreed upon in
writing with the client, forward the proxies to affected clients
allowing them to vote their own proxies.

C. Analysts. The PA for each Aberdeen Adviser will ensure that each proxy
statement is directed to the appropriate Analyst. If a third party
recommendation service has been retained, the relevant PA will forward
the proxy statement to the Analyst with the recommendation highlighted.
The Analyst will determine whether to vote as recommended by the
service provider or to recommend an alternative and shall advise the
PA. The Analyst may consult with the PA as necessary. If the Analyst
recommends voting against the third party recommendation, he or she is
responsible for documenting the reasons for such recommendation and
that no conflict of interest influenced such recommendation. If no
third party recommendation service is utilized or if no recommendation
is provided, the Analyst is responsible for documenting the rationale
for his or her vote recommendation.

D. Vote. The following describes the breakdown of responsibilities between
the PA and the Proxy Committee ("PC") of each Aberdeen Adviser in
voting portfolio securities and the extent to which the Aberdeen
Advisers rely on third party service providers.

B-7

1. Aberdeen FL

The PA for Aberdeen FL ("PA-FL"), who resides in Ft. Lauderdale, and the PA for
Aberdeen UK ("PA-UK"), which is part of the Trade Processing Department resident
in Aberdeen, Scotland, are responsible for ensuring that votes for Aberdeen FL
clients are cast and cast in accordance with these Policies and Procedures. The
PA-FL and the PA-UK are identified more specifically on Appendix A1. The PA-FL
is primarily responsible for administering proxy votes for the Phoenix funds
which are sub-advised by Aberdeen FL.

Responsibility for considering the substantive issues relating to any vote and
for deciding how shares will be voted resides with the relevant Analyst whether
located in Aberdeen FL, Aberdeen UK or Aberdeen Singapore. Under Aberdeen-FL's
MOU with Aberdeen Singapore, the relevant Analyst for Far East equity securities
will generally reside in Aberdeen Singapore.

In the event that a material conflict of interest is identified by any Analyst,
whether in Aberdeen FL, Aberdeen UK or Aberdeen Singapore, decisions on how to
vote will be referred to the Aberdeen FL proxy committee ("PC-FL/UK"). Under
Aberdeen FL's MOU with Aberdeen UK, the PC-FL/UK is headquartered in Glasgow,
Scotland, and includes the Chief Investment Officer or Deputy Chief Investment
Officer, the head of the Socially Responsible Investing ("SRI") Team and a
member of the Compliance team, who are more specifically identified on Appendix
A1. The PC-FL/UK meets as needed to consider material conflicts of interest or
any other items raising unique issues. If the PC-FL/UK determines that there is
no material conflict of interest, the vote recommendation will be forwarded to
the appropriate proxy administrator, either the PA-FL or PA-UK. If a material
conflict of interest is identified, the PC-FL/UK will follow the conflict of
interest procedures set forth in Section IV.B.2., above.

Aberdeen FL has engaged ProxyEdge, a third party service provider, to cast votes
electronically for certain clients and to maintain records of such votes
electronically.1 Votes for some of the wrap accounts are handled manually and
hard copies of any manual votes cast are maintained in the Florida office of
Aberdeen FL. Pursuant to the MOU, Aberdeen UK votes proxies for certain U.S.
clients of Aberdeen FL. Aberdeen UK has engaged Institutional Shareholder
Services ("ISS"), a third party service provider, to provide (1) notification of
impending votes; (2) research into non-routine votes, including shareholder
resolutions; (3) voting recommendations which may be viewed on-line; and (4)
web-based voting. In the absence of any material conflict of interest, Aberdeen
FL may either vote in accordance with the ISS recommendation or decline to
follow the ISS recommendation based on its own view of the agenda item provided
that decisions to vote contrary to the ISS recommendation are documented as set
forth in Section IV.C., above. For clients on the ISS system, votes are
automatically entered in accordance with ISS recommendations unless the PA-UK
--------------------
1 The Phoenix Funds, sub-advised by Aberdeen FL, require electronic
voting through ProxyEdge. Custodians for certain other clients also
provide the PA-FL with access to ProxyEdge.

B-8

expressly changes the vote prior to the voting deadline with appropriate analyst
documentation. In the event of a material conflict of interest, Aberdeen FL will
follow the procedures outlined in Section IV.B.2, above.

2. Aberdeen Jersey, Aberdeen AU and Aberdeen Singapore

Aberdeen Jersey and Aberdeen AU are responsible for voting proxies for the
Funds. The PA for Aberdeen Jersey and Aberdeen AU ("PA-Jersey") is the Trade
Processing Department in Jersey, Channel Islands, members of which are more
specifically identified on Appendix A2. The PA-Jersey is responsible for
ensuring that votes are cast and cast in accordance with these Policies and
Procedures. The PA-Jersey uses ProxyEdge to electronically cast votes for the
Funds and to maintain electronic records of the votes cast.

Responsibility for considering the substantive issues relating to any Fund vote
and for deciding how the shares will be voted resides with relevant equity
and/or fixed income Analyst. Pursuant to the MOU among Aberdeen Jersey, Aberdeen
AU and Aberdeen UK, the relevant Analyst may be a member of the Fund portfolio
management team in London, England. In the event that a material conflict of
interest is identified, decisions on how to vote will be referred to the proxy
committee ("PC-AU") located in Aberdeen AU. The PC-AU includes the Heads of
Equity and Fixed Income Portfolio Management and the Compliance Officer, who are
more specifically identified on Appendix A2. The PC-AU meets as needed to
consider a material conflict of interest or any other items raising unique
issues. If the PC-AU determines there is no material conflict of interest, the
vote recommendation will be forwarded to the PA-Jersey to be cast. If a material
conflict of interest is identified, the PC-AU will follow the conflict of
interest procedures set forth in Section IV.B.2., above, and in the Aberdeen
Funds Proxy Voting Policy and Procedures.

Aberdeen Singapore currently provides advice to Aberdeen Jersey and Aberdeen AU
only with respect to fixed income securities. In the event that Aberdeen
Singapore later provides advice to either Aberdeen Jersey and Aberdeen AU with
respect to equity securities, Aberdeen Singapore may designate its own PA and
PC. At present, a member of the PC-AU already serves as an Aberdeen Singapore
Analyst and this member will serve on the Aberdeen Singapore PC with respect to
proxy voting advice rendered to Aberdeen Jersey and Aberdeen AU to the extent
such a committee may be necessary.

E. Review. Each PA is responsible for ensuring that proxy materials are
received in a timely manner and reconciled against holdings on the
record date of client accounts over which the Aberdeen Adviser has
voting authority to ensure that all shares held on the record date, and
for which a voting obligation exists, are voted.

B-9

V. DOCUMENTATION, RECORDKEEPING AND REPORTING REQUIREMENTS

A. Documentation. The Aberdeen PAs are responsible for: 1. Implementing
and updating these Policies and Procedures; 2. Overseeing the proxy
voting process;

3. Consulting with portfolio managers/analysts for the relevant portfolio
security; and

4. Maintaining manual proxy voting records, if any, and overseeing and
reviewing voting execution and recordkeeping by third party providers
such as ISS and ProxyEdge.

B. RecordKeeping.

B-10

1. Each Aberdeen Adviser maintains or procures the maintenance of
records of all proxies it has voted. As permitted by Rule 204-2(c),
electronic proxy statements and the record of each vote cast by each
client account of Aberdeen FL will be maintained by either ISS and
Proxy Edge, depending on the client account. Similarly, electronic
proxy statements and the record of each vote cast by each U.S. client
account of Aberdeen Jersey will be maintained by Proxy Edge.2 Aberdeen
FL shall obtain and maintain undertakings from both ISS and Proxy Edge
to provide it with copies of proxy voting records and other documents
relating to its clients' votes promptly upon request. Aberdeen Jersey
shall obtain and maintain an undertaking from Proxy Edge to provide it
with copies of proxy voting records and other documents relating to
votes for its U.S. clients promptly upon request. Aberdeen Advisers,
ISS and Proxy Edge may rely on the SEC's EDGAR system to keep records
of certain proxy statements if the proxy statements are maintained by
issuers on that system (e.g., large U.S.-based issuers).

2. As required by Rule 204-2(c), such records will also include: (a) a
copy of the Policies and Procedures; (b) a copy of any document created
by the Aberdeen Adviser that was material to making a decision on how
to vote proxies on behalf of a client or that memorializes the basis
for that decision; and (c) each written client request for proxy voting
records and the Aberdeen Adviser's written response to any (written or
oral) client request for such records.

3. Duration. Proxy voting books and records will be maintained in an
easily accessible place for a period of five years, the first two in an
appropriate office of the Aberdeen Adviser.

----------------------
2 A Fund's proxy voting record must be filed with the SEC on Form N-PX.
Form N-PX must be completed and signed in the manner required,
containing a fund's proxy voting record for the most recent
twelve-month period ended June 30th (beginning August 31, 2004). If an
Aberdeen Adviser delegates this reporting responsibility to a third
party service provider such as ISS or Proxy Edge, it will ensure that
the third party service provider files Form N-PX accordingly.

B-11

C. Reporting. Aberdeen FL will initially inform clients of these
Policies and Procedures and how a client may learn of the voting record
for client's securities through disclosure of its full policies and
procedures in Part II of its Form ADV. Aberdeen Jersey, Aberdeen AU and
Aberdeen Singapore will initially inform clients of these Policies and
Procedures by summary disclosure in Part II of their respective Forms
ADV. Upon receipt of a client's request for more information, Aberdeen
FL, Aberdeen Jersey, Aberdeen AU and Aberdeen Singapore will provide to
the client a copy of these Policies and Procedures and/or, in
accordance with the client's stated requirements, how the client's
proxies were voted during the period requested subsequent to the
adoption of these Policies and Procedures. Such periodic reports, other
than those required for the Funds, will not be made available to third
parties absent the express written request of the client. However, to
the extent that any Aberdeen Adviser may serve as a subadviser to
another adviser to a Client, such Aberdeen Adviser will be deemed to be
authorized to provide proxy voting records on such Client accounts to
such other adviser.

D. Review of Policies and Procedures. These Policies and Procedures
will be subject to review on a periodic basis as deemed appropriate by
the Aberdeen Advisers.

EFFECTIVE DATE: [JULY 1, 2003]

B-12

APPENDIX A1

PA-FL

Silvana Barrenechea

PA-UK

Members of Trade Processing Department in Scotland

PC-FL/UK

Chief Investment Officer/Deputy CIO/Head of SRI/Compliance Officer***

---------------------------------- ---------------------------------------------
Names: Titles:
---------------------------------- ---------------------------------------------
Anne Richards Chief Investment Officer
---------------------------------- ---------------------------------------------
Andrew Preston Head of Socially Responsible Investing (SRI)
---------------------------------- ---------------------------------------------
Susan Connerney Compliance Officer
---------------------------------- ---------------------------------------------

***From time to time one or more members of the committee may be represented by
an authorized representative of their respective Department.

B-13

PA-JERSEY

Members of Trade Processing Department in Channel Islands, Jersey

PC-AU

Portfolio Managers/Research Analysts in Sydney, Australia

---------------------------------- ---------------------------------------------
Names: Titles:
---------------------------------- ---------------------------------------------
Steve Robinson Equities Fund Manager
---------------------------------- ---------------------------------------------
Munib Madni Equities Fund Manager
---------------------------------- ---------------------------------------------
James Blair Fixed Income Fund Manager
---------------------------------- ---------------------------------------------
Alison Briggs Fixed Income Fund Manager
---------------------------------- ---------------------------------------------
Chris Beard Compliance Officer
---------------------------------- ---------------------------------------------

B-14

PART C - OTHER INFORMATION

Item 24: Financial Statements and Exhibits

1. Financial Statements:

Registrant has not conducted any business as of the date of this filing,
other than in connection with its organization. Financial Statements indicating
that the Registrant has met the net worth requirements of Section 14(a) of the
1940 Act will be filed by Pre-effective Amendment to the Registration Statement.

2. Exhibits:

a. Declaration of Trust dated September 2, 2004. Filed on September 17, 2004
as Exhibit a. to Registrant's Registration Statement on Form N-2 (File No.
333-119081) and incorporated herein by reference.

b. By-Laws of Fund. Filed on October 25, 2004 as Exhibit b. to Registrant's
Pre-Effective Amendment No. 1 to Registration Statement (File No.
333-119081) and incorporated herein by reference.

c. None.

d. Form of Share Certificate.

e. Terms and Conditions of the Dividend Reinvestment Plan.

f. None.

g.1 Form of Investment Management Agreement between Registrant and First Trust
Advisors L.P.

g.2 Form of Sub-Advisory Agreement between Registrant, First Trust Advisors
L.P. and Aberdeen Asset Management Inc.

h.1 Form of Purchase Agreement.

i. None.

j. Form of Custodian Services Agreement between Registrant and PFPC Trust
Company.

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

k.2 Form of Administration and Accounting Services Agreement.

l.1 Opinion and consent of Chapman and Cutler LLP.

Page 1

l.2 Opinion and consent of Bingham McCutchen LLP.

m. None.

n. Consent of Independent Registered Public Accounting Firm.

o. None.

p. Subscription Agreement between Registrant and First Trust Advisors L.P.

q. None.

r.1 Code of Ethics of Registrant.

r.2 Code of Ethics of First Trust Portfolios L.P.

r.3 Code of Ethics of First Trust Advisors L.P.

r.4 Code of Ethics of Aberdeen Asset Management Inc.

s. Powers of Attorney.

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

Item 25: Marketing Arrangements

Reference is made to the Form of Purchase Agreement among the Registrant, First
Trust Advisors L.P., Aberdeen Asset Management Inc. and the Underwriters for the
Registrant's common shares of beneficial interest as filed herewith as exhibit
h.1.

Page 2

Item 26: Other Expenses of Issuance and Distribution

------------------------------------------------- ----------------------------
Securities and Exchange Commission Fees $ 47,513.00
------------------------------------------------- ----------------------------
National Association of Securities Dealers, $ 30,500.00
Inc. Fees
------------------------------------------------- ----------------------------
Printing and Engraving Expenses $ 250,000.00
------------------------------------------------- ----------------------------
Legal Fees $ 250,000.00
------------------------------------------------- ----------------------------
Listing Fees $ 30,000.00
------------------------------------------------- ----------------------------
Accounting Expenses $ 10,500.00
------------------------------------------------- ----------------------------
Blue Sky Filing Fees and Expenses $ 0.00
------------------------------------------------- ----------------------------
Miscellaneous Expenses $ 175,063.00
------------------------------------------------- ----------------------------
Total $ 793,576.00
------------------------------------------------- ----------------------------
---------

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

Not applicable.

Item 28: Number of Holders of Securities

At November 23, 2004:

------------------------------------------------- ----------------------------
Title of Class Number of Record Holders
------------------------------------------------- ----------------------------
Common Shares, $0.01 par value 1
------------------------------------------------- ----------------------------

Page 3

Item 29: Indemnification

Section 5.3 of the Registrant's Declaration of Trust provides as follows:

(a) Subject to the exceptions and limitations contained in paragraph (b)
below:

(i) every person who is or has been a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust against all liability and against all expenses
reasonably incurred or paid by him or her in connection with any claim,
action, suit or proceeding in which that individual becomes involved as a
party or otherwise by virtue of being or having been a Trustee or officer
and against amounts paid or incurred by that individual in the settlement
thereof; and

(ii) the words "claim," "action," "suit" or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement or
compromise, fines, penalties and other liabilities.

(b) No indemnification shall be provided hereunder to a Covered Person:

(i) against any liability to the Trust or the Shareholders by
reason of a final adjudication by the court or other body before which
the proceeding was brought that the Covered Person engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of that individual's office;

(ii) with respect to any matter as to which the Covered Person
shall have been finally adjudicated not to have acted in good faith in
the reasonable belief that that individual's action was in the best
interest of the Trust; or

(iii) in the event of a settlement involving a payment by a
Trustee, Trustee Emeritus or officer or other disposition not involving a
final adjudication as provided in paragraph (b)(i) or (b)(ii) above
resulting in a payment by a Covered Person, unless there has been either
a determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of that individual's office by the court
or other body approving the settlement or other disposition or by a
reasonable determination, based upon a review of readily available facts
(as opposed to a full trial-type inquiry) that that individual did not
engage in such conduct:

(A) by vote of a majority of the Disinterested Trustees (as
defined below) acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter); or

(B) by written opinion of (i) the then-current legal counsel
to the Trustees who are not Interested Persons of the Trust or (ii) other

Page 4

legal counsel chosen by a majority of the Disinterested Trustees (or if
there are no Disinterested Trustees with respect to the matter in
question, by a majority of the Trustees who are not Interested Persons of
the Trust) and determined by them in their reasonable judgment to be
independent.

(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be a Covered Person and shall inure to
the benefit of the heirs, executors and administrators of such person. Nothing
contained herein shall limit the Trust from entering into other insurance
arrangements or affect any rights to indemnification to which Trust personnel,
including Covered Persons, may be entitled by contract or otherwise under law.

(d) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the Covered Person to repay
such amount if it is ultimately determined that the Covered Person is not
entitled to indemnification under this Section 5.3, provided that either:

(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising
out of any such advances; or

(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office
act on the matter) or legal counsel meeting the requirement in Section
5.3(b)(iii)(B) above in a written opinion, shall determine, based upon a
review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.

As used in this Section 5.3, a "Disinterested Trustee" is one (i) who
is not an "Interested Person" of the Trust (including anyone who has
been exempted from being an "Interested Person" by any rule, regulation
or order of the Commission), and (ii) against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or had been pending.

(e) With respect to any such determination or opinion referred to in
clause (b)(iii) above or clause (d)(ii) above, a rebuttable presumption shall be
afforded that the Covered Person has not engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office in accordance with pronouncements of the
Commission.

Section 6 of the Purchase Agreement provides as follows:

Section 6 Indemnification.

Page 5

(a) Indemnification of Underwriters. The Fund and the Advisers, jointly
and severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, as follows:

(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;

(2) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 6(e) below) any such
settlement is effected with the written consent of the Fund and each Adviser;
and

(3) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund or an
Adviser by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); provided,
further, that the indemnity agreement contained in this Section 6(a) shall not
inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) from whom the person asserting any such loss,
liability, claim, damage and expense purchased the Securities which are the
subject thereof if the Prospectus corrected any such alleged untrue statement or
omission and if such Prospectus was delivered to such Underwriter in a timely
manner and if such Underwriter failed to send or give a copy of the Prospectus
to such person at or prior to the written confirmation of the sale of such
Securities to such person.

Page 6

(b) Indemnification of the Fund, Advisers, Trustees, Directors and Officers.
Each Underwriter severally agrees to indemnify and hold harmless the Fund and
the Advisers, their respective trustees and directors, each of the Fund's
officers who signed the Registration Statement, and each person, if any, who
controls the Fund or an Adviser within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Fund or the Advisers by
such Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).

(c) Indemnification for Marketing Materials. In addition to the foregoing
indemnification, the Fund and the Advisers also, jointly and severally, agree to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, against any and all loss, liability, claim, damage
and expense described in the indemnity contained in Section 6(a), as limited by
the proviso set forth therein, with respect to any sales material.

(d) Actions against Parties; Notification. Each indemnified party shall give
notice as promptly as reasonably practicable to each indemnifying party of any
action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Fund or an Adviser, as applicable.
In each case such counsel shall be reasonably satisfactory to the indemnified
party, and the indemnifying party shall have the right to assume the defense of
such action. An indemnified party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying party be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from its own counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.

Page 7

(e) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for reasonable fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 6(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.

Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, 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 of 1933 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 of 1933 and will be governed by the final adjudication of such
issue.

Item 30: Business and Other Connections of Investment Advisers

a) First Trust Advisors L.P. ("First Trust Advisors") serves as investment
adviser to the fund and the First Defined Portfolio Fund, LLC and also serves as
subadviser to 38 mutual funds and is the portfolio supervisor of certain unit
investment trusts. Its principal address is 1001 Warrenville Road, Suite 300,
Lisle, Illinois 60532.

The principal business of certain of First Trust Advisors' principal executive
officers involves various activities in connection with the family of unit
investment trusts sponsored by First Trust Portfolios L. P. ("First Trust
Portfolios"). The principal address of First Trust Portfolios is 1001
Warrenville Road, Suite 300, Lisle, Illinois 60532.

Page 8

Other Business, Profession, Vocation or Employment During Past Two Years

Name and Position with First Trust Advisors L.P. Employment During Past Two Years

James A. Bowen, Managing Director/President Managing Director/President, First Trust Portfolios

Ronald Dean McAlister, Managing Director Managing Director, First Trust Portfolios

Mark R. Bradley, Chief Financial Officer and Chief Financial Officer and Managing Director,
Managing Director First Trust Portfolios and Chief Financial Officer, Bondwave LLC

Robert W. Bredemeier, Chief Operating Officer Chief Operations Officer and Managing Director,
and Managing Director First Trust Portfolios

Robert Franklin Carey, Chief Investment Officer Senior Vice President, First Trust Portfolios
and Senior Vice President

William Scott Jardine, General Counsel General Counsel, First Trust Portfolios and Secretary of Bondwave LLC

Scott Hall, Managing Director Managing Director, First Trust Portfolios

Andy Roggensack, Managing Director Managing Director, First Trust Portfolios

Jon Carl Erickson, Senior Vice President Vice President, First Trust Portfolios

Jason Henry, Senior Vice President Senior Vice President, First Trust Portfolios

David McGarel, Senior Vice President Senior Vice President, First Trust Portfolios

Bob Porcellino, Senior Vice President Senior Vice President, First Trust Portfolios

Mark Sullivan, Senior Vice President Senior Vice President, First Trust Portfolios

Al Davis, Vice President Vice President, First Trust Portfolios

James P. Koeneman, Vice President Vice President, First Trust Portfolios since December 2003;
President, Burr Oak Advisors, Inc., June 2000 to December 2003

Daniel J. Lindquist, Vice President Vice President, First Trust Portfolios since April 2004;
Chief Operating Officer, Mina Capital Management, LLC,
January 2004 to April 2004; Chief Operating Officer,
Samaritan Asset Management Services, Inc.

Mitch Mohr, Vice President Vice President, First Trust Portfolios

David Pinsen, Vice President Vice President, First Trust Portfolios

Jonathan Steiner, Vice President Vice President, First Trust Portfolios

Walter E. Stubbings, Jr., Vice President Vice President, First Trust Portfolios since July 2004; Assistant Vice
President, Kansas City Life Insurance Company, May 1999 to July 2004

Rick Swiatek, Vice President Vice President, First Trust Portfolios

Douglas Tichenor, Vice President Vice President, First Trust Portfolios

Roger Testin, Vice President Vice President, First Trust Portfolios

Kitty Collins, Assistant Vice President Assistant Vice President, First Trust Portfolios

Charles Bradley, Assistant Vice President Assistant Vice President, First Trust Portfolios

b) Sub-Advisers. Aberdeen Asset Management Inc. ("Aberdeen Asset Management")
serves as an investment sub-adviser of the Fund. Reference is made to: (i) the

Page 9

information set forth under "Management of the Fund" in the Prospectus and
"Sub-Adviser" in the Statement of Additional Information; and (ii) the Form ADV
of Aberdeen Asset Management (File No. 801-49966) filed with the Commission, all
of which are incorporated herein by reference.

Item 31: Location of Accounts and Records.

First Trust Advisors L.P. maintains the Declaration of Trust, By-Laws, minutes
of trustees and shareholders meetings and contracts of the Registrant, all
advisory material of the investment adviser, all general and subsidiary ledgers,
journals, trial balances, records of all portfolio purchases and sales, and all
other required records.

Item 32: Management Services

Not applicable.

Item 33: Undertakings

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

2. Not applicable.

3. Not applicable.

4. Not applicable.

5. The Registrant undertakes that:

a. For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant under Rule 497(h) under the Securities Act of
1933 shall be deemed to be part of the Registration Statement as of the time it
was declared effective.

b. For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.

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

Page 10

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Lisle, and State of Illinois, on the 23rd day of
November, 2004.

FIRST TRUST/ABERDEEN GLOBAL
OPPORTUNITY INCOME FUND

By: /s/ James A. Bowen
-----------------------------
James A. Bowen, President

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

---------------------- ------------------------------- -------------------------
Signature Title Date
---------------------- ------------------------------- -------------------------
/s/ James A. Bowen President, Chairman of the November 23, 2004
------------------- Board and Trustee
James A. Bowen (Principal Executive Officer)
---------------------- ------------------------------- -------------------------
/s/ Mark R. Bradley Chief Financial Officer and November 23, 2004
-------------------- Treasurer (Principal Financial
Mark R. Bradley and Accounting Officer)
---------------------- ------------------------------- -------------------------

---------------------- ------------------------------- -------------------------
Richard E. Erickson* Trustee )
---------------------- ------------------------------- By: /s/ W. Scott Jardine
Thomas R. Kadlec* Trustee ) --------------------
---------------------- ------------------------------- W. Scott Jardine
Niel B. Nielson* Trustee ) Attorney-In-Fact
---------------------- ------------------------------- November 23, 2004
David M. Oster* Trustee )
---------------------- ------------------------------- -------------------------

* Original powers of attorney authorizing James A. Bowen, W. Scott Jardine and
Eric F. Fess to execute this Registration Statement, and Amendments thereto, for
each of the trustees of the Registrant on whose behalf this Registration
Statement is filed, were previously executed and are filed as an exhibit hereto.

Page 11

INDEX TO EXHIBITS

d. Form of Share Certificate.

e. Terms and Conditions of the Dividend Reinvestment Plan.

g.1 Form of Investment Management Agreement between Registrant and First Trust
Advisors L.P.

g.2 Form of Sub-Advisory Agreement between Registrant, First Trust Advisors
L.P. and Aberdeen Asset Management Inc.

h.1 Form of Purchase Agreement.

j. Form of Custodian Services Agreement between Registrant and PFPC Trust
Company.

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

k.2 Form of Administration and Accounting Services Agreement.

l.1 Opinion and consent of Chapman and Cutler LLP.

l.2 Opinion and consent of Bingham McCutchen LLP.

n. Consent of Independent Registered Public Accounting Firm.

p. Form of Subscription Agreement between Registrant and First Trust
Advisors L.P.

r.1 Code of Ethics of Registrant.

r.2 Code of Ethics of First Trust Portfolios L.P.

r.3 Code of Ethics of First Trust Advisors L.P.

r.4 Code of Ethics of Aberdeen Asset Management Inc.

s. Powers of Attorney.

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