Calm down, brother or sister.
You always have to allocate something to the fiduciary. That person is not going to work for free, unless for some reason he/she/it has agreed to do so.
The total DNI is $1000 because the "gross" income to be distributed is $2000 ($1,700 Interest, $300 Dividends). The Fiduciary person, CPA, attorney, or whoever, is getting $1,000 to manage the trust, meaning doing the paperwork to determine who gets how much of the income of the trust, etc. and send the appropriate filings to the IRS.. Subtract the Fiduciary person's $1,000 from the $2,000 "gross" income, and you get the correct answer-$1,000.
The question states that any capital gains go into the "corpus" (the principle) of the trust and does not get distributed to the beneficiaries. It does get distributed - back into the corpus of the trust.
BTW: Don't freak about every question you are not sure of. That will make you crazy. If you have put in the proper time to prepare for the exam, skim over all your notes or questions you have printed out, review them this weekend and maybe go over some of the categories you know you are weak on. Basic test taking skills dictate not to try to cram a bunch of stuff into you head right before the exam. Get a good night's sleep Sunday night, try to have some kind of breakfast before the test Monday, make sure you first answer ALL the questions you are certain about, then go back and tackle the ones that you have narrowed down to (hopefully) two choices. After that tackle the ones that are going to take time to figure out.
Good luck, I'll have a good thought for you Monday.
