Edgar Filing: Pioneer Floating Rate Trust

As filed with the Securities and Exchange Commission on December 21, 2004

1933 Act File No. 333-119731
1940 Act File No. 811-21654

United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM N-2

(Check appropriate box or boxes)

[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

[X] Pre-Effective Amendment No. 3

[ ] Post-Effective Amendment No. ______

and/or

[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

[X] Amendment No. 3

PIONEER FLOATING RATE TRUST
Exact Name of Registrant as Specified in Charter

60 State Street, Boston, Massachusetts 02109
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)

(617) 742-7825
Registrant's Telephone Number, including Area Code

Dorothy E. Bourassa, Pioneer Investment Management, Inc.
60 State Street, Boston, Massachusetts 02109
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service

Copies to: David C. Phelan, Esq. Leonard B. Mackey, Jr., Esq.
Wilmer Cutler Pickering Hale Clifford Chance US LLP
and Dorr LLP 60 State Street 200 Park Avenue
Boston, Massachusetts 02109 New York, NY 10166-0153

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

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

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

Title of Securities Amount Being Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Being Registered Registered (1) Price Per Unit Offering Price Registration Fee (2)
------------------- ------------- ------------------------- -------------------------- --------------------

Common Shares (no par
value)

(1) Includes shares that may be purchase pursuant to the underwriters'
over-allotment option.

(2) Previously paid $82,390.00 and $126.70 on December 16, 2004 and October
13, 2004.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment, which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall be effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.

PIONEER FLOATING RATE TRUST

CROSS-REFERENCE SHEET

PART A -- PROSPECTUS

ITEMS IN PART A OF FORM N-2 LOCATION IN PROSPECTUS
--------------------------- ----------------------

Item 1. Outside Front Cover Cover Page

Item 2. Cover Pages; Other Offering Information Cover Page

Item 3. Fee Table and Synopsis Summary of Fund Expenses

Item 4. Financial Highlights Not applicable

Item 5. Plan of Distribution Cover Page; Prospectus Summary; Underwriting

Item 6. Selling Shareholders Not applicable

Item 7. Use of Proceeds Use of Proceeds

Item 8. General Description of the Registrant Cover Page; Prospectus Summary; The Fund; Investment
Objectives and Principal Investment Strategies; Leverage;
Risk Factors; Closed-End Fund Structure; Net Asset Value;
Certain Provisions of the Agreement and Declaration of
Trust and By-Laws

Item 9. Management Prospectus Summary; Management of the Fund; Description
of Shares; Administrator, Custodian, Transfer Agent,
Registrar and Dividend Disbursing Agent

Item 10. Capital Stock, Long-Term Debt, and Other Securities Description of Shares; Dividends and Distributions;
Automatic Dividend Reinvestment Plan; Federal Income Tax
Matters

Item 11. Default and Arrears On Senior Securities Not applicable

Item 12. Legal Proceedings Not applicable

Item 13. Table of Contents of the Statement of Additional Table of Contents of the Statement of Additional
Information Information

PART B -- STATEMENT OF ADDITIONAL INFORMATION

ITEMS IN PART B OF FORM N-2 LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
--------------------------- -----------------------------------------------

Item 14. Cover Page Cover Page

Item 15. Table of Contents Cover Page

Item 16. General Information and History Not applicable

Item 17. Investment Objective and Policies Use of Proceeds; Investment Objectives and Policies;
Investment Restrictions

Item 18. Management Management of the Fund

Item 19. Control Persons and Principal Holders of Securities Not applicable

Item 20. Investment Advisory and Other Services Management of the Fund

Item 21. Brokerage Allocation and Other Practices Portfolio Transactions

Item 22. Tax Status Federal Income Tax Matters

Item 23. Financial Statements Independent Registered Public Accounting Firm; Financial
Statements and Report of Independent

Registered Public Accounting Firm

PART C - OTHER INFORMATION

Items 24-33 have been answered in Part C of this Registration
Statement.

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

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 21, 2004
PROSPECTUS

(PIONEER LOGO)

PIONEER FLOATING RATE TRUST

COMMON SHARES
$20.00 PER SHARE
----------------------
Investment Objectives. Pioneer Floating Rate Trust (the "Fund") is a newly
organized, non-diversified, closed-end management investment company. The Fund's
primary investment objective is to provide its common shareholders with a high
level of current income. As a secondary investment objective, the Fund seeks
preservation of capital to the extent consistent with its primary investment
objective. There can be no assurance that the Fund will achieve its investment
objectives.
Portfolio Contents. Under normal market conditions, the Fund seeks to
achieve its investment objectives by investing at least 80% of its assets (net
assets plus borrowings for investment purposes) in senior floating rate loans
("Senior Loans"). Senior Loans are made to corporations, partnerships and other
business entities that operate in various industries and geographical regions,
including non-U.S. borrowers. Senior Loans pay interest at rates that are
redetermined periodically on the basis of a floating base lending rate plus a
premium. The Fund also may invest in other floating and variable rate
instruments, including second lien loans, and in high yield corporate bonds. The
Fund may invest in Senior Loans and other securities of any credit quality,
including Senior Loans and other investments that are rated below investment
grade, or are unrated but are determined by the investment subadviser to be of
equivalent credit quality, commonly referred to as "junk bonds." The Fund may
invest all or any portion of its assets in securities of issuers that are in
default or that are in bankruptcy. The Fund does not have a policy of
maintaining a specific average credit quality of its portfolio or a minimum
portion of its portfolio that must be rated investment grade. The Fund may
invest up to 10% of its total assets in Senior Loans and other securities of
non-U.S. issuers, including emerging market issuers, and may engage in certain
hedging transactions.

No Prior Trading History. BECAUSE THE FUND IS NEWLY ORGANIZED, ITS SHARES
HAVE NO HISTORY OF PUBLIC TRADING.
(continued on following page)
INVESTING IN THE FUND'S COMMON SHARES INVOLVES RISKS THAT ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 42 OF THIS PROSPECTUS.
----------------------

PER SHARE
--------- TOTAL (1)
-----

Public offering price....................................... $20.00 $
Sales load (2).............................................. $.90 $
Estimated offering expenses (3)(4).......................... $.04 $
Proceeds, after expenses, to the Fund....................... $19.06 $

(1) Assumes overallotment option is not exercised.
(2) Does not include additional compensation payable by the Fund's
investment adviser and investment subadviser to certain underwriters.
See "Underwriting -- Additional Compensation to Certain
Underwriters."
(3) The offering expenses are estimated to be approximately $ or
$ per share. The Fund's investment adviser has agreed to pay all
the Fund's organizational expenses and to pay the amount by which the
aggregate offering expenses, other than the sales load but including
reimbursement of underwriters' expenses of $.00667 per common share,
exceed $.04 per share.
(4) The Fund has agreed to pay the underwriters $.00667 per common share
as a partial reimbursement of expenses incurred in connection with
the offering. See "Underwriting."
The underwriters may also purchase up to additional common shares
at the public offering price, less the sales load, within 45 days from the date
of this prospectus to cover overallotments.
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. UBS INVESTMENT BANK A.G. EDWARDS
ADVEST, INC. ROBERT W. BAIRD & CO. FERRIS, BAKER WATTS
INCORPORATED
J.J.B. HILLIARD, W.L. LYONS, INC. KEYBANC CAPITAL MARKETS MORGAN KEEGAN &
COMPANY, INC.
OPPENHEIMER & CO. RBC CAPITAL MARKETS RYAN BECK & CO., INC.
STIFEL, NICOLAUS & COMPANY SUNTRUST ROBINSON HUMPHREY WEDBUSH MORGAN
SECURITIES INC.
INCORPORATED
WELLS FARGO SECURITIES, LLC
----------------------
The date of this prospectus is , 2004.

(continued from previous page)

Shares of closed-end funds frequently trade at prices lower than their net
asset value. The risk of loss due to this discount may be greater for initial
investors expecting to sell their shares in a relatively short period after
completion of the public offering. The Fund's common shares have been approved
for listing on the New York Stock Exchange under the symbol "PHD," subject to
official notice of issuance.

Non-investment grade securities, commonly referred to as junk bonds, are
obligations that are rated below investment grade by the national rating
agencies that cover the obligations (i.e., Ba and below by Moody's Investors
Service, Inc. ("Moody's") or BB and below by Standard & Poor's Ratings Group
("S&P")), or if unrated, are determined by the Fund's investment subadviser,
Highland Capital Management, L.P. (the "Subadviser"), to be of comparable
quality. Investment in securities of below investment grade quality involves
substantial risk of loss. "Junk bonds" are considered predominantly speculative
with respect to the issuer's ability to pay interest and repay principal and are
susceptible to default or decline in market value due to adverse economic and
business developments. Because Senior Loans are senior in a borrower's capital
structure and often are secured by specific collateral, the Subadviser believes,
based on its experience, that Senior Loans generally have more favorable loss
recovery rates compared to most other types of below investment grade
obligations. However, there can be no assurance that the Fund's actual loss
recovery experience will be consistent with the Subadviser's prior experience or
that the Senior Loans will achieve any specific loan recovery rate.

Investment Adviser. Pioneer Investment Management, Inc. is the Fund's
investment adviser (the "Adviser"). As of October 31, 2004, the Adviser had
approximately $36 billion in assets under management. See "Management of the
Fund." The Adviser has engaged Highland Capital Management, L.P. to act as the
Fund's investment subadviser and manage the Fund's investments. As of September
30, 2004, the Subadviser had approximately $10 billion in assets under
management. See "Management of the Fund."

Leverage. The Fund may use leverage through the issuance of preferred
shares. The Fund currently anticipates issuing preferred shares with an
aggregate liquidation preference representing approximately 33 1/3% of the
Fund's total assets immediately after such issuance; however, in the future, the
Fund may increase or decrease from time to time the degree of leverage used by
the Fund. The Fund anticipates issuing preferred shares within three months of
the completion of this offering. The Fund may also borrow or issue debt
securities for leveraging purposes up to the limitation permitted by the
Investment Company Act of 1940, as amended (the "1940 Act"). By using leverage,
the Fund will seek to obtain a higher return for the holders of its common
shares than if the Fund did not use leverage. Leverage is a speculative
technique and there are special risks involved. The fees and expenses attributed
to leverage, including all offering expenses and any increase in the management
fees, will be borne by holders of common shares. There can be no assurance that
a leveraging strategy will be implemented or that it will be successful during
any period during which it is employed. See "Leverage."

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

You should read this prospectus, which contains important information
about the Fund, before deciding whether to invest in the Fund's common shares,
and retain it for future reference. A Statement of Additional Information, dated
, 2004, containing additional information about the Fund, has been
filed with the Securities and Exchange Commission and is incorporated by
reference in its entirety into this prospectus. You can review the table of
contents of the Statement of Additional Information on page 71 of this
prospectus. You may request a free copy of the Statement of Additional
Information by calling (800) 225-6292 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).

TABLE OF CONTENTS

PAGE
----

Prospectus Summary.......................................... 4
Summary of Fund Expenses.................................... 22
The Fund.................................................... 25
Use of Proceeds............................................. 25
Investment Objectives and Principal Investment Strategies... 25
Portfolio Contents.......................................... 28
Leverage.................................................... 39
Risk Factors................................................ 42
Management of the Fund...................................... 51
Dividends and Distributions................................. 54
Automatic Dividend Reinvestment Plan........................ 55
Closed-End Fund Structure................................... 57
Possible Conversion to Open-End Status...................... 58
Federal Income Tax Matters.................................. 59
Net Asset Value............................................. 61
Description of Shares....................................... 62
Certain Provisions of the Agreement and Declaration of Trust
and By-Laws............................................... 64
Underwriting................................................ 67
Administrator, Custodian, Transfer Agent, Registrar and
Dividend Disbursing Agent................................. 70
Validity of Common Shares................................... 70
Table of Contents of the Statement of Additional
Information............................................... 71

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

PRIVACY PRINCIPLES OF THE FUND

The Fund is committed to maintaining the privacy of its shareholders and
to safeguarding their non-public personal information. The following information
is provided to help you understand what personal information the Fund collects,
how the Fund protects that information and why, in certain cases, the Fund may
share information with select other parties.

Generally, the Fund does not receive any non-public personal information
relating to its shareholders, although certain non-public personal information
of its shareholders may become available to the Fund. The Fund does not disclose
any non-public personal information about its shareholders or former
shareholders to anyone, except as permitted by law or as is necessary in order
to service shareholder accounts (for example, to a transfer agent or third-party
administrator).

The Fund restricts access to non-public personal information about its
shareholders to employees of the Fund's investment adviser and its affiliates
with a legitimate business need for the information. The Fund maintains
physical, electronic and procedural safeguards designed to protect the
non-public personal information of its shareholders. For more information about
the Fund's privacy policies, please visit http://www.pioneerfunds.com.

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, especially the information set forth under the heading "Risk Factors."
You should review the more detailed information contained in this prospectus and
in the Statement of Additional Information.

THE FUND.................... The Pioneer Floating Rate Trust (the "Fund") is a
newly organized, non-diversified, closed-end
management investment company. See "The Fund."

THE OFFERING................ The Fund is offering common shares of
beneficial interest, no par value, at an initial
offering price of $20.00 per share. The common
shares are being offered by a group of
underwriters (the "underwriters") led by Merrill
Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"). The common shares of beneficial
interest are called "common shares" in the rest of
this prospectus. You must purchase at least 100
common shares to participate in this offering.
Investors will be required to pay a sales load of
4.50% of the initial offering price, which will
reduce the initial amount invested. The Fund has
granted to the underwriters the right to purchase
up to an additional common shares at the
public offering price, less the sales load, within
45 days from the date of this prospectus to cover
orders in excess of common shares, if
any. The Fund will pay up to $.04 per share for
the Fund's offering expenses. Consequently, giving
effect to the sales load and assuming offering
expenses of $.04 per share, the initial net asset
value of the common shares would be $19.06
immediately after their issuance. The Adviser has
agreed to pay the Fund's organizational expenses
and offering expenses (other than the sales load,
but including a $.00667 per common share
reimbursement to the underwriters) with respect to
the common shares to the extent these expenses
exceed $.04 per share. See "Underwriting."

INVESTMENT OBJECTIVES AND
PRINCIPAL INVESTMENT
STRATEGIES................ Investment Objectives. The Fund's primary
investment objective is to provide its common
shareholders with a high level of current income.
As a secondary investment objective, the Fund
seeks preservation of capital to the extent
consistent with its primary investment objective.
There can be no assurance that the Fund will
achieve its investment objectives.

Principal Investment Strategies. Under normal
market conditions, the Fund seeks to achieve its
investment objectives by investing at least 80% of
its assets (net assets plus borrowings for
investment purposes) in senior floating rate loans
("Senior Loans"). The Fund also may invest in
other floating and variable rate instruments,
including second lien loans, and high yield, high
risk corporate bonds, investment grade
fixed-income debt securities, preferred stocks
(many of which have fixed maturities), convertible
securities, securities that make "in-kind"
interest payments, bonds

not paying current income, bonds that do not make
regular interest payments and money market
instruments. The Fund may invest up to 10% of its
total assets in Senior Loans and other securities
of non-U.S. issuers, including emerging market
issuers, and may engage in certain hedging
transactions.

Pioneer Investment Management, Inc. is the Fund's
investment adviser. The Adviser has engaged
Highland Capital Management, L.P. to act as the
Fund's investment subadviser to manage the Fund's
investments. The Subadviser uses a fundamental
research approach in selecting the Fund's
investments and seeks to invest in those sectors,
industries and companies that provide value on a
relative basis. The Subadviser seeks to identify
those companies that are dominant players in their
industries and generally does not invest in
securities of issuers that it believes cannot be
adequately researched. The Subadviser's process
focuses on those issuers that generate positive
cash flow momentum, exhibit stable or improving
debt coverage, have an experienced management team
and demonstrate net tangible asset protection.

The Subadviser's investment philosophy is based on
the belief that fundamental research and a
disciplined asset acquisition/disposition process
will produce superior long-term results. The
Subadviser's investment process combines an
economic and industry overlay with a disciplined
securities selection process. The Subadviser's
economic and industry overlay utilizes a variety
of macro and economic variables to identify broad
market sectors that the Subadviser believes have
positive fundamentals. Within these broad sectors,
the Subadviser targets specific industries that
appear to have, in the Subadviser's view, the most
promising prospects under current market
conditions. Within a targeted industry, the
Subadviser engages in a disciplined securities
selection process. In this process, the Subadviser
conducts an extensive analysis of issuers within
the targeted industry to identify issuers that
appear to have the most favorable prospects for
improving financial condition. The Subadviser also
reviews the terms of the agreements documenting
the Senior Loans to seek to identify those Senior
Loans that have the most favorable risk and return
characteristics. Based on this analysis, the
Subadviser constructs and actively manages a
portfolio of Senior Loans. The Subadviser's goal
is to achieve the highest potential level of
current income with the lowest potential
volatility over long periods of time.

Duration Management. The Subadviser expects that
the average effective duration of the Fund's
portfolio of Senior Loans will normally be between
zero and 1.5 years, reflecting the Fund's focus on
floating rate instruments. As a measure of a
fixed-income security's cash flow, duration is an
alternative to the concept of "term to maturity"
in assessing the price volatility associated with
changes in interest rates. Generally, the longer
the duration, the more volatility an investor
should expect. For example, the market price of a
fixed-income security with a duration of three
years

would be expected to decline 3% if interest rates
rose 1%. Conversely, the market price of the same
security would be expected to increase 3% if
interest rates fell 1%. The market price of a
fixed-income security with a duration of six years
would be expected to increase or decline twice as
much as the market price of a security with a
three-year duration. Duration is a way of
measuring a security's maturity in terms of the
average time required to receive the present value
of all interest and principal payments as opposed
to its term to maturity. The maturity of a
security measures only the time until final
payment is due; it does not take account of the
pattern of a security's cash flows over time,
which would include how cash flow is affected by
prepayments and by changes in interest rates.
Because the interest rate on Senior Loans held by
the Fund will reset at short-term intervals, the
duration of Senior Loans will be shorter than a
fixed income security with a comparable term to
maturity. The Subadviser can manage the duration
of the portfolio by selecting Senior Loans with
different interest rate reset periods and final
maturity dates. Incorporating a security's yield,
coupon interest payments, final maturity and
option features into one measure, duration is
computed by determining the weighted average
maturity of a fixed-income security's cash flows,
where the present values of the cash flows serve
as weights. In computing the duration of the
Fund's portfolio of Senior Loans, the Subadviser
will estimate the duration of obligations that are
subject to features such as prepayment or
redemption by the issuer, put options retained by
the investor or other imbedded options, taking
into account the influence of interest rates on
prepayments and coupon flows.

Credit Management. The Fund may invest in Senior
Loans and other securities of any credit quality,
including Senior Loans and other investments that
are rated below investment grade or are unrated
but determined by the Subadviser to be of
equivalent credit quality. The Fund does not have
a policy of maintaining a specific average credit
quality of its portfolio nor a minimum portion of
its portfolio that must be rated investment grade.
The Subadviser's staff monitors the credit quality
and price of Senior Loans and other securities
held by the Fund, as well as other securities that
are available to the Fund. Although the Subadviser
considers ratings when making investment
decisions, it performs its own credit and
investment analysis and does not rely primarily on
ratings assigned by rating services. In evaluating
the attractiveness of a particular Senior Loan or
other security, whether rated or unrated, the
Subadviser generally gives equal weight to the
security's yield and the issuer's creditworthiness
and will normally take into consideration, among
other things, the issuer's financial resources and
operating history, its sensitivity to economic
conditions and trends, the availability of its
management, its debt maturity schedules and
borrowing requirements, and relative values based
on anticipated cash flow, interest and asset
coverage, and earnings prospects.

PORTFOLIO CONTENTS.......... Senior Loans. Senior Loans hold the most senior
position in the capital structure of a business
entity, are typically secured with specific
collateral and have a claim on the general assets
of the borrower that is senior to that held by
subordinated debtholders and stockholders of the
borrower. The proceeds of Senior Loans frequently
are used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock
repurchases and, to a lesser extent, to finance
internal growth and for other corporate purposes.
Senior Loans typically have rates of interest
which are redetermined either daily, monthly,
quarterly or semi-annually by reference to a base
lending rate, plus a premium. These base lending
rates generally are the London Interbank Offered
Rate ("LIBOR"), the prime rate offered by one or
more major United States banks (Prime Rate) or the
certificate of deposit (CD) rate or other base
lending rates used by commercial lenders.

The Fund may purchase obligations issued in
connection with a restructuring pursuant to
Chapter 11 of the U.S. Bankruptcy Code. While
these investments are not a primary focus of the
Fund, the Fund does not have a policy limiting
such investments to a specific percentage of the
Fund's assets.

The Fund may invest up to 10% of its total assets
in Senior Loans and other securities of non-U.S.
issuers, including emerging market issuers, and
may engage in certain hedging transactions.

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

Many loans in which the Fund will invest may not
be rated by a rating agency, will not be
registered with the Securities and

Exchange Commission or any state securities
commission and will not be listed on any national
securities exchange. The amount of public
information available with respect to issuers of
Senior Loans will generally be less extensive than
that available for issuers of registered or
exchange listed securities. In evaluating the
creditworthiness of borrowers, the Subadviser will
consider, and may rely in part, on analyses
performed by others. The Subadviser does not view
ratings as the determinative factor in its
investment decisions and relies more upon its
credit analysis abilities than upon ratings.
Borrowers may have outstanding debt obligations
that are rated below investment grade by a rating
agency. A high percentage of Senior Loans held by
the Fund may be rated below investment grade by
independent rating agencies. In the event Senior
Loans are not rated, they are likely to be the
equivalent of below investment grade quality. Debt
securities which are unsecured and rated below
investment grade (i.e., Ba and below by Moody's or
BB and below by S&P) and comparable unrated bonds,
are viewed by the rating agencies as having
speculative characteristics and are commonly known
as "junk bonds." A description of the ratings of
corporate bonds by Moody's and S&P is included as
Appendix A to the Statement of Additional
Information. Because Senior Loans are senior to
subordinated creditors and stockholders in a
borrower's capital structure and are often secured
by specific collateral, the Subadviser believes,
based on its experience, that Senior Loans have
more favorable loss recovery rates as compared to
most other types of below investment grade
obligations. However, there can be no assurance
that the Fund's actual loss recovery experience
will be consistent with the Subadviser's prior
experience or that the Senior Loans will achieve
any specific loan recovery rate.

The Fund may hold securities that are unrated or
in the lowest ratings categories (rated C by
Moody's or D by S&P). Debt securities rated C by
Moody's are regarded as having extremely poor
prospects of ever attaining any real investment
standing. Debt securities rated D by S&P are in
payment default or a bankruptcy petition has been
filed and debt service payments are jeopardized.
In order to enforce its rights with defaulted
securities, the Fund may be required to retain
legal counsel and/or a financial adviser. The Fund
may have to pursue legal remedies, the results of
which are uncertain and expensive. This may
increase operating expenses and adversely affect
net asset value. The credit quality of most
securities held by the Fund reflects a greater
possibility that adverse changes in the financial
condition of an issuer, or in general economic
conditions, or both, may impair the ability of the
issuer to make payments of interest or principal.
The inability (or perceived inability) of issuers
to make timely payment of interest and principal
would likely make the values of such securities
more volatile and could limit the Fund's ability
to sell securities at favorable prices. In the
absence of a liquid trading market for securities
held by it, the Fund may have difficulties
determining the fair market value of such
securities. Because of the greater number

of investment considerations involved in investing
in high yield, high risk Senior Loans and bonds,
the achievement of the Fund's objectives depends
more on the Subadviser's judgment and analytical
abilities than would be the case if invested
primarily in securities in the higher ratings
categories.

No active trading market may exist for many Senior
Loans, and some Senior Loans may be subject to
restrictions on resale. The Fund is not limited in
the percentage of its assets that may be invested
in Senior Loans and other securities deemed to be
illiquid. Any secondary market may be subject to
irregular trading activity, wide bid/ask spreads
and extended trade settlement periods, which may
impair the ability of the Fund to realize full
value on the disposition of an illiquid Senior
Loan and cause a material decline in the Fund's
net asset value.

Investing in Senior Loans involves investment
risk. Some borrowers default on their Senior Loan
payments. The Fund attempts to manage this credit
risk through portfolio diversification and ongoing
analysis and monitoring of borrowers. The Fund
also is subject to market, liquidity, interest
rate and other risks. See "Risk Factors."

Other Fixed Income Securities. The Fund also may
purchase unsecured loans, other floating rate debt
securities such as notes, bonds and asset-backed
securities (such as securities issued by special
purpose funds investing in bank loans), investment
grade and below investment grade fixed income debt
obligations and money market instruments, such as
commercial paper. The high yield securities in
which the Fund may invest are rated Ba or lower by
Moody's or BB or lower by S&P or are unrated but
determined by the Subadviser to be of comparable
quality. Debt securities rated below investment
grade are commonly referred to as "junk bonds" and
are considered speculative with respect to the
issuer's capacity to pay interest and repay
principal. Below investment grade debt securities
involve greater risk of loss, are subject to
greater price volatility and are less liquid,
especially during periods of economic uncertainty
or change, than higher rated debt securities. The
Fund's fixed-income securities may have fixed or
variable principal payments and all types of
interest rate and dividend payment and reset
terms, including fixed rate, adjustable rate, zero
coupon, contingent, deferred, payment in kind and
auction rate features. The Fund may invest in
fixed-income securities with a broad range of
maturities.

delay before the regular payment of interest
begins. PIK bonds are debt obligations that
provide that the issuer thereof may, at its
option, pay interest on such bonds in cash or in
the form of additional debt obligations. Such
investments may experience greater volatility in
market value due to changes in interest rates. The
Fund may be required to accrue income on these
investments for federal income tax purposes and is
required to distribute its net income each year in
order to qualify for the favorable federal income
tax treatment potentially available to regulated
investment companies. The Fund may be required to
sell securities to obtain cash needed for income
distributions at times and a prices that the
Adviser believes do not reflect the intrinsic
value of such securities.

OTHER INVESTMENTS........... Normally, the Fund will invest substantially all
of its assets to meet its investment objectives.
The Fund may invest the remainder of its assets in
securities with remaining maturities of less than
one year or cash equivalents, or it may hold cash.
For temporary defensive purposes, the Fund may
depart from its principal investment strategies
and invest part or all of its assets in securities
with remaining maturities of less than one year or
cash equivalents, or it may hold cash. During such
periods, the Fund may not be able to achieve its
investment objectives.

HEDGING AND INTEREST RATE
RISK...................... The Fund may, but is not required to, use various
hedging and interest rate transactions to earn
income, facilitate portfolio management and
mitigate risks. The Fund may purchase and sell
derivative instruments such as exchange-listed and
over-the-counter put and call options on
securities, fixed income and interest rate indices
and other financial instruments; purchase and sell
financial futures contracts and options thereon;
and enter into various interest rate transactions
such as swaps, caps, floors or collars or credit
transactions and credit default swaps. The Fund
also may purchase derivative instruments that
combine features of these instruments. The Fund
generally seeks to use these instruments and
transactions as a portfolio management or hedging
technique that seeks to protect against possible
adverse changes in the market value of Senior
Loans or other securities held in or to be
purchased for the Fund's portfolio, to facilitate
the sale of certain securities for investment
purposes, manage the effective interest rate
exposure of the Fund, manage the effective
maturity or duration of the Fund's portfolio or
establish positions in the derivatives markets as
a temporary substitute for purchasing or selling
particular securities.

USE OF LEVERAGE BY THE
FUND........................ The Fund may use leverage through the issuance of
preferred shares. The Fund currently anticipates
issuing preferred shares with an aggregate
liquidation preference of approximately 33 1/3% of
the Fund's total assets immediately after such
issuance; however, in the future, the Fund may
increase or decrease from time to time the degree
of leverage used by the Fund. The Fund is also
authorized to borrow or issue debt securities for
leveraging purposes up to the amount permitted
under the 1940 Act. Under the 1940 Act, the

Fund is not permitted to issue preferred shares
unless immediately after such issuance the value
of the Fund's portfolio is at least 200% of the
liquidation value of the outstanding preferred
shares (that is, the liquidation preference may
not exceed 50% of the Fund's total assets less the
Fund's liabilities and indebtedness). Under the
1940 Act, the Fund is not permitted to incur
indebtedness unless immediately after such
borrowing the Fund has asset coverage of at least
300% of the aggregate outstanding principal
balance of indebtedness. The fees and expenses
attributed to leverage, including all offering
expenses and any increase in the management fees,
will be borne by holders of common shares. The
Fund may not be leveraged at all times, and the
amount of leverage, if any, may vary depending on
a variety of factors, including the Adviser's
outlook for interest rates and credit markets and
the costs that the Fund would incur as a result of
such leverage. The Fund's leveraging strategy may
not be successful. By leveraging its investment
portfolio, the Fund creates an opportunity for
increased net income or capital appreciation.
However, the use of leverage also involves risks,
which can be significant. These risks include the
possibility that the value of the assets acquired
with such leverage decreases while the Fund's
obligations remain fixed or increase with a rise
in prevailing interest rates, greater volatility
in the Fund's net asset value and the market price
of and dividends on the Fund's common shares and
higher expenses. Since the Adviser's fee is based
on a percentage of the Fund's managed assets
(including preferred shares), its fee will be
higher if the Fund is leveraged, and the Adviser
will thus have an incentive to leverage the Fund.
The Board of Trustees intends to monitor the
spread between the dividend yield on any preferred
shares and the total return earned on the Fund's
portfolio. If in the future that spread narrows
materially, the Board of Trustees intends to
evaluate whether employing preferred shares as a
means of leverage remains in the best interest of
holders of the common shares. The Adviser intends
only to leverage the Fund when it believes that
the potential total return on additional
investments purchased with the proceeds of
leverage is likely to exceed the costs incurred in
connection with the leverage.

SPECIAL RISK
CONSIDERATIONS.............. The following is a summary of the principal risks
of investing in the Fund. You should read the
fuller discussion in this prospectus under "Risk
Factors" on page 42.

General. The Fund is not a complete investment
program and should only be considered as an
addition to an investor's existing diversified
portfolio of investments. Due to uncertainty
inherent in all investments, there can be no
assurance that the Fund will achieve its
investment objectives.

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

Market Discount Risk. Shares of closed-end funds
frequently trade at a price lower than their net
asset value. This is commonly referred to as
"trading at a discount." This characteristic of
shares of closed-end funds is a risk separate and
distinct from the risk that the Fund's net asset
value may decrease. Both long and short-term
investors, including investors who sell their
shares within a relatively short period after
completion of the initial public offering, will be
exposed to this risk. Accordingly, the Fund is
designed primarily for long-term investors and
should not be considered a vehicle for trading
purposes. The net asset value of the Fund will be
reduced following the offering by the sales load
and the amount of organizational and offering
expenses paid by the Fund.

Non-Diversified Status Risk. The Fund is
classified as "non-diversified" under the 1940
Act. As a result, it can invest a greater portion
of its assets in obligations of a single issuer
than a "diversified" fund. The Fund will therefore
be more susceptible than a diversified fund to
being adversely affected by any single corporate,
economic, political or regulatory occurrence. The
Fund intends to diversify its investments to the
extent necessary to qualify, and maintain its
status, as a regulated investment company under
U.S. federal income tax laws. See "Risks
Factors -- Non-Diversified Status Risk" and
"Federal Income Tax Matters."

Interest Rate Risk. The Fund's net asset value
will usually change in response to interest rate
fluctuations. When interest rates decline, the
value of fixed-rate securities already held by the
Fund can be expected to rise. Conversely, when
interest rates rise, the value of existing fixed-
rate portfolio securities can be expected to
decline. Because market interest rates are
currently near their lowest levels in many years,
there is a greater than normal risk that the
Fund's portfolio will decline in value due to
rising interest rates. The Fund will primarily
invest in floating rate obligations, including
Senior Loans, the rate on which periodically
adjusts with changes in interest rates.

Until the interest rates on the floating rate
obligations in its portfolio reset, the Fund's
income also would likely be affected adversely
when prevailing short term interest rates increase
and the Fund is using leverage.

To the extent that changes in market rates of
interest are reflected not in a change to a base
rate such as LIBOR but in a change in the spread
over the base rate, which is payable on loans of
the type and quality in which the Fund invests,
the Fund's net asset value could be adversely
affected. This is because the value of a Senior
Loan is partially a function of whether the Senior
Loan is paying what the market perceives to be a
market rate of interest, given its individual
credit and other characteristics. However, unlike
changes in market rates of interest for which
there is generally only a temporary lag before the
portfolio reflects those changes, changes in

a Senior Loan's value based on changes in the
market spread on Senior Loans in the Fund's
portfolio may be of longer duration.

Reinvestment Risk. Income from the Fund's
portfolio will decline if the Fund invests the
proceeds, repayment or sale of Senior Loans or
other obligations into lower yielding instruments
or Senior Loans with a lower spread over the base
lending rate. A decline in income could affect the
common shares' distribution rate and their overall
return.

Senior Loans Risk. The risks associated with
Senior Loans are similar to the risks of junk
bonds, although Senior Loans are typically senior
and secured in contrast to below investment grade
debt securities, commonly referred to as "junk
bonds," which are often subordinated and
unsecured.

The Fund's investments in Senior Loans are
typically below investment grade and are
considered speculative because of the credit risk
of their issuers. Moreover, any specific
collateral used to secure a loan may decline in
value or lose all its value or become illiquid,
which would adversely affect the loan's value.
Economic and other events, whether real or
perceived, can reduce the demand for certain
Senior Loans or Senior Loans generally, which may
reduce market prices and cause the Fund's net
asset value per share to fall. The frequency and
magnitude of such changes cannot be predicted.

Senior Loans and other debt securities are also
subject to the risk of price declines and to
increases in prevailing interest rates.
Conversely, the floating rate feature of Senior
Loans means the Senior Loans will not generally
experience capital appreciation in a declining
interest rate environment. Declines in interest
rates may also increase prepayments of debt
obligations and require the Fund to invest assets
at lower yields. No active trading market may
exist for certain Senior Loans, which may impair
the ability of the Fund to realize full value in
the event of the need to liquidate such assets.
Adverse market conditions may impair the liquidity
of some actively traded Senior Loans.

Credit Risk and Junk Bond Risk. Credit risk is
the risk that an issuer of a Senior Loan or other
debt security will become unable to meet its
obligation to make interest and principal
payments.

The Fund may invest all or a substantial portion
of its assets in Senior Loans and other debt
securities that are rated below investment grade
(commonly referred to as "junk bonds" or "high
yield securities"), that is, rated Ba or below by
Moody's or BB or below by S&P, or unrated
securities determined by the Subadviser to be of
comparable credit quality. Investment in Senior
Loans and other fixed income securities of
below-investment grade quality involves
substantial risk of loss. "Junk bonds" are
considered predominantly speculative with respect
to the issuer's ability to pay interest and repay
principal and are susceptible to default or
decline

in market value due to adverse economic and
business developments. The market values for fixed
income securities of below-investment grade
quality tend to be more volatile, and these
securities are less liquid, than investment grade
debt securities. For these reasons, an investment
in the Fund is subject to the following specific
risks:

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

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

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

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

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

Inflation Risk. Inflation risk is the risk that
the value of assets or income from investment will
be worth less in the future as inflation decreases
the value of money. As inflation increases, the
real value of the common shares and distributions
thereon can decline. In addition, during any
periods of rising inflation, dividend rates of
preferred shares would likely increase, which
would tend to further reduce returns to common
shareholders.

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

the underlying common stock. Convertible
securities rank senior to common stocks in an
issuer's capital structure.

Foreign Securities Risk. The Fund's investments
in non-U.S. issuers may involve unique risks
compared to investing in securities of U.S.
issuers. These risks are more pronounced to the
extent that the Fund invests a significant portion
of its non-U.S. investment in one region or in the
securities of emerging market issuers. These risks
may include

- Less information about non-U.S. issuers or
markets may be available due to less rigorous
disclosure, accounting standards or regulatory
practices.

- Many non-U.S. markets are smaller, less liquid
and more volatile. In a changing market, the
Subadviser may not be able to sell the Fund's
portfolio securities at times, in amounts and
at prices it considers reasonable.

- Currency exchange rates or controls may
adversely affect the value of the Fund's
investments.

- The economies of non-U.S. countries may grow
at slower rates than expected or may
experience a downturn or recession.

- Withholdings and other non-U.S. taxes may
decrease the Fund's return.

Currency Risk. A portion of the Fund's assets may
be quoted or denominated in non-U.S. currencies.
These securities may be adversely affected by
fluctuations in 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 quoted or denominated. 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 quoted or
denominated in another currency will increase or
decrease in response to changes in the value of
such currency in relation to the U.S. dollar.

Liquidity Risk. Some Senior Loans are not readily
marketable and may be subject to restrictions on
resale. Senior Loans generally are not listed on
any national securities exchange or automated
quotation system and no active trading market may
exist for some of the Senior Loans in which the
Fund will invest. Where a secondary market exists,
such market for some Senior Loans may be subject
to irregular trading activity, wide bid/ask
spreads and extended trade settlement periods.
Senior Loans that are illiquid may be more
difficult to value or may impair the Fund's
ability to realize the full value of its assets in
the event of a voluntary or involuntary
liquidation of such assets and thus may cause a
decline in the Fund's net asset value. The Fund
has no limitation on the amount of its assets that
may be invested in securities which are

not readily marketable or are subject to
restrictions on resale. In certain situations, the
Fund could find it more difficult to sell such
securities at desirable times and/or prices. Most
Senior Loans are valued by an independent pricing
service that uses market quotations of investors
and traders in Senior Loans. In other cases,
Senior Loans are valued at their fair value in
accordance with procedures approved by the Board
of Trustees.

Derivatives Risk. Even a small investment in
derivatives can have a significant impact on the
Fund's exposure to interest rates. If changes in a
derivative's value do not correspond to changes in
the value of the Fund's other investments, the
Fund may not fully benefit from or could lose
money on the derivative position. In addition,
some derivatives involve risk of loss if the party
that entered into the derivative contract defaults
on its obligation. Certain derivatives, such as
over-the-counter options, may be less liquid and
more difficult to value than exchange traded
options and futures.

Leverage Risk. The Fund may use leverage through
the issuance of preferred shares. The Fund
currently anticipates issuing preferred shares
with an aggregate liquidation preference
representing approximately 33 1/3% of the Fund's
total assets after such issuance. There can be no
assurance that a leveraging strategy will be
utilized by the Fund or that, if utilized, it will
be successful during any period in which it is
employed. Leverage creates risks which may
adversely affect the return for the holders of
common shares, including:

- the likelihood of greater volatility of net
asset value and market price of and
distributions on and dividends on the Fund's
common shares;

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

- increased operating costs, which are borne
entirely by the Fund's common shares and which
may reduce the total return on the Fund's
common shares; and

- the potential for a decline in the value of an
investment acquired with leverage, while the
Fund's obligations as a result of such
leverage remain fixed.

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

Risk of Conflicting Interests of Holders of Common
and Preferred Shares. Although the Fund's common
and preferred shares both represent an interest in
the same underlying pool of assets, the interests
of the holders of common shares and any preferred
shares will differ. The preferred shares will earn
a dividend at a fixed rate or a rate that is
determined by a periodic auction process. The
preferred shares will be entitled to that
dividend, and no more, regardless of the income of
the Fund. The holders of the common shares will
bear all of the expenses of the Fund, including
the offering costs of the preferred shares. In
order to obtain a favorable rate or rating on the
preferred shares, the Fund is expected to agree to
certain limitations on its investments and
activities, including the requirement to maintain
certain coverage ratios of the liquidation
preference on the preferred shares to a discounted
value of the Fund's assets, diversification
requirements and limitations on the use of certain
investment instruments. These limitations are
intended to protect the interests of the holders
of the preferred shares and not the holders of the
common shares. If the Fund does not comply with
these limitations, the Fund would be required to
redeem some or all of the preferred shares at par
before any dividend or other payment is made to
the holders of the common shares. In addition, the
Fund will not be able to pay dividends on the
common shares at any time when a dividend payment
on the preferred shares is past due or the Fund is
obligated to redeem preferred shares but has not
yet set aside assets for such purpose. The holders
of the preferred shares will be entitled under the
1940 Act to elect two members of the Board of
Trustees and to elect a majority of the Board of
Trustees if the Fund has defaulted on its
obligations on the preferred shares and such
default has continued for a period of two or more
years. The holders of preferred shares will also
be entitled to vote as a separate class on certain
matters, including the conversion of the Fund to
an open-end investment company, which may prevent
the common shareholders from controlling the Fund
as to such matters even though the common shares
represent a majority of the economic interests in
the Fund.

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

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

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

INVESTMENT ADVISER.......... Pioneer Investment Management, Inc. is the Fund's
investment adviser. The Adviser has engaged
Highland Capital Management, L.P. to act as
investment subadviser to the Fund to manage the
Fund's portfolio. The Subadviser is responsible on
a day-to-day basis for investment of the Fund's
portfolio in accordance with its investment
objectives and principal investment strategies.
The Subadviser makes all investment decisions for
the Fund and places purchase and sale orders for
the Fund's portfolio securities.

The Adviser or its predecessors have been managing
investment companies since 1928. The Adviser is an
indirect, wholly-owned subsidiary of UniCredito
Italiano S.p.A. ("UniCredito"), one of the leading
banking groups in Italy. As of October 31, 2004,
assets under management by the Adviser and its
affiliates were approximately $159 billion
worldwide, including over $36 billion in assets
under management by the Adviser. The Adviser
supervises

the Subadviser's investment on behalf of the Fund,
supervises the Fund's compliance program and
provides for the general management of the
business affairs of the Fund.

The Fund pays the Adviser a fee for its investment
advisory services equal on an annual basis to .70%
of the Fund's average daily managed assets.
"Managed assets" means the total assets of the
Fund (including any assets attributable to any
financial leverage that may be outstanding) minus
the sum of accrued liabilities (other than
liabilities representing financial leverage). The
liquidation preference on any preferred shares is
not a liability. The fee is accrued daily and
payable monthly. Because the Adviser's fee is
based upon managed assets, the Adviser may have an
incentive to leverage the Fund, including through
the issuance of preferred shares.

The Adviser has agreed for the first three years
of the Fund's investment operations to limit the
Fund's total annual expenses (excluding offering
costs for common and preferred shares, interest
expense, the cost of defending or prosecuting any
claim or litigation to which the Fund is a party
(together with any amount in judgment or
settlements), indemnification expenses or taxes
incurred due to the failure of the Fund to qualify
as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the
"Code"), or any other nonrecurring or
non-operating expenses) to .95% of the Fund's
average daily managed assets. The Adviser and the
Subadviser (and not the Fund) have agreed to
provide certain additional compensation to the
underwriters. See "Underwriting."

Highland Capital Management, L.P. serves as the
investment subadviser to the Fund. In this
capacity, the Subadviser is responsible for the
selection and on-going monitoring of the assets in
the Fund's investment portfolio. The Subadviser is
a Delaware limited partnership founded in 1993.
The principal office of the Subadviser is located
at 13455 Noel Road, Suite 1300, Dallas, Texas
75240. The Subadviser also maintains an office at
245 Park Avenue, 39th Floor, New York, New York
10167. The Subadviser's expertise in managing
portfolios of Senior Loans and structured finance
assets is particularly suited to the Fund's focus
on Senior Loans. As of September 30, 2004, the
Subadviser had approximately $10 billion in assets
under management.

The Adviser, and not the Fund, will pay a portion
of the fees it receives from the Fund to the
Subadviser in return for the Subadviser's
services.

LISTING..................... The Fund's common shares have been approved for
listing on the New York Stock exchange under the
trading or "ticker" symbol "PHD," subject to
official notice of issuance.

ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT, REGISTRAR
AND DIVIDEND DISBURSING
AGENT..................... Pioneer Investment Management, Inc. serves as the
Fund's administrator and has appointed Princeton
Administrators, L.P. to serve as the Fund's
sub-administrator. Brown Brothers Harriman & Co.
will serve as the Fund's custodian. Pioneer
Investment Management Shareholder Services, Inc.
will serve as the Fund's transfer agent, registrar
and dividend disbursing agent. Mellon Investor
Services LLC ("Mellon") will serve as the
sub-transfer agent, sub-registrar and sub-dividend
disbursing agent.

MARKET PRICE OF COMMON
SHARES.................... Common shares of closed-end investment companies
frequently trade at prices lower than their net
asset value. This characteristic is separate and
distinct from the risk that net asset value could
decrease as a result of the Fund's investment
activities and may be a greater risk to investors
expecting to sell their shares in a relatively
short period of time following the completion of
this offering. The Fund cannot predict whether the
common shares will trade at, above or below net
asset value. The Fund's net asset value will be
reduced immediately following this offering by the
sales load and the amount of the organizational
and offering expenses paid by the Fund. See "Use
of Proceeds." In addition to the net asset value,
the market price of the Fund's common shares may
be affected by such factors as the Fund's use of
leverage, portfolio credit quality, liquidity,
market supply and demand, dividends paid by the
Fund (which are in turn affected by expenses),
factors affecting the market for interest rates
and credit markets, call protection for portfolio
securities and interest rate movements. See
"Leverage," "Risk Factors" and "Description of
Shares." The Fund's common shares are designed
primarily for long-term investors. You should not
purchase common shares if you intend to sell them
shortly after purchase.

DISTRIBUTIONS............... The Fund intends to distribute to common
shareholders all or a portion of its net
investment income monthly and realized net capital
gains, if any, at least annually. The Fund expects
that it will announce its initial dividend within
45 days and commence paying dividends within 60 to
90 days of the date of this prospectus. At times,
in order to maintain a stable level of
distributions, the Fund may pay out less than all
of its net investment income or pay out
accumulated undistributed income in addition to
current net investment income. In order to
maintain a stable dividend rate on the common
shares, the Fund may also make distributions that
constitute a return of capital. The Fund cannot
guarantee any particular yield on its common
shares, and the yield for any given period is not
an indication or representation of future yields
on the Fund's common shares. The amount of each
monthly distribution will vary depending on a
number of factors, including dividends payable on
the Fund's preferred shares or other costs of
financial leverage. As portfolio and market
conditions change, the rate of

dividends on the common shares and the Fund's
dividend policy could change.

You should consult a tax adviser about state,
local and foreign taxes on your distributions from
the Fund. Dividends from the Fund's net investment
income will generally be taxable as ordinary
income to the extent of the Fund's current and
accumulated earnings and profits, and any
distributions by the Fund of net realized
short-term capital gains will be taxable as
ordinary income. Since the Fund's income is
derived primarily from interest, dividends of the
Fund from its net investment income generally will
not constitute "qualified dividend income" for
federal income tax purposes and thus will not be
eligible for the favorable federal long-term
capital gain tax rates on qualified dividend
income. Capital gain dividends distributed by the
Fund to individual shareholders generally will
qualify for the maximum 15% U.S. federal income
tax rate on long-term capital gains.

Dividends and capital gain distributions generally
are reinvested in additional common shares of the
Fund under the Fund's automatic dividend
reinvestment plan. However, an investor can choose
not to participate in the plan and instead to
receive all distributions in cash. Since not all
investors can participate in the automatic
dividend reinvestment plan, you should contact
your broker or nominee to confirm that you are
eligible to participate in the plan. See
"Dividends and Distributions," "Automatic Dividend
Reinvestment Plan" and "Federal Income Tax
Matters."

SUMMARY OF FUND EXPENSES

The following table shows Fund expenses as a percentage of net assets
attributable to the common shares. Expenses and fees borne by the Fund are
indirectly borne by the holders of common shares. The table assumes the Fund
issues preferred shares as a means of employing leverage in an amount equal to
33 1/3% of the Fund's total assets (after their issuance) and issues
approximately 25,000,000 common shares. If the Fund issues fewer common shares,
then all other things being equal, the Fund's expenses as a percentage of net
assets attributable to common shares would increase. Footnote (6) to the table
also shows Fund expenses as a percentage of net assets attributable to the
common shares but assumes that no preferred shares are issued or outstanding (as
will be the case prior to the Fund's expected issuance of preferred shares). If
the Fund leverages through borrowing, it would incur interest expenses. For
additional information with respect to the Fund's expenses, see "Management of
the Fund." Other expenses include, but are not limited to, custodial and
transfer agency fees, legal and accounting expenses and listing fees.

SHAREHOLDER TRANSACTION EXPENSES
Sales load (as a percentage of offering price)........... 4.50%
Estimated offering expenses borne by the Fund
(as a percentage of offering price)................... .20%(1)
Dividend reinvestment plan fees.......................... None(2)
Preferred shares offering expenses (paid by the Fund).... .53%(3)

PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO
COMMON SHARES,
ASSUMING THE ISSUANCE
OF PREFERRED SHARES(6)
------------------------

ANNUAL EXPENSES
Advisory fee............................................. 1.05%(4)
Other expenses........................................... .28%(1)(3)
Total annual expenses.................................... 1.33%(1)(5)(7)

------------
(1) Offering costs borne by the holders of the common shares will result in a
reduction of the net assets of the Fund. The offering expenses of this
offering are estimated to be approximately $900,000 or $.04 per common
share. The Adviser has agreed to pay all, and will not be reimbursed for
any, organizational expenses. The Fund has agreed to pay the underwriters
$.00667 per common share as a partial reimbursement of expenses incurred by
the underwriters in connection with the offering. The Adviser has agreed to
pay all offering costs (other than sales load, but including the partial
reimbursement of underwriters' expenses) that exceed $.04 per common share.
Estimated offering costs to be paid by the Fund are not included in the
expenses shown in the annual expense table. Other expenses do not reflect
the effect of any expense offset arrangements.

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

(3) The Fund currently intends to issue preferred shares and does not currently
intend to incur borrowing for leveraging purposes during its first year of
operations other than for temporary purposes, such as the settlement of
transactions. If the Fund offers preferred shares, costs of that offering,
estimated to be 1.1% of the total dollar amount of the Fund's preferred
shares offering (including the sales load paid to the underwriters for the
preferred shares offering) will be borne immediately by the holders of the
common shares and result in a reduction of the net asset value of the
common shares. Assuming the Fund issues 25,000,000 common shares and
preferred shares in an amount equal to 33 1/3% of the Fund's total assets
(after their issuance), these offering costs

are estimated to be approximately $2,632,500 or $.105 per common share.
These offering costs are not included among the expenses shown in the
annual expense table. Neither the offering costs nor the annual expenses
include the dividend payments on the preferred shares, which payments will
vary with the prevailing level of interest rates. Assuming the Fund issues
preferred shares with an aggregate liquidation preference of $250 million
and dividends are paid on the preferred shares at an annual rate of 2.5%,
then the annual dividend on the preferred shares would be $6,250,000. There
can be no assurance that the dividend rate on the preferred shares on an
annualized basis will not exceed 2.5% or that the aggregate dollar amount
of dividends payable to the holders of preferred shares will not differ
significantly from the above amount.

(4) The advisory fee is based upon the Fund's managed assets, which includes
the assets attributable to both the common and preferred shareholders. The
common shareholders bear all of the advisory fee. Consequently, when the
Fund is leveraged, the advisory fee stated as a percentage of net assets
attributable to common shareholders is higher than when the Fund is not
leveraged. See footnote (6).

(5) Assuming that the Fund issues preferred shares with an aggregate
liquidation preference equal to 33 1/3% of the Fund's total assets (after
their issuance), the expense limitation discussed in footnote (7) is
estimated to be equivalent to an expense limitation of 1.425% of average
daily net assets attributable to common shares. The Fund's net annual
expenses as a percentage of net assets attributable to common shares are
estimated to be 1.33% of average daily net assets whether or not the
underwriters' overallotment option is exercised. The issuance of preferred
shares will increase the advisory fee and may create conflicts of interest
between the Adviser and the Fund. See "Leverage."

(6) 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 the common shares but, unlike the table above, assumes that
no preferred shares are issued or outstanding. This will be the case, for
instance, prior to the Fund's expected issuance of preferred shares. In
accordance with these assumptions, the Fund's expenses would be estimated
as follows:

PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO
COMMON SHARES,
ASSUMING PREFERRED
SHARES ARE NOT ISSUED OR
OUTSTANDING
------------------------

ANNUAL EXPENSES
Advisory fee.......................................... .70%(4)
Other expenses........................................ .13%
Total annual expenses................................. .83%(7)

(7) The Adviser has agreed for the first three years of the Fund's investment
operations to limit the Fund's total annual expenses (excluding offering
costs for common and preferred shares, interest expense, the cost of
defending or prosecuting any claim or litigation to which the Fund is a
party (together with any amount in judgment or settlement), indemnification
expenses or taxes incurred due to the failure of the Fund to qualify as a
regulated investment company under the Code or any other nonrecurring or
non-operating expenses) to .95% of the Fund's average daily managed assets.
This is a contractual limit and may not be terminated by the Adviser for
three years. There can be no assurance that it will be continued after that
time. The dividend on any preferred shares is not an expense. The expense
limitation is based on the Fund's managed assets and not the Fund's net
assets attributable to common shares. If the Fund employs leverage and
increases its managed assets, the expense limitation expressed in terms of
net assets attributable to common shares will increase. If the Fund issues
additional common shares, such as the result of the underwriters' exercise
of the overallotment option, the amount of leverage that the Fund may
employ correspondingly increases.

The purpose of the tables in this section is to assist you in
understanding the various costs and expenses that a shareholder will bear
directly or indirectly by investing in the common shares. As of the date of this
prospectus, the Fund has not commenced operations. The amounts set forth in the
tables are based on estimates for the current fiscal year, assuming no exercise
of the overallotment option granted to the underwriters.

EXAMPLE

As required by the relevant Securities and Exchange Commission
regulations, the following example illustrates the expenses (including the sales
load of $45.00, estimated organizational and offering expenses of this offering
of $1.80 and the estimated offering costs of issuing preferred shares of $5.30,
assuming the Fund issues preferred shares representing 33 1/3% of the Fund's
total assets after their issuance, which are reflected in year one of the table)
that you would pay on a $1,000 investment in common shares, assuming (1) total
annual expenses of 1.33% of net assets attributable to common shares and (2) a
5% annual return*:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------

Total expenses incurred............................... $65 $92 $122 $205

------------
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE ASSUMED. The example
assumes that the estimated other expenses set forth in the fee table are
accurate and that all dividends and distributions are reinvested at net
asset value. Moreover, the Fund's actual rate of return may be greater or
less than the hypothetical 5% return shown in the example.

THE FUND

Pioneer Floating Rate Trust is a newly organized, non-diversified,
closed-end management investment company. The Fund was organized under the laws
of the State of Delaware on October 6, 2004, and has registered under the 1940
Act. As a recently organized entity, the Fund has no operating history. The
Fund's principal office is located at 60 State Street, Boston, Massachusetts
02109, and its telephone number is (617) 742-7825.

USE OF PROCEEDS

The net proceeds of this offering will be approximately $ (or
approximately $ assuming the underwriters exercise the overallotment
option in full) after payment of the estimated offering costs and the deduction
of the sales load. The Fund will invest the net proceeds of the offering in
accordance with the Fund's investment objectives and principal investment
strategies as stated below. However, investments that, in the judgment of the
Subadviser, are appropriate investments for the Fund may not be immediately
available. Therefore, there will be an initial investment period of up to three
months following the completion of its common shares offering before the Fund is
required to be invested in accordance with its principal investment strategies.
During such period, all or a portion of the proceeds may be invested in U.S.
government securities or high grade, short-term money market instruments. See
"Investment Objectives and Principal Investment Strategies."

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

INVESTMENT OBJECTIVES

The Fund's primary investment objective is to provide its common
shareholders with a high level of current income. As a secondary investment
objective, the Fund seeks preservation of capital to the extent consistent with
its primary investment objective. The Fund's investment objectives are
fundamental policies and may not be changed without the approval of a majority
of the outstanding voting securities (as defined in the 1940 Act) of the Fund.
There can be no assurance that the Fund will achieve its investment objectives.

PRINCIPAL INVESTMENT STRATEGIES

Under normal market conditions, the Fund seeks to achieve its investment
objectives by investing at least 80% of its assets (net assets plus borrowings
for investment purposes) in senior floating rate loans ("Senior Loans"). Senior
Loans are made to corporations, partnerships and
other business entities that operate in various industries and geographical
regions, including non-U.S. Borrowers. Senior Loans pay interest at rates that
are redetermined periodically on the basis of a floating base lending rate plus
a premium. The Fund also may invest in other floating and variable rate senior
instruments, including second lien loans, and high yield, high risk corporate
bonds, investment grade fixed-income debt securities, preferred stocks (many of
which have fixed maturities), convertible securities, securities that make
"in-kind" interest payments, bonds not paying current income, bonds that do not
make regular interest payments and money market instruments. The Fund may invest
up to 10% of its total assets in Senior Loans and other securities of non-U.S.
issuers, including emerging market issuers, and may engage in certain hedging
transactions.

The Fund may invest in Senior Loans and other securities of any credit
quality, including Senior Loans and other investments that are rated below
investment grade or are unrated but are determined by the Subadviser to be of
equivalent credit quality. Non-investment grade securities, commonly

referred to as "junk bonds," are obligations that are rated below investment
grade by the national rating agencies that cover the obligation (i.e., Ba and
below by Moody's or BB and below by S&P), or if unrated, are determined to be of
comparable quality by the Subadviser. Investment in securities of below
investment grade quality involves substantial risk of loss. "Junk bonds" are
considered predominantly speculative with respect to the issuer's ability to pay
interest and repay principal and are susceptible to default or decline in market
value due to adverse economic and business developments. Because Senior Loans
are senior in a borrower's capital structure and often are secured by specific
collateral, the Subadviser believes, based on its experience, that Senior Loans
generally have more favorable loss recovery rates compared to most other types
of below investment grade obligations. However, there can be no assurance that
the Fund's actual loss recovery experience will be consistent with the
Subadviser's prior experience or that the Senior Loans will achieve any specific
loan recovery rate.

The Subadviser's investment philosophy is based on the belief that
fundamental research and a disciplined asset acquisition/disposition process
will produce superior long-term results. The Subadviser's investment process
combines an economic and industry overlay with a disciplined securities
selection process. The Subadviser's economic and industry overlay utilizes a
variety of macro and economic variables to identify broad market sectors that
the Subadviser believes have positive fundamentals. Within these broad sectors,
the Subadviser targets specific industries that appear to have, in the
Subadviser's view, the most promising prospects under current market conditions.
Within a targeted industry, the Subadviser engages in a disciplined securities
selection process. In this process, the Subadviser conducts an extensive
analysis of issuers within the targeted industry to identify issuers that appear
to have the most favorable prospects for improving financial condition. The
Subadviser also reviews the terms of the agreements documenting the Senior Loans
to seek to identify those Senior Loans that have the most favorable risk and
return characteristics. Based on this analysis, the Subadviser constructs and
actively manages a portfolio of Senior Loans. The Subadviser's goal is to
achieve the highest potential level of current income with the lowest potential
volatility over long periods of time.

Duration Management. Interest rates on Senior Loans in which the Fund
invests adjust periodically. The interest rates are adjusted based on a base
rate plus a premium or spread over the base rate. The base rate usually is
LIBOR, the Federal Reserve federal funds rate, the Prime Rate or other base
lending rates used by commercial lenders. LIBOR usually is an average of the
interest rates quoted by several designated banks as the rates at which they pay
interest to major depositors in the London interbank market on U.S.
dollar-denominated deposits. The Subadviser believes that changes in short-term
LIBOR rates are closely related to changes in the Federal Reserve federal funds
rate, although the two are not technically linked. The Prime Rate quoted by a
major U.S. bank is generally the interest rate at which that bank is willing to
lend U.S. dollars to its most creditworthy borrowers, although it may not be the
bank's lowest available rate.

The Subadviser expects that the average effective duration of the Fund's
portfolio of Senior Loans will normally be between zero and 1.5 years,
reflecting the Fund's focus on floating rate instruments. As a measure of a
fixed-income security's cash flow, duration is an alternative to the concept of
"term to maturity" in assessing the price volatility associated with changes in
interest rates. Generally, the longer the duration, the more volatility an
investor should expect. For example, the market price of a fixed-income security
with a duration of three years would be expected to decline 3% if interest rates
rose 1%. Conversely, the market price of the same security would be expected to
increase 3% if interest rates fell 1%. The market price of a fixed-income
security with a duration of six years would be expected to increase or decline
twice as much as the market price of a security with a three-year duration.
Duration is a way of measuring a security's maturity in terms of the average
time required to receive the present value of all interest and principal
payments as opposed to its term to maturity. The maturity of a security

measures only the time until final payment is due; it does not take account of
the pattern of a security's cash flows over time, which would include how cash
flow is affected by prepayments and by changes in interest rates. Because the
interest rate on Senior Loans held by the Fund will reset at short-term
intervals, the duration of Senior Loans will be shorter than a fixed income
security with a comparable term to maturity. The Subadviser can manage the
duration of the portfolio by selecting Senior Loans with different interest rate
reset periods and final maturity dates. Incorporating a security's yield, coupon
interest payments, final maturity and option features into one measure, duration
is computed by determining the weighted average maturity of a fixed-income
security's cash flows, where the present values of the cash flows serve as
weights. In computing the duration of the Fund's portfolio, the Subadviser will
estimate the duration of obligations that are subject to features such as
prepayment or redemption by the issuer, put options retained by the investor or
other imbedded options, taking into account the influence of interest rates on
prepayments and coupon flows.

Loans in which the Fund invests typically have interest rates that reset
at least quarterly and may reset as frequently as daily. Because of prepayments,
the actual remaining maturity of a loan may be considerably less than its stated
maturity. Longer interest rate reset periods generally will increase
fluctuations in the Fund's net asset value as a result of changes in market
interest rates. The Fund may find it possible and appropriate to use interest
rate swaps and other investment practices to shorten the effective interest rate
adjustment period of a loan. If the Fund does so, it will consider the shortened
period to be the adjustment period of the loan. As short-term interest rates
rise, interest payable to the Fund should increase. As short-term interest rates
decline, interest payable to the Fund should decrease.

During normal market conditions, changes in market interest rates will
affect the Fund in certain ways. The principal effect will be that the yield on
the Fund's shares will tend to rise or fall as market interest rates rise and
fall. This is because the assets in which the Fund primarily invests pay
interest at rates which float in response to changes in market rates. However,
because the interest rates on the Fund's assets reset over time, there will be
an imperfect correlation between changes in market rates and changes to rates on
the portfolio as a whole. This means that changes to the rate of interest paid
on the portfolio as a whole will tend to lag behind changes in market rates. The
amount of time that will pass before the Fund experiences the effects of
changing short-term interest rates will depend on the dollar-weighted average
time until the next interest rate adjustment on the Fund's portfolio of loans.
Because the rates of interest paid on the loans in which the Fund invests have a
weighted average reset period that typically is less than 90 days, the impact of
the lag between a change in market interest rates and the change in the overall
rate on the portfolio is expected to be minimal.

To the extent that changes in market rates of interest are reflected not
in a change to a base rate such as LIBOR but in a change in the spread over the
base rate which is payable on loans of the type and quality in which the Fund
invests, the Fund's net asset value could be adversely affected. This is because
the value of a Senior Loan is partially a function of whether the Senior Loan is
paying what the market perceives to be a market rate of interest, given its
individual credit and other characteristics. However, unlike changes in market
rates of interest for which there is generally only a temporary lag before the
portfolio reflects those changes, changes in a loan's value based on changes in
the market spread on loans in the Fund's portfolio may be of longer duration.

Credit Management. The Subadviser's staff monitors the credit quality and
price of Senior Loans and other securities held by the Fund, as well as other
securities that are available to the Fund. The Fund may invest in Senior Loans
and other securities of any credit quality, including Senior Loans and other
investments that are rated below investment grade or are unrated but are
determined by the Subadviser to be of equivalent credit quality. The Fund does
not have a policy of maintaining a specific average credit quality of its
portfolio nor a minimum portion of its portfolio that must be rated investment
grade. Although the Subadviser considers ratings when making investment
decisions, it performs its own credit and investment analysis and does not rely
primarily on ratings assigned by rating

services. In evaluating the attractiveness of a particular Senior Loan or other
security, whether rated or unrated, the Subadviser generally gives equal weight
to the security's yield and the issuer's creditworthiness and will normally take
into consideration, among other things, the issuer's financial resources and
operating history, its sensitivity to economic conditions and trends, the
availability of its management, its debt maturity schedules and borrowing
requirements, and relative values based on anticipated cash flow, interest and
asset coverage, and earnings prospects.

OTHER INVESTMENTS

Normally, the Fund will invest substantially all of its assets to meet its
investment objectives. The Fund may invest the remainder of its assets in
securities with remaining maturities of less than one year or cash equivalents,
or it may hold cash. For temporary defensive purposes, the Fund may depart from
its principal investment strategies and invest part or all of its assets in
securities with remaining maturities of less than one year or cash equivalents,
or it may hold cash. During such periods, the Fund may not be able to achieve
its investment objectives.

PORTFOLIO CONTENTS

SECURITIES RATINGS

Securities rated Baa by Moody's are considered by Moody's as medium to
lower medium investment grade securities; they are neither highly protected nor
poorly secured; interest payments and principal security appear to Moody's to be
adequate for the present, but certain protective elements may be lacking or may
be characteristically unreliable over time; and in the opinion of Moody's,
securities in this rating category lack outstanding investment characteristics
and in fact have speculative characteristics as well. Securities rated BBB by
S&P are regarded by S&P as having an adequate capacity to pay interest and to
repay principal; while such securities normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely, in the opinion of S&P, to lead to a weakened capacity to pay interest
and repay principal for securities in this category than in higher rating
categories. Fixed income securities of below-investment grade quality are
regarded as having predominantly speculative characteristics with respect to the
issuer's capacity to pay interest and to repay principal and are commonly
referred to as "junk bonds" or "high yield securities." Such securities involve
greater risk of loss, are subject to greater price volatility and are less
liquid, especially during periods of economic uncertainty or change, than higher
rated fixed income securities.

The descriptions of the rating categories by Moody's and S&P, including a
description of their speculative characteristics, are set forth in the Statement
of Additional Information. All references to securities ratings by Moody's and
S&P in this prospectus shall, unless otherwise indicated, include all securities
within each such rating category (that is, (1), (2) and (3) in the case of
Moody's and (+) and (-) in the case of S&P). All percentage and ratings
limitations on securities in which the Fund may invest shall apply at the time
of acquisition and shall not be considered violated if an investment rating is
subsequently downgraded to a rating that would have precluded the Fund's initial
investment in such security or the percentage limitation is exceeded as a result
of changes in the market value of the Fund's portfolio securities. The Fund is
not required to dispose of a security in the event a rating agency downgrades or
withdraws its rating of a security. In the event that the Fund disposes of a
portfolio security subsequent to its being downgraded, the Fund may experience a
greater risk of loss than if such security had been sold prior to such
downgrading. When a security is rated by more than one of these rating agencies,
the Subadviser will use the highest rating in applying its investment policies.

SENIOR LOANS

Senior Loans hold the most senior position in the capital structure of a
business entity, are typically secured with specific collateral and have a claim
on the general assets of the borrower that is senior to that held by
subordinated debtholders and stockholders of the borrower. The proceeds of
Senior Loans primarily are used to finance leveraged buyouts, recapitalizations,
mergers, acquisitions, stock repurchases, and, to a lesser extent, to finance
internal growth and for other corporate purposes. Senior Loans typically have
rates of interest which are redetermined either daily, monthly, quarterly or
semi-annually by reference to a base lending rate, plus a premium. These base
lending rates generally are LIBOR, the prime rate offered by one or more major
United States banks (Prime Rate) or the certificate of deposit (CD) rate or
other base lending rates used by commercial lenders.

The Fund may invest in zero coupon bonds, deferred interest bonds and
bonds or preferred stocks on which the interest is payable in-kind (PIK bonds).
Zero coupon and deferred interest bonds are debt obligations which are issued at
a significant discount from face value. While zero coupon bonds do not require
the periodic payment of interest, deferred interest bonds provide for a period
of delay before the regular payment of interest begins. PIK bonds are debt
obligations that provide that the issuer thereof may, at its option, pay
interest on such bonds in cash or in the form of additional debt obligations.
Such investments may experience greater volatility in market value due to
changes in interest rates. The Fund may be required to accrue income on these
investments for federal income tax purposes and is required to distribute its
net income each year in order to qualify for the favorable federal income tax
treatment potentially available to regulated investment companies under the
Code. The Fund may be required to sell securities to obtain cash needed for
income distributions.

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

Many loans in which the Fund will invest may not be rated by a rating
agency, will not be registered with the Securities and Exchange Commission or
any state securities commission and will not be listed on any national
securities exchange. The amount of public information available with respect

to issuers of Senior Loans will generally be less extensive than that available
for issuers of registered or exchange listed securities. In evaluating the
creditworthiness of borrowers, the Subadviser will consider, and may rely in
part, on analyses performed by others. The Subadviser does not view ratings as
the determinative factor in its investment decisions and relies more upon its
credit analysis abilities than upon ratings. Borrowers may have outstanding debt
obligations that are rated below investment grade by a rating agency. A high
percentage of Senior Loans in the Fund may be rated below investment grade by
independent rating agencies. In the event Senior Loans are not rated, they are
likely to be the equivalent of below investment grade quality. Debt securities
which are unsecured and rated below investment grade (i.e., Ba and below by
Moody's or BB and below by S&P) and comparable unrated bonds, are viewed by the
rating agencies as having speculative characteristics and are commonly known as
"junk bonds." A description of the ratings of corporate bonds by Moody's and S&P
is included as Appendix A to the Statement of Additional Information. Because
Senior Loans are senior in a borrower's capital structure and are often secured
by specific collateral, the Subadviser believes that Senior Loans have more
favorable loss recovery rates as compared to most other types of below
investment grade debt obligations. However, there can be no assurance that the
Fund's actual loss recovery experience will be consistent with the Subadviser's
prior experience or that the Fund's Senior Loans will achieve any specific loss
recovery rates.

The Fund may hold securities that are unrated or in the lowest ratings
categories (rated C by Moody's or D by S&P). Debt securities rated C by Moody's
are regarded as having extremely poor prospects of ever attaining any real
investment standing. Debt securities rated D by S&P are in payment default or a
bankruptcy petition has been filed and debt service payments are jeopardized. In
order to enforce its rights with defaulted securities, the Fund may be required
to retain legal counsel and/or a financial adviser. The Fund may have to pursue
legal remedies, the results of which are uncertain and expensive. This may
increase operating expenses and adversely affect net asset value. The credit
quality of most securities held by the Fund reflects a greater possibility that
adverse changes in the financial condition of an issuer, or in general economic
conditions, or both, may impair the ability of the issuer to make payments of
interest or principal. The inability (or perceived inability) of issuers to make
timely payment of interest and principal would likely make the values of such
securities more volatile and could limit the ability to sell securities at
favorable prices. In the absence of a liquid trading market for securities held
by it, the Fund may have difficulties determining the fair market value of such
securities. Because of the greater number of investment considerations involved
in investing in high yield, high risk bonds, the achievement of the Fund's
objectives depends more on the Subadviser's judgment and analytical abilities
than would be the case if invested primarily in securities in the higher ratings
categories.

No active trading market may exist for many Senior Loans, and some Senior
Loans may be subject to restrictions on resale. The Fund is not limited in the
percentage of its assets that may be invested in Senior Loans and other
securities deemed to be illiquid. A secondary market may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods,
which may impair the ability to realize full value on the disposition of an
illiquid Senior Loan, and cause a material decline in the Fund's net asset
value.

The Fund may invest up to 10% of total assets in obligations of non-U.S.
issuers, predominantly in developed countries, but the Fund may also invest in
securities of emerging market issuers. The value of obligations of non-U.S.
issuers is affected by changes in foreign tax laws (including withholding tax),
government policies (in this country or abroad) and relations between nations,
and trading, settlement, custodial and other operational risks. In addition, the
costs of investing abroad are generally higher than in the United States.

Use of Agents. Senior Loans generally are arranged through private
negotiations between a borrower and a group of financial institutions initially
represented by an agent who is usually one of the originating lenders. In larger
transactions, it is common to have several agents. Generally, however, only one
such agent has primary responsibility for on-going administration of a Senior
Loan. Agents are typically paid fees by the borrower for their services. The
agent is primarily responsible for negotiating the credit agreement which
establishes the terms and conditions of the Senior Loan and the rights of the
borrower and the lenders. The agent is also responsible for monitoring
collateral and for exercising remedies available to the lenders such as
foreclosure upon collateral.

Credit agreements may provide for the termination of the agent's status in
the event that it fails to act as required under the relevant credit agreement,
becomes insolvent, enters FDIC receivership or, if not FDIC insured, enters into
bankruptcy. Should such an agent, lender or assignor with respect to an
assignment inter-positioned between the Fund and the borrower become insolvent
or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of
such person and any loan payment held by such person for the benefit of the Fund
should not be included in such person's or entity's bankruptcy estate. If,
however, any such amount were included in such person's or entity's bankruptcy
estate, the Fund would incur certain costs and delays in realizing payment or
could suffer a loss of principal or interest. In this event, the Fund could
experience a decrease in net asset value.

Form of Investment. The Fund's investments in Senior Loans may take one
of several forms, including acting as one of the group of lenders originating a
Senior Loan, purchasing an assignment of a portion of a Senior Loan from a third
party or acquiring a participation in a Senior Loan. When the Fund is a member
of the originating syndicate for a Senior Loan, it may share in a fee paid to
the syndicate. When the Fund acquires a participation in, or an assignment of, a
Senior Loan, it may pay a fee to, or forego a portion of interest payments from,
the lender selling the participation or assignment. The Fund will act as lender,
or purchase an assignment or participation, with respect to a Senior Loan only
if the agent is determined by the Subadviser to be creditworthy.

Original Lender. When the Fund is one of the original lenders, it will
have a direct contractual relationship with the borrower and can enforce
compliance by the borrower with terms of the credit agreement. It also may have
negotiated rights with respect to any funds acquired by other lenders through
set-off. Original lenders also negotiate voting and consent rights under the
credit agreement. Actions subject to lender vote or consent generally require
the vote or consent of the majority of the holders of some specified percentage
of the outstanding principal amount of the Senior Loan. Certain decisions, such
as reducing the interest rate, or extending the maturity of a Senior Loan, or
releasing collateral securing a Senior Loan, among others, frequently require
the unanimous vote or consent of all lenders affected.

Assignments. When the Fund is a purchaser of an assignment, it typically
succeeds to all the rights and obligations under the credit agreement of the
assigning lender and becomes a lender under the credit agreement with the same
rights and obligations as the assigning lender. Assignments are, however,
arranged through private negotiations between potential assignees and potential
assignors, and the rights and obligations acquired by the purchaser of an
assignment may be more limited than those held by the assigning lender.

Participations. The Fund may also invest in participations in Senior
Loans. The rights of the Fund when it acquires a participation are likely to be
more limited than the rights of an original lender or an investor who acquired
an assignment. Participation by the Fund in a lender's portion of a Senior Loan
typically means that the Fund has only a contractual relationship with the
lender, not with the borrower. This means that the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only from
the lender selling the participation and only upon receipt by the lender of
payments from the borrower.

With a participation, the Fund will have no rights to enforce compliance
by the borrower with the terms of the credit agreement or any rights with
respect to any funds acquired by other lenders through set-off against the
borrower. In addition, the Fund may not directly benefit from the collateral
supporting the Senior Loan because it may be treated as a general creditor of
the lender instead of a senior secured creditor of the borrower. As a result,
the Fund may be subject to delays, expenses and risks that are greater than
those that exist when the Fund is the original lender or holds an assignment.
This means the Fund must assume the credit risk of both the borrower and the
lender selling the participation. The Fund will consider a purchase of
participations only in those situations where the Subadviser considers the
participating lender to be creditworthy.

In the event of a bankruptcy or insolvency of a borrower, the obligation
of the borrower to repay the Senior Loan may be subject to certain defenses that
can be asserted by such borrower against the Fund as a result of improper
conduct of the lender selling the participation. A participation in a Senior
Loan will be deemed to be a Senior Loan for the purposes of the Fund's
investment objectives and policies.

Investing in Senior Loans involves investment risk. Some borrowers default
on their Senior Loan payments. The Fund attempts to manage this credit risk
through portfolio diversification and ongoing analysis and monitoring of
borrowers. The Fund also is subject to market, liquidity, interest rate and
other risks. See "Risk Factors."

OTHER FIXED INCOME SECURITIES

The Fund also may purchase unsecured loans, other floating rate debt
securities such as notes, bonds and asset-backed securities (such as securities
issued by special purpose funds investing in bank loans), investment grade and
below investment grade fixed income debt obligations and money market
instruments, such as commercial paper. The high yield securities in which the
Fund invests are rated Ba or lower by Moody's or BB or lower by S&P or are
unrated but determined by the Subadviser to be of comparable quality. Debt
securities rated below investment grade are commonly referred to as "junk bonds"
and are considered speculative with respect to the issuer's capacity to pay
interest and repay principal. Below investment grade debt securities involve
greater risk of loss, are subject to greater price volatility and are less
liquid, especially during periods of economic uncertainty or change, than higher
rated debt securities. The Fund's fixed-income securities may have fixed or
variable principal payments and all types of interest rate and dividend payment
and reset terms, including fixed rate, adjustable rate, zero coupon, contingent,
deferred, payment in kind and auction rate features. The Fund may invest in
fixed-income securities with a broad range of maturities.

The Fund may invest in zero coupon bonds, deferred interest bonds and
bonds or preferred stocks on which the interest is payable in-kind (PIK bonds).
To the extent the Fund invests in such instruments, they will not contribute to
the Fund's primary goal of current income. Zero coupon and deferred interest
bonds are debt obligations which are issued at a significant discount from face
value. While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular payment
of interest begins. PIK bonds are debt obligations that provide that the issuer
thereof may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments may experience greater volatility
in market value due to changes in interest rates. The Fund may be required to
accrue income on these investments for federal income tax purposes and is
required to distribute its net income each year in order to qualify for the
favorable federal income tax treatment potentially available to regulated
investment companies. The Fund may be required to sell securities to obtain cash
needed for income distributions.

SECOND LIEN LOANS AND DEBT OBLIGATIONS

The Fund may invest in loans and other debt securities that have the same
characteristics as Senior Loans except that such loans are second in lien
property rather than first. Such "second lien" loans and securities, like Senior
Loans, typically have adjustable floating rate interest payments. Accordingly,
the risks associated with "second lien" loans are higher than the risk of loans
with first priority over the collateral. In the event of default on a "second
lien" loan, the first priority lien holder has first claim to the underlying
collateral of the loan. It is possible, that no collateral value would remain
for the second priority lien holder and therefore result in a loss of investment
to the Fund.

COLLATERALIZED LOAN OBLIGATIONS AND BOND OBLIGATIONS

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

A collateralized loan obligation ("CLO") is a structured debt security
issued by an SPV that was created to reapportion the risk and return
characteristics of a pool of assets. The assets, typically Senior Loans, are
used as collateral supporting the various debt tranches issued by the SPV. The
key feature of the CLO structure is the prioritization of the cash flows from a
pool of debt securities among the several classes of securities issued by a CLO.

The Fund may also invest in collateralized bond obligations ("CBOs"),
which are structured debt securities backed by a diversified pool of high yield,
public or private fixed income securities. These may be fixed pools or may be
"market value" (or managed) pools of collateral. The CBO issues debt securities
that are typically separated into tranches representing different degrees of
credit quality. The top tranche of securities has the greatest collateralization
and pays the lowest interest rate. Lower CBO tranches have a lesser degree of
collateralization quality and pay higher interest rates intended to compensate
for the attendant risks. The bottom tranche specifically receives the residual
interest payments (i.e., money that is left over after the higher tranches have
been paid) rather than a fixed interest rate. The return on the lower tranches
of CBOs is especially sensitive to the rate of defaults in the collateral pool.
Under normal market conditions, the Fund expects to invest in the lower tranches
of CBOs.

CREDIT DEFAULT SWAP

Credit default swaps involve greater risks than if the Fund had invested
in the reference obligation directly. In addition to general market risks,
credit default swaps are subject to illiquidity risk, counterparty risk and
credit risks. The Fund will enter into swap agreements only with counterparties
that are rated investment grade quality by at least one nationally recognized
statistical rating organization at the time of entering into such transaction or
whose creditworthiness is believed by the Subadviser to be equivalent to such
rating. A buyer also will lose its investment and recover nothing should no
event of default occur. If an event of default were to occur, the value of the
reference obligation received by the seller, coupled with the periodic payments
previously received, may be less than the full notional value it pays to the
buyer, resulting in a loss of value to the seller. When the Fund acts as a
seller of a credit default swap agreement it is exposed to many of the same
risks of leverage described under "Risk Factors -- Leverage Risk" and "Leverage"
in this prospectus since if an event of default occurs the seller must pay the
buyer the full notional value of the reference obligation.

SENIOR LOAN BASED DERIVATIVES

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

CREDIT-LINKED NOTES

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

COMMON STOCKS

The Fund may acquire an interest in common stocks upon the default of a
Senior Loan secured by such common stock. The Fund may also acquire warrants or
other rights to purchase a borrower's common stock in connection with the making
of a Senior Loan. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits, if any, of the
corporation without preference over any other shareholder or class of
shareholders, including holders of such entity's preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so. In selecting common stocks for
investment, the

Fund generally expects to focus primarily on the security's dividend paying
capacity rather than on its potential for capital appreciation.

PREFERRED SECURITIES

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

Fixed rate preferred stocks have fixed dividend rates. They can be
perpetual, with no mandatory redemption date, or issued with a fixed mandatory
redemption date. Certain issues of preferred stock are convertible into other
equity securities. Perpetual preferred stocks provide a fixed dividend
throughout the life of the issue, with no mandatory retirement provisions, but
may be callable. Sinking fund preferred stocks provide for the redemption of a
portion of the issue on a regularly scheduled basis with, in most cases, the
entire issue being retired at a future date. The value of fixed rate preferred
stocks can be expected to vary inversely with interest rates.

Adjustable rate preferred stocks have a variable dividend rate which is
determined periodically, typically quarterly, according to a formula based on a
specified premium or discount to the yield on particular U.S. Treasury
securities, typically the highest base-rate yield of one of three U.S. Treasury
securities: the 90-day Treasury bill; the 10-year Treasury note; and either the
20-year or 30-year Treasury bond or other index. The premium or discount to be
added to or subtracted from this base-rate yield is fixed at the time of
issuance and cannot be changed without the approval of the holders of the
adjustable rate preferred stock. Some adjustable rate preferred stocks have a
maximum and a minimum rate and in some cases are convertible into common stock.

Auction rate preferred stocks pay dividends that adjust based on periodic
auctions. Such preferred stocks are similar to short-term corporate money market
instruments in that an auction rate preferred stockholder has the opportunity to
sell the preferred stock at par in an auction, normally conducted at least every
49 days, through which buyers set the dividend rate in a bidding process for the
next period. The dividend rate set in the auction depends on market conditions
and the credit quality of the particular issuer. Typically, the auction rate
preferred stock's dividend rate is limited to a specified maximum percentage of
an external commercial paper index as of the auction date. Further, the terms of
the auction rate preferred stocks generally provide that they are redeemable by
the issuer at certain times or under certain conditions.

CONVERTIBLE SECURITIES

The Fund's investment in fixed income securities may include bonds and
preferred stocks that are convertible into the equity securities of the issuer
or a related company. Depending on the relationship of the conversion price to
the market value of the underlying securities, convertible securities may trade
more like equity securities than debt instruments.

OTHER DEBT SECURITIES

The Fund may invest in other debt securities. Other debt securities in
which the Fund may invest include: securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and custodial receipts therefor;
securities issued or guaranteed by a foreign government or any of its

political subdivisions, authorities, agencies or instrumentalities or by
international or supranational entities; corporate debt securities, including
notes, bonds and debentures; certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, banks (including U.S.
or foreign branches of U.S. banks or U.S. or foreign branches of foreign banks)
having total assets of more than $1 billion; commercial paper; and mortgage
related securities. These securities may be of any maturity. The value of debt
securities can be expected to vary inversely with interest rates.

MONEY MARKET INSTRUMENTS

Money market instruments include short-term U.S. government securities,
U.S. dollar-denominated, high quality commercial paper (unsecured promissory
notes issued by corporations to finance their short-term credit needs),
certificates of deposit, bankers' acceptances and repurchase agreements relating
to any of the foregoing. U.S. government securities include Treasury notes,
bonds and bills, which are direct obligations of the U.S. government backed by
the full faith and credit of the United States and securities issued by agencies
and instrumentalities of the U.S. government, which may be guaranteed by the
U.S. Treasury, may be supported by the issuer's right to borrow from the U.S.
Treasury or may be backed only by the credit of the federal agency or
instrumentality itself.

U.S. GOVERNMENT SECURITIES

U.S. government securities in which the Fund invests include debt
obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by an agency or instrumentality of the U.S. government, including the
Federal Housing Administration, Federal Financing Bank, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association (GNMA), General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation (FHLMC),
Federal National Mortgage Association (FNMA), Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board, Student Loan Marketing
Association, Resolution Trust Corporation and various institutions that
previously were or currently are part of the Farm Credit System (which has been
undergoing reorganization since 1987). Some U.S. government securities, such as
U.S. Treasury bills, Treasury notes and Treasury bonds, which differ only in
their interest rates, maturities and times of issuance, are supported by the
full faith and credit of the United States government. Others are supported by
(i) the right of the issuer to borrow from the U.S. Treasury, such as securities
of the Federal Home Loan Banks; (ii) the discretionary authority of the U.S.
government to purchase the agency's obligations, such as securities of the FNMA;
or (iii) only the credit of the issuer. No assurance can be given that the U.S.
government will provide financial support in the future to U.S. government
agencies, authorities or instrumentalities that are not supported by the full
faith and credit of the United States. Securities guaranteed as to principal and
interest by the U.S. government, its agencies, authorities or instrumentalities
include (i) securities for which the payment of principal and interest is backed
by an irrevocable letter of credit issued by the U.S. government or any of its
agencies, authorities or instrumentalities; and (ii) participations in loans
made to non-U.S. governments or other entities that are so guaranteed. The
secondary market for certain of these participations is limited and therefore
may be regarded as illiquid.

OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of other investment companies to the
extent that such investments are consistent with the Fund's investment
objectives and principal investment strategies and permissible under the 1940
Act. Under one provision of the 1940 Act, the Fund may not acquire the

securities of other investment companies if, as a result, (i) more than 10% of
the Fund's total assets would be invested in securities of other investment
companies, (ii) such purchase would result in more than 3% of the total
outstanding voting securities of any one investment company being held by the
Fund or (iii) more than 5% of the Fund's total assets would be invested in any
one investment company. Other provisions of the 1940 Act are less restrictive
provided that the Fund is able to meet certain conditions. These limitations do
not apply to the acquisition of shares of any investment company in connection
with a merger, consolidation, reorganization or acquisition of substantially all
of the assets of another investment company. However, the Adviser has obtained
an exemptive order from the Securities and Exchange Commission that permits the
Fund to invest cash balances in money market funds managed by the Adviser.

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

EXCHANGE TRADED FUNDS

Subject to the limitations on investment in other investment companies,
the Fund may invest in exchange traded funds ("ETFs"). ETFs, such as SPDRs,
NASDAQ 100 Index Trading Stock (QQQs), iShares and various country index funds,
are funds whose shares are traded on a national exchange or the National
Association of Securities Dealers' Automatic Quotation System (NASDAQ). ETFs may
be based on underlying equity or fixed income securities. SPDRs, for example,
seek to provide investment results that generally correspond to the performance
of the component common stocks of the S&P 500. ETFs do not sell individual
shares directly to investors and only issue their shares in large blocks known
as "creation units." The investor purchasing a creation unit may sell the
individual shares on a secondary market. Therefore, the liquidity of ETFs
depends on the adequacy of the secondary market. There can be no assurance that
an ETF's investment objective will be achieved. ETFs based on an index may not
replicate and maintain exactly the composition and relative weightings of
securities in the index. ETFs are subject to the risks of investing in the
underlying securities. The Fund, as a holder of the securities of the ETF, will
bear its pro rata portion of the ETF's expenses, including advisory fees. These
expenses are in addition to the direct expenses of the Fund's own operations.

ZERO COUPON SECURITIES

The securities in which the Fund invests may include zero coupon
securities, which are debt obligations that are issued or purchased at a
significant discount from face value. The discount approximates the total amount
of interest the security will accrue and compound over the period until maturity
or the particular interest payment date at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon securities do
not require the periodic payment of interest. These investments benefit the
issuer by mitigating its need for cash to meet debt service but generally
require a higher rate of return to attract investors who are willing to defer
receipt of cash. These investments may experience greater volatility in market
value than securities that make regular payments of interest. The Fund accrues
income on these investments for tax and accounting purposes, which is
distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
the Fund's distribution obligations, in which case the Fund will forgo the
purchase of additional income producing assets with these funds.

STRATEGIC TRANSACTIONS

In addition to the credit default swaps and Senior Loan bond derivatives
discussed above the Fund may, but is not required to, use various strategic
transactions described below to earn income, facilitate portfolio management and
mitigate risks. Such strategic transactions are generally accepted under modern
portfolio management and are regularly used by many mutual funds and other
institutional investors. Although the Subadviser seeks to use the practices to
further the Fund's investment objectives, no assurance can be given that these
practices will achieve this result. While the Fund reserves the ability to use
these strategic transactions, the Subadviser does not anticipate that strategic
transactions other than credit default swaps and Senior Loan bond derivatives
will initially be a significant part of the Fund's investment approach. With
changes in the market or the Subadviser's strategy, it is possible that these
instruments may be a more significant part of the Fund's investment approach in
the future.

The Fund may purchase and sell derivative instruments such as
exchange-listed and over-the-counter put and call options on securities,
financial futures, equity, fixed-income and interest rate indices, and other
financial instruments, purchase and sell financial futures contracts and options
thereon, enter into various interest rate transactions such as swaps, caps,
floors or collars and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps or options on
currency or currency futures or credit transactions and credit default swaps.
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 seek to protect against possible
adverse changes in the market value of Senior Loans or other securities held in
or to be purchased for the Fund's portfolio, protect the value of the Fund's
portfolio, facilitate the sale of certain securities for investment purposes,
manage the effective interest rate exposure of the Fund, protect against changes
in currency exchange rates, manage the effective maturity or duration of the
Fund's portfolio, or establish positions in the derivatives markets as a
temporary substitute for purchasing or selling particular securities.

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
instruments. Furthermore, the ability to use successfully Strategic Transactions
depends on the Subadviser'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. The use of currency transactions can result in the Fund incurring losses
as a result of the imposition of exchange controls, suspension of settlements or
the inability of the Fund to deliver or receive a specified currency.
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.

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

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with broker-dealers, member
banks of the Federal Reserve System and other financial institutions. Repurchase
agreements are arrangements under

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

LENDING OF PORTFOLIO SECURITIES

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

As with other extensions of credit, there are risks of delay in recovery
or even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund will lend portfolio securities only to firms that
have been approved in advance by the Board of Trustees, which will monitor the
creditworthiness of any such firms.

PORTFOLIO TURNOVER

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

LEVERAGE

The Fund may use leverage through the issuance of preferred shares. The
Fund currently anticipates issuing preferred shares with an aggregate
liquidation preference representing approximately 33 1/3% of the Fund's total
assets immediately after such issuance; however, in the future, the Fund may
increase or decrease from time to time based on the degree of leverage used by
the Fund. The Fund is also authorized to borrow or issue debt securities for
leveraging purposes up to such limitation and in excess of such limit for
temporary purposes, such as the settlement of transactions. The Fund generally
will not issue preferred shares or borrow unless the Adviser expects that the
Fund will achieve a greater total return as a result of such leverage. The Fund
also may borrow money as a temporary measure for

extraordinary or emergency purposes, including the payment of dividends and the
settlement of securities transactions which otherwise might require untimely
dispositions of the Fund's holdings. When the Fund leverages its assets, the
fees paid to the Adviser for investment advisory and management services will be
higher than if the Fund did not borrow because the Adviser's fees are calculated
based on the Fund's total managed assets, including the proceeds of the issuance
of preferred shares or any outstanding borrowings. To the extent that leveraging
the Fund increases the portion of the Fund's expenses that may be paid by the
Fund under the Adviser's expense limitation, the Adviser may have an incentive
to incur leverage. Consequently, the Fund and the Adviser may have differing
interests in determining whether to leverage the Fund's assets. The Board of
Trustees will monitor this potential conflict. The Board of Trustees intends to
monitor the spread between the dividend yield on any preferred shares and the
total return on the Fund's portfolio. If in the future that spread narrows
materially, the Board of Trustees intends to evaluate whether employing
preferred shares as a means of leverage remains in the best interest of the
holders of the common shares.

The Fund's use of leverage is premised upon the expectation that the
Fund's preferred share dividends or borrowing costs will be lower than the total
return the Fund achieves on its investments with the proceeds of the issuance of
preferred shares or borrowing. Such difference in return may result from the
Fund's higher credit rating. The fees and expenses attributed to leverage will
be disproportionately borne by the holders of common shares, who will bear all
offering expenses and any increase in the management fees pertaining to
leverage. However, the holders of common shares will be the beneficiaries of any
incremental return. Should the differential between the return on the underlying
assets and costs of leverage narrow, the incremental "pick up" will be reduced.
Furthermore, if long-term rates rise or the Fund otherwise incurs losses on its
investments, the Fund's net assets attributable to its common shares will
reflect the decline in the value of portfolio holdings resulting therefrom.

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

- the likelihood of greater volatility of the net asset value and market
price of and distributions on and dividends on the Fund's common
shares;

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

- increased operating costs, which are borne entirely by the Fund's
common shareholders and which may reduce the total return on the
Fund's common shares; and

- the potential for a decline in the value of an investment acquired
with leverage, while the Fund's obligations as a result of such
leverage remain fixed.

To the extent the income or capital appreciation derived from securities
purchased with funds received from leverage exceeds the cost of leverage, the
Fund's return will be greater than if leverage had not been used. Conversely, if
the income or capital appreciation from the securities purchased with such funds
is not sufficient to cover the cost of leverage or if the Fund incurs capital
losses, the Fund's return will be less than if leverage had not been used, and
therefore the amount available for distribution to shareholders as dividends and
other distributions will be reduced or potentially eliminated. Subject to review
by the Board of Trustees, the Adviser may determine to maintain the Fund's
leveraged position if it expects that the long-term benefits to the Fund's
shareholders of maintaining the leveraged position will outweigh the current
reduced return. Capital raised through the issuance of preferred shares or
borrowing will be subject to dividend payments or interest costs that may or may
not exceed the income and appreciation on the assets purchased. The issuance of
additional classes of preferred shares involves offering expenses and other
costs and may limit the Fund's freedom

to pay dividends on common shares or to engage in other activities. The Fund
also may be required to maintain minimum average balances in connection with
borrowings or to pay a commitment or other fee to maintain a line of credit;
either of these requirements will increase the cost of borrowing over the stated
interest rate.

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

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

Whether and to the extent that the Fund employs leverage will depend on
many factors, the most important of which are investment outlook, market
conditions and interest rates. Successful use of a leveraging strategy depends
on the Adviser's ability to predict correctly interest rates and market
movements. There is no assurance that a leveraging strategy will be successful
during any period in which it is employed.

Assuming the Fund issues preferred shares with a liquidation preference
equal to approximately 33 1/3% of the Fund's total assets and an annual dividend
rate of 2.03% of such liquidation preference, the Fund would need to achieve an
annual return (net of expenses) on its total assets of .68% to cover such
dividend payments on the preferred shares.

The following table illustrates the hypothetical effect on the return to a
holder of the Fund's common shares of the leverage obtained by issuing preferred
shares with a liquidation value equal to

33 1/3% of the Fund's total capital, assuming hypothetical annual returns of the
Fund's portfolio of minus 10% to plus 10%. As the table shows, leverage
generally increases the return to shareholders when portfolio return is positive
or greater than the cost of leverage and decreases the return when the portfolio
return is negative or less than the cost of leverage. The figures appearing in
the table are hypothetical and actual returns may be greater or less than those
appearing in the table.

Assumed Portfolio Return (Net of Expenses)..... (10.00)% (5.00)% .00% 5.00% 10.00%
Corresponding Common Share Return.............. (15.96)% (8.49)% (1.02)% 6.46% 13.93%

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

RISK FACTORS

GENERAL

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

NO OPERATING HISTORY

The Fund is a newly organized, non-diversified, closed-end management
investment company and has no operating history or history of public trading.

MARKET DISCOUNT RISK

Shares of closed-end funds frequently trade at a price lower than their
net asset value. This is commonly referred to as "trading at a discount." This
characteristic of shares of closed-end funds is a risk separate and distinct
from the risk that the Fund's net asset value may decrease. Both long and
short-term investors, including investors who sell their shares within a
relatively short period after completion of the initial public offering, will be
exposed to this risk. Accordingly, the Fund is designed primarily for long-term
investors and should not be considered a vehicle for trading purposes. Following
the offering, the net asset value of the Fund will be reduced by the sales load
and the amount of offering expenses paid by the Fund.

NON-DIVERSIFIED STATUS RISK

The Fund is classified as "non-diversified" under the 1940 Act. As a
result, it can invest a greater portion of its assets in obligations of a single
issuer than a "diversified" fund. The Fund will therefore be more susceptible
than a diversified fund to being adversely affected by any single corporate,
economic, political or regulatory occurrence. The Fund intends to diversify its
investments to the extent necessary to qualify, and maintain its status, as a
regulated investment company under U.S. federal income tax laws. See "Federal
Income Tax Matters."

INTEREST RATE RISK

The Fund's net asset value will usually change in response to interest
rate fluctuations. When interest rates decline, the value of fixed-rate
securities already held by the Fund can be expected to rise. Conversely, when
interest rates rise, the value of existing fixed-rate portfolio securities can
be expected to decline. Because market interest rates are currently near their
lowest levels in many years, there is a greater than normal risk that the Fund's
portfolio will decline in value due to rising interest rates. The Fund will
primarily invest in floating rate obligations, including Senior Loans, the rate
on which periodically adjusts with changes in interest rates.

Until the interest rates on the floating rate obligations in the Fund's
portfolio reset, the Fund's income also would likely be affected adversely when
prevailing short term interest rates increase and the Fund is using leverage.

To the extent that changes in market rates of interest are reflected not
in a change to a base rate such as LIBOR but in a change in the spread over the
base rate which is payable on loans of the type and quality in which the Fund
invests, the Fund's net asset value could be adversely affected. This is because
the value of a Senior Loan asset in the Fund is partially a function of whether
it is paying what the market perceives to be a market rate of interest for the
particular loan, given its individual credit and other characteristics. However,
unlike changes in market rates of interest for which there is generally only a
temporary lag before the portfolio reflects those changes, changes in a loan's
value based on changes in the market spread on loans in the Fund's portfolio may
be of longer duration.

REINVESTMENT RISK

Income from the Fund's portfolio will decline if the Fund invests the
proceeds on repayment or sale of Senior Loans or other obligations into lower
yielding instruments or Senior Loans with a lower spread over the base lending
rate. A decline in income could affect the common shares' distribution rate and
their overall return.

SENIOR LOANS RISK

The risks associated with Senior Loans are similar to the risks of junk
bonds, although Senior Loans are typically senior and secured in contrast to
below investment grade securities, commonly referred to as "junk bonds," which
are often subordinated and unsecured.

The Fund's investments in Senior Loans are typically below investment
grade and are considered speculative because of the credit risk of their
issuers. Moreover, any specific collateral used to secure a loan may decline in
value or lose all its value or become illiquid, which would adversely affect the
loan's value. Economic and other events, whether real or perceived, can reduce
the demand for certain Senior Loans or Senior Loans generally, which may reduce
market prices and cause the Fund's net asset value per share to fall. The
frequency and magnitude of such changes cannot be predicted.

Senior Loans and other debt securities are also subject to the risk of
price declines and to increases in prevailing interest rates. Conversely, the
floating rate feature of Senior Loans means the Senior Loans will not generally
experience capital appreciation in a declining interest rate environment.
Declines in interest rate may also increase prepayments of debt obligations and
require the Fund to invest assets at lower yields. No active trading market may
exist for certain Senior Loans, which may impair the ability of the Fund to
realize full value in the event of the need to liquidate such assets. Adverse
market conditions may impair the liquidity of some actively traded Senior Loans.

Although Senior Loans in which the Fund will invest will often be secured
by collateral, there can be no assurance that liquidation of such collateral
would satisfy the borrower's obligation in the event of a default or that such
collateral could be readily liquidated. In the event of bankruptcy of a

borrower, the Fund could experience delays or limitations in its ability to
realize the benefits of any collateral securing a Senior Loan. The Fund may also
invest in Senior Loans that are not secured.

CREDIT RISK AND JUNK BOND RISK

Credit risk is the risk that an issuer of Senior Loans and other debt
obligations will become unable to meet its obligation to make interest and
principal payments.

The Fund may invest all or a substantial portion of its assets in
securities that are rated below investment grade (commonly referred to as "junk
bonds" or "high yield securities"), that is, rated Ba or below by Moody's or BB
or lower by S&P, or unrated securities determined by the Subadviser to be of
comparable credit quality. Investment in securities of below-investment grade
quality involves substantial risk of loss. "Junk bonds" are considered
predominantly speculative with respect to the issuer's ability to pay interest
and principal and are susceptible to default or decline in market value due to
adverse economic and business developments. The market values for high yield
fixed income securities tend to be more volatile, and these securities are less
liquid, than investment grade debt securities. For these reasons, an investment
in the Fund is subject to the following specific risks:

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

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

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

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

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 high yield
securities outstanding has proliferated in the past decade as an increasing
number of issuers have used high yield securities for corporate financing. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
If the national economy enters into a recessionary phase during 2005, or
interest rates rise sharply, increasing the interest cost on variable rate
instruments and negatively impacting economic activity, the number of defaults
by high yield issuers is likely to increase. 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 net asset value and the market value of its common shares.
In addition, the Fund may incur additional expenses to the extent it is required
to seek recovery upon a default in payment of principal or interest on its
portfolio holdings. In certain circumstances, the Fund may be required to
foreclose on an issuer's assets and take possession of its property or
operations. In such circumstances, the Fund would incur additional costs in
disposing of such assets and potential liabilities from operating any business
acquired.

The secondary market for high yield securities may not be as liquid as the
secondary market for more highly rated securities, a factor that 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 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 instruments may become illiquid. As a result, the Fund could
find it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Prices realized upon the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices used in calculating the Fund's
net asset value.

Issuers of such high yield securities often are highly leveraged and may
not have available to them more traditional methods of financing. Therefore, the
risk associated with acquiring the securities of such issuers generally is
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience financial stress.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
the issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing. The risk of loss from default by the
issuer is significantly greater for the holders of high yield securities (other
than Senior Loans) because such securities are generally unsecured and are often
subordinated to other creditors of the issuer. Prices and yields of high yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high yield securities may adversely affect the Fund's net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds,
rather than income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.

ISSUER RISK

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

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 thereon can decline. In addition, during any periods of rising
inflation, dividend rates of preferred shares would likely increase, which would
tend to further reduce returns to common shareholders.

CONVERTIBLE SECURITIES RISK

Convertible securities generally offer lower interest or dividend yields
than non-convertible securities of similar quality. As with all fixed income
securities, the market values of convertible securities tend to decline as
interest rates increase and, conversely, to increase as interest rates decline.
However, when the market price of the common stock underlying a convertible
security exceeds the conversion price, the convertible security tends to reflect
the market price of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis and thus may not decline in price to the same
extent as the underlying common stock. Convertible securities rank senior to
common stocks in an issuer's capital structure.

SPECIAL RISKS RELATED TO PREFERRED SECURITIES

There are special risks associated with the Fund's investments in
preferred securities:

- Limited Voting Rights. Generally, holders of preferred securities
have no voting rights with respect to the issuing company unless
preferred dividends have been in arrears for a specified number of
periods, at which time the preferred security holders may elect a
number of directors to the issuer's board. Generally, once the issuer
pays all the arrearages, the preferred security holders no longer have
voting rights.

- Special Redemption Rights. In certain varying circumstances, an
issuer of preferred securities may redeem the securities after a
specified date. For instance, for certain types of preferred
securities, a redemption may be triggered by a change in federal
income tax or securities laws. As with call provisions, a special
redemption by the issuer may negatively impact the return of the
security held by the Fund.

- Deferral. Preferred securities may include provisions that permit the
issuer, at its discretion, to defer distributions for a stated period
without any adverse consequences to the issuer. If the Fund owns a
preferred security that is deferring its distributions, the Fund may
be required to report income for federal income tax purposes although
it has not yet received such income in cash.

- Subordination. Preferred securities are subordinated to bonds and
other debt instruments in a company's capital structure in terms of
priority to corporate income and liquidation payments and therefore
will be subject to greater credit risk than those debt instruments.

- Liquidity. Preferred securities may be substantially less liquid than
many other securities, such as common stocks or U.S. government
securities.

FOREIGN SECURITIES RISK

The Fund's investments in non-U.S. issuers may involve unique risks
compared to investing in securities of U.S. issuers. These risks are more
pronounced to the extent that the Fund invests a significant portion of its
non-U.S. investment in one region or in the securities of emerging market
issuers. These risks may include:

- Less information about non-U.S. issuers or markets may be available
due to less rigorous disclosure, accounting standards or regulatory
practices.

- Many non-U.S. markets are smaller, less liquid and more volatile. In a
changing market, the Subadviser may not be able to sell the Fund's
portfolio securities at times, in amounts and at prices it considers
reasonable.

- Currency exchange rates or controls may adversely affect the value of
the Fund's investments.

- The economies of non-U.S. countries may grow at slower rates than
expected or may experience a downturn or recession.

- Withholdings and other non-U.S. taxes may decrease the Fund's return.

There may be less publicly available information about non-U.S. markets
and issuers than is available with respect to U.S. securities and issuers.
Non-U.S. companies generally are not subject to accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies. The trading markets for most non-U.S. securities
are generally less liquid and subject to greater price volatility than the
markets for comparable securities in the U.S. The

markets for securities in certain emerging markets are in the earliest stages of
their development. Even the markets for relatively widely traded securities in
certain non-U.S. markets, including emerging market countries, may not be able
to absorb, without price disruptions, a significant increase in trading volume
or trades of a size customarily undertaken by institutional investors in the
U.S. Additionally, market making and arbitrage activities are generally less
extensive in such markets, which may contribute to increased volatility and
reduced liquidity.

Economies and social and political climates in individual countries may
differ unfavorably from the U.S. 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 substantial, and in some
cases extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, very
negative effects on the economies and securities markets of certain emerging
countries. Unanticipated political or social developments may also affect the
values of the Fund's investments and the availability to the Fund of additional
investments in such countries.

CURRENCY RISK

A portion of the Fund's assets may be quoted or denominated in non-U.S.
currencies. These securities may be adversely affected by fluctuations in
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 quoted or denominated. 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 quoted or denominated in another currency will increase or decrease
in response to changes in the value of such currency in relation to the U.S.
dollar.

SOVEREIGN DEBT RISK

An investment in debt obligations of non-U.S. governments and their
political subdivisions ("sovereign debt") involves special risks that are not
present in corporate debt obligations. The non-U.S. issuer of the sovereign 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. During periods of economic
uncertainty, the market prices of sovereign debt may be more volatile than
prices of debt obligations of U.S. issuers. In the past, certain non-U.S.
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debt.

A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient non-U.S. exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward its principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from non-U.S. governments, multilateral agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.

LIQUIDITY RISK

Some Senior Loans are not readily marketable and may be subject to
restrictions on resale. Senior Loans generally are not listed on any national
securities exchange or automated quotation system and no active trading market
may exist for some of the Senior Loans in which the Fund will invest. Where a
secondary market exists, such market for some Senior Loans may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods. Senior Loans that are illiquid may be more difficult to value or may
impair the Fund's ability to realize the full value of its assets in the event
of a voluntary or involuntary liquidation of such assets and thus may cause a
decline in the Fund's net asset value. The Fund has no limitation on the amount
of its assets that may be invested in securities which are not readily
marketable or are subject to restrictions on resale. In certain situations, the
Fund could find it more difficult to sell such securities at desirable times
and/or prices. Most Senior Loans are valued by an independent pricing service
that uses market quotations of investors and traders in Senior Loans. In other
cases, Senior Loans are valued at their fair value in accordance with procedures
approved by the Board of Trustees.

DERIVATIVES RISK

Strategic Transactions, such as the use of derivatives, have risks,
including the imperfect correlation between the value of such instruments and
the underlying assets, the possible default of the other party to the
transaction or illiquidity of the derivative instruments. Furthermore, the
ability to successfully use Strategic Transactions depends on the Subadviser'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 are not otherwise available to the Fund for
investment purposes. Although the Subadviser does not anticipate that Strategic
Transactions will represent a significant component of the Fund's investment
strategy, the Fund does not have a policy limiting the portion of the Fund's
assets that may be subject to such transactions or invested in such instruments.

There are several risks associated with the use of futures contracts and
futures options. A 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, futures options and the 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
Subadviser's ability to predict correctly changes in interest rate relationships
or other factors.

Under an interest rate swap or cap agreement (whether entered into in
connection with any preferred shares or other forms of leverage or for portfolio
management purposes), the payment obligations, if any, of the Fund and the
counterparty are netted against each other, resulting in a net payment due
either from the Fund or the counterparty. 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 short-term interest rates at that
point in time, a default by a counterparty could

negatively impact the Fund's overall performance. 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
Fund's performance. If the Fund fails to maintain a required 200% asset coverage
of the liquidation value of the outstanding preferred shares or if the Fund
loses its expected rating on the preferred shares or fails to maintain other
covenants, the Fund may be required to redeem some or all of the preferred
shares. Similarly, the Fund could be required to prepay the principal amount of
any borrowings. 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 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 the state of
interest rates in general, the Fund's use of interest rate swaps or caps could
enhance or harm the Fund's overall performance. 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 Fund's net asset value. 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 the Fund's 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 the Fund's net earnings. Buying
interest rate caps could enhance the Fund's performance by providing a maximum
leverage expense. Buying interest rate caps could also decrease the Fund's net
earnings 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.

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 and any termination payments
potentially owed by the Fund. If the counterparty defaults, the Fund would not
be able to use the anticipated net receipts under the swap or cap to offset the
dividend payments on the Fund's preferred shares or interest payments on
borrowings. 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 short-term interest rates at that point in time, such a
default could negatively impact the Fund's performance.

LEVERAGE RISK

- the likelihood of greater volatility of net asset value and market
price of and distributions on the Fund's common shares;

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

- increased operating costs, which are borne entirely by the Fund's
common shares and which may reduce the total return on the Fund's
common shares; and

- the potential for a decline in the value of an investment acquired
with leverage, while the Fund's obligations as a result of such
leverage remain fixed.

To the extent the income or capital appreciation derived from securities
purchased with funds received from leverage exceed the cost of leverage, the
Fund's return will be greater than if leverage had not been used. Conversely, if
the income or capital appreciation from the securities purchased with such funds
is not sufficient to cover the cost of leverage or if the Fund's assets decline
in value, the return of the Fund will be less than if leverage had not been
used, and therefore the amount available for distribution to shareholders as
dividends and other distributions will be reduced or potentially eliminated.

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

RISKS OF CONFLICTING INTERESTS OF HOLDERS OF COMMON AND PREFERRED SHARES

Although the Fund's common and preferred shares both represent an interest
in the same underlying pool of assets, the interests of the holders of common
shares and any preferred shares will differ. The preferred shares will earn a
dividend at a fixed rate or a rate that is determined by a periodic auction
process. The preferred shares will be entitled to that dividend rate, and no
more, regardless of the income of the Fund. The holders of the common shares
will bear all of the expenses of the Fund, including the offering costs of the
preferred shares. In order to obtain a favorable rate or rating on the preferred
shares, the Fund is expected to agree to certain limitations on its investments
and activities, including the requirement to maintain certain coverage ratios of
the liquidation preference on the preferred shares to a discounted value of the
Fund's assets, diversification requirements and limitations on the use of
certain investment instruments. These limitations are intended to protect the
interests of the holders of the preferred shares and not the holders of the
common shares. If the Fund does not comply with these limitations, the Fund
would be required to redeem some or all of the preferred shares at par before
any dividend or other payment is made to the holders of the common shares. In
addition, the Fund will not be able to pay dividends on the common shares at any
time when a dividend payment on the preferred shares is past due or the Fund is
obligated to redeem preferred shares but has not yet set aside assets for such
purpose. The holders of the preferred shares will be entitled under the 1940 Act
to elect two members of the Board of Trustees and to elect a majority of the
Board of Trustees if the Fund has defaulted on its obligations on the preferred
shares and such default has continued for a period of two or more years. The
holders of preferred shares will also be entitled to vote as a separate class on
certain matters, including the conversion of the Fund to an open-end investment
company, which may prevent the common shareholders from controlling the Fund as
to such matters even though the common shares represent a majority of the
economic interests in the Fund.

REGULATORY RISK

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

MARKET DISRUPTION RISK

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

ANTI-TAKEOVER PROVISIONS RISK

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

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISER AND SUBADVISER

The Fund has contracted with the Adviser to act as its investment adviser.
The Adviser is an indirect subsidiary of UniCredito. The Adviser is part of the
global asset management group providing investment management and financial
services to mutual funds and other clients. As of October 31, 2004, assets under
management by the Adviser and its affiliates were approximately $159 billion
worldwide, including over $36 billion in assets under management by the Adviser.
Certain Trustees or officers of the Fund are also directors and/or officers of
certain of UniCredito's subsidiaries, including the Adviser. The address of the
Adviser is 60 State Street, Boston, Massachusetts 02109. The Adviser has engaged
Highland Capital Management, L.P. to act as the Fund's investment subadviser to
manage the Fund's assets. The Subadviser is a limited partnership 100% owned by
its employees. The

Subadviser has one general partner, Strand Advisors, Inc. Strand Advisors, Inc.
is a Delaware corporation. As of September 30, 2004, the Subadviser had
approximately $10 billion in assets under management. The address of the
Subadviser is 13455 Noel Road, Suite 1300, Dallas, Texas 75240. The Adviser
supervises the Subadviser's investments on behalf of the Fund, supervises the
Fund's compliance program and provides for the general management of the
business affairs of the Fund.

In its capacity as subadviser to the Fund, the Subadviser is responsible
for the selection and on-going monitoring of the assets in the Fund's investment
portfolio. The Subadviser provides the Fund with investment research, advice and
supervision and furnishes the Fund with an investment program consistent with
the Fund's investment objectives and principal investment strategies, subject to
the supervision of the Adviser and Fund's Board of Trustees. The Subadviser,
under the supervision of the Adviser, is responsible for the day-to-day
management of the Fund's portfolio. Except as otherwise provided under
"Subadvisory Agreement" below, the Adviser also maintains books and records with
respect to the Fund's securities transactions, and reports to the Board of
Trustees on the Fund's investments and performance. The Subadviser's expertise
in managing portfolios of Senior Loans and structured finance assets is
particularly suited to the Fund's focus on Senior Loans. The Subadviser has
experience in managing portfolios of syndicated loans, high yield bonds and
distressed investments.

ADVISORY AGREEMENT

Under the terms of the advisory agreement (the "Advisory Agreement"), the
Fund will pay to the Adviser monthly, as compensation for the services rendered
and expenses paid by it, a fee equal on an annual basis to .70% of the Fund's
average daily managed assets. "Managed assets" means the total assets of the
Fund (including any assets attributable to financial leverage that may be
outstanding) minus the sum of the accrued liabilities (other than liabilities
representing financial leverage). The liquidation preference on any preferred
shares is not a liability. Because the fee paid to the Adviser is determined on
the basis of the Fund's managed assets, the Adviser's interest in determining
whether to leverage the Fund may differ from the interests of the Fund. The
Board of Trustees intends to monitor the spread between the dividend yield on
any preferred shares and the total return on the Fund's portfolio. If in the
future that spread narrows materially, the Board of Trustees intends to evaluate
whether employing preferred shares as a means of leverage remains in the best
interest of the holders of the common shares. The Fund's average daily managed
assets are determined for the purpose of calculating the management fee by
taking the average of all of the daily determinations of total assets during a
given calendar month. The fees are payable for each calendar month as soon as
practicable after the end of that month.

Under the terms of the Advisory Agreement, the Adviser pays all of the
operating expenses, including executive salaries and the rental of office space,
relating to its services for the Fund, with the exception of the following,
which are to be paid by the Fund: (a) charges and expenses for fund accounting,
pricing and appraisal services and related overhead, including, to the extent
such services are performed by personnel of the Adviser or its affiliates,
office space and facilities and personnel compensation, training and benefits;
(b) the charges and expenses of auditors; (c) the charges and expenses of any
administrator, custodian, transfer agent, plan agent, dividend disbursing agent
and registrar appointed by the Fund; (d) issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party; (e) insurance premiums, interest charges, expenses in connection with any
preferred shares, dues and fees for membership in trade associations and all
taxes and corporate fees payable by the Fund to federal, state or other
governmental agencies; (f) fees and expenses involved in registering and
maintaining registrations of the Fund and/or its shares with federal regulatory
agencies, state or blue sky securities agencies and foreign jurisdictions,
including the preparation of prospectuses and statements of additional
information for filing with such regulatory

authorities; (g) all expenses of shareholders' and Trustees' meetings and of
preparing, printing and distributing prospectuses, notices, proxy statements and
all reports to shareholders and to governmental agencies; (h) charges and
expenses of legal counsel to the Fund and the Board of Trustees; (i)
compensation of those Trustees of the Fund who are not affiliated with or
interested persons of the Adviser or the Fund (other than as Trustees); (j) the
cost of preparing and printing share certificates; (k) interest on borrowed
money, if any; (l) the fees and other expenses of listing the Fund's shares on
the New York Stock Exchange or any other national stock exchange; and (m) any
other expense that the Fund, the Adviser or any other agent of the Fund may
incur (I) as a result of a change in the law or regulations, (II) as a result of
a mandate from the Board of Trustees with associated costs of a character
generally assumed by similarly structured investment companies or (III) that is
similar to the expenses listed above, and that is approved by the Board of
Trustees (including a majority of the Trustees who are not affiliates of the
Adviser) as being an appropriate expense of the Fund. In addition, the Fund will
pay all brokers' and underwriting commissions or other fees chargeable to the
Fund in connection with securities transactions to which the Fund is a party or
the origination of any Senior Loan in which the Fund invests.

The Adviser has agreed for the first three years of the Fund's investment
operations to limit the Fund's total annual expenses (excluding offering costs
for common and preferred shares, interest expense, the cost of defending or
prosecuting any claim or litigation to which the Fund is a party (together with
any amount in judgment or settlement), indemnification expenses or taxes
incurred due to the failure of the Fund to qualify as a regulated investment
company under the Code or any other nonrecurring or non-operating expenses) to
.95% of the Fund's average daily managed assets. The dividend on any preferred
shares is not an expense.

SUBADVISORY AGREEMENT

Under the terms of the subadvisory agreement (the "Subadvisory Agreement")
between the Adviser and the Subadviser, the Subadviser will, among other things,
(a) regularly provide the Fund with investment research, advice and supervision
and furnish continuously an investment program for the Fund; (b) subject to the
supervision of the Adviser, manage the investment and reinvestment of the Fund's
assets; (c) comply with the provisions of the Fund's Agreement and Declaration
of Trust and By-Laws, the 1940 Act, the Investment Advisers Act of 1940, as
amended and the investment objectives, policies and restrictions of the Fund;
(d) not take any action to cause the Fund to fail to comply with the
requirements of Subchapter M of the Code for qualification as a regulated
investment company; (e) comply with any policies, guidelines, procedures and
instructions as the Adviser may from time to time establish; (f) be responsible
for voting proxies and acting on other corporate actions if instructed to do so
by the Board of Trustees or the Adviser; (g) maintain separate books and
detailed records of all matters pertaining to the portion of the Fund's assets
advised by the Subadviser required by Rule 31a-1 under the 1940 Act relating to
its responsibilities provided under the Subadvisory Agreement with respect to
the Fund; and (h) furnish reports to the Trustees and the Adviser.

Under the terms of the Subadvisory Agreement, for its services the
Subadviser is entitled to a subadvisory fee from the Adviser at an annual rate
of .35% the Fund's average daily managed assets. The fee will be paid monthly in
arrears. The Fund does not pay a fee to the Subadviser.

ADMINISTRATION AGREEMENT

Fund will pay the Adviser a monthly fee equal to .07% of the Fund's average
daily managed assets up to $500 million and .03% for average daily managed
assets in excess of $500 million. The Adviser, and not the Fund, is responsible
for paying the fees of Princeton Administrators, L.P. Princeton Administrators,
L.P. is affiliated with Merrill, Lynch & Co., one of the underwriters of the
Fund's offering of common shares.

Pursuant to a separate agreement, the Fund may compensate the Adviser for
providing certain legal and accounting services.

PORTFOLIO MANAGER

Day-to-day management of the Fund's portfolio is the responsibility of
Mark Okada and Joe Dougherty.

Mark Okada -- Mr. Okada has over 19 years of experience in the leveraged
finance market. He is responsible for overseeing the Subadviser's investment
activities for its various funds. Formerly, Mr. Okada served as Manager of Fixed
Income for a subsidiary of Protective Life Insurance Company ("Protective") that
managed Protective's portfolio supporting its guaranteed investment contracts
from 1990 to 1993. He was primarily responsible for the bank loan portfolio and
other risk assets. Protective was one of the first non-bank entrants into the
syndicated loan market. From 1986 to 1990 he served as Vice-President, managing
over $1 billion of high yield bank loans, for Hibernia National Bank. Mr. Okada
is an honors graduate of the University of California Los Angeles with degrees
in Economics and Psychology. He completed his credit training at Mitsui. Mr.
Okada is a Chartered Financial Analyst.

Joe Dougherty -- Mr. Dougherty is a Senior Portfolio Manager at the
Subadviser. Mr. Dougherty heads the Subadviser's retail funds effort and serves
as Senior Vice President of the Subadviser's two NYSE-listed bond funds, which
invest in both investment grade and high yield debt. In this capacity, Mr.
Dougherty oversees investment decisions for the retail funds, alongside several
other Portfolio Managers, and manages the team dedicated to their day-to-day
administration. Prior to his current duties, Mr. Dougherty served as Portfolio
Analyst for the Subadviser from 1998 to 1999. As a Portfolio Analyst, Mr.
Dougherty also helped follow companies within the chemical, retail, supermarket
and restaurant sectors. Prior to joining the Subadviser, Mr. Dougherty served as
an Investment Analyst with Sandera Capital Management from 1997 to 1998.
Formerly, he was a Business Development Manager at Akzo Nobel from 1994 to 1996
and a Senior Accountant at Deloitte and Touche, LLP from 1992 to 1994. He
received a BS in Accounting from Villanova University and an MBA from Southern
Methodist University. Mr. Dougherty is a Chartered Financial Analyst and a
Certified Public Accountant.

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to distribute dividends of all or a portion of its net
investment income monthly to holders of common shares. It is expected that the
Fund will commence paying dividends to holders of common shares within
approximately 90 days of the date of this prospectus. Dividends and
distributions may be payable in the manner determined by the Trustees, including
cash or common shares with the option to receive cash in lieu of the shares. The
Fund may at times in its discretion pay out less than the entire amount of net
investment income earned in any particular period and may at times pay out such
accumulated undistributed income in addition to net investment income earned in
other periods in order to permit the Fund to maintain a more stable level of
distributions. As a result, the dividends paid by the Fund to holders of common
shares for any particular period may be more or less than the amount of net
investment income earned by the Fund during such period. In order to

maintain a stable dividend rate on the common shares, the Fund may also make
distributions that constitute a return of capital. The Fund is not required to
maintain a stable level of distributions, or distributions at any particular
rate, to common shareholders. For federal income tax purposes, in order to
obtain the favorable tax treatment afforded to a regulated investment company,
the Fund is required, and intends, to distribute all or substantially all of its
net investment income for each year. All or substantially all net realized
capital gains, if any, also will be distributed to the Fund's shareholders at
least annually.

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

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

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

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

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

AUTOMATIC DIVIDEND REINVESTMENT PLAN

Pursuant to the Fund's automatic dividend reinvestment plan (the "Plan"),
unless a shareholder is ineligible or elects otherwise, all dividend and capital
gains distributions are automatically reinvested by Mellon, as agent for
shareholders in administering the Plan (the "Plan Agent"), in additional

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

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

In the event of a market discount on the payment date for any dividend or
distribution, the Plan Agent has until the last business day before the next
date on which the shares trade on an "ex-dividend" basis, or in no event more
than 30 days after the dividend payment date (last purchase date), to invest the
dividend amount in common shares acquired in open-market purchases. It is
contemplated that the Fund will pay monthly income dividends. Therefore, the
period during which open-market purchases can be made will exist only from the
payment date on the dividend through the date before the next ex-dividend date,
which typically will be approximately ten days. If, before the Plan Agent has
completed its open-market purchases, the market price of a common share exceeds
the net asset value per share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases and will
invest the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date.

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

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

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

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

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

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

All correspondence concerning the Plan should be directed to the Plan
Agent at 85 Challenger Road, Ridgefield, New Jersey 07600.

CLOSED-END FUND STRUCTURE

The Fund is a newly organized, non-diversified, closed-end management
investment company (commonly referred to as a closed-end fund). Closed-end funds
differ from open-end funds (which are generally referred to as mutual funds) in
that closed-end funds generally list their shares for trading on a stock
exchange and do not redeem their shares at the request of the shareholder. This
means that if you wish to sell your shares of a closed-end fund you must trade
them on the market like any other stock at the prevailing market price at that
time. In a mutual fund, if the shareholder wishes to sell shares of the fund,
the mutual fund will redeem or buy back the shares at net asset value. Also,
mutual funds generally offer new shares on a continuous basis to new investors,
and closed-end funds generally

do not. The continuous inflows and outflows of assets in a mutual fund can make
it difficult to manage the fund's investments. By comparison, closed-end funds
are generally able to stay more fully invested in securities that are consistent
with their investment objectives and also have greater flexibility to make
certain types of investments and to use certain investment strategies, such as
financial leverage and investments in illiquid securities.

Shares of closed-end funds frequently trade at a discount to their net
asset value per share. Common shares of closed-end investment companies like the
Fund have during some periods traded at prices higher than their net asset value
(at a "premium") and during other periods have traded at prices lower than their
net asset value (at a "discount"). This is in part because the market price
reflects the dividend yield on the common shares. When the yield on the net
asset value per share is higher than yields generally available in the market
for comparable securities, the market price will tend to reflect this by trading
higher than the net asset value per share to adjust the yield to a comparable
market rate. To the extent the common shares do trade at a discount, the Fund's
Board of Trustees may from time to time engage in open market repurchases or
tender offers for shares after balancing the benefit to shareholders of the
increase in the net asset value per share resulting from such purchases against
the decrease in the assets of the Fund and potential increase in the expense
ratio of expenses to assets of the Fund and consequent reduction in yield. The
Board of Trustees believes that in addition to the beneficial effects described
above, any such purchases or tender offers may result in the temporary narrowing
of any discount but will not have any long-term effect on the level of any
discount.

POSSIBLE CONVERSION TO OPEN-END STATUS

The Fund may be converted to an open-end investment company at any time by
a vote of the outstanding shares. See "Certain Provisions of the Agreement and
Declaration of Trust and By-Laws" for a discussion of voting requirements
applicable to conversion of the Fund to an open-end investment company. If the
Fund converted to an open-end investment company, it would be required to redeem
all outstanding preferred shares (requiring in turn that it liquidate a portion
of its investment portfolio), and the Fund's common shares would no longer be
listed on the New York Stock Exchange. Conversion to open-end status could also
require the Fund to modify certain investment restrictions and policies.
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
permitted under the 1940 Act) at their net asset value, less such redemption
charge, 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 investment companies typically engage in a continuous
offering of their shares. Open-end investment companies are thus subject to
periodic asset in-flows and out-flows that can complicate portfolio management.
The Board of Trustees may at any time propose conversion of the Fund to open-end
status, depending upon its judgment regarding the advisability of such action in
light of circumstances then prevailing. Based upon attempts by other closed-end
funds to reduce the discount, the Board of Trustees does not believe that tender
offers or a repurchase of the Fund's shares would have a long-term effect on the
discount. Consequently, if the Board were to authorize the Fund to repurchase,
it is likely to do so only on terms that would increase the Fund's net asset
value per common share. Even if the common shares are trading at a discount,
there can be no assurance that the Board of Trustees will authorize any
repurchase offer, tender offer or other action which might have the effect of
reducing the discount.

FEDERAL INCOME TAX MATTERS

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

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

Unless a shareholder is ineligible to participate or elects otherwise,
distributions will be automatically reinvested in additional common shares of
the Fund pursuant to the Plan. For U.S. federal income tax purposes, such
distributions generally will be taxable whether a shareholder takes them in cash
or they are reinvested pursuant to the Plan in additional shares of the Fund. In
general, assuming the Fund has sufficient current or accumulated earnings and
profits, dividends from investment company taxable income are taxable as
ordinary income and dividends from net capital gain that are designated as
capital gain dividends are taxable as long-term capital gains for U.S. federal
income tax purposes without regard to the length of time the shareholder has
held shares of the Fund. Since the Fund's income is derived primarily from
interest, dividends of the Fund from its investment company taxable income
generally will not constitute "qualified dividend income" for federal income tax
purposes and thus will not be eligible for the favorable federal long-term
capital gain tax rates on qualified dividend income. Capital gain dividends
distributed by the Fund to individual shareholders generally will qualify for
the maximum 15% U.S. federal income tax rate on long-term capital gains. Under
current law, the maximum 15% U.S. federal income tax rate on long-term capital
gains will cease to apply to taxable years beginning after December 31, 2008.

Distributions by the Fund in excess of the Fund's current and accumulated
earnings and profits will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in its shares and any such
amount in excess of that basis will be treated as gain from the sale of shares,
as discussed below. The U.S. federal income tax status of all distributions will
be reported to shareholders annually.

Shareholders receiving a distribution in the form of additional shares
issued by the Fund will be treated for U.S. federal income tax purposes as
receiving a distribution in an amount equal to the amount of cash they would
have received had they elected to receive cash, except when the Fund distributes
newly issued shares, in which case the amount of the distribution will be equal
to the fair market value of the shares received, determined as of the
distribution date. The basis of such shares will equal the amount of the
distribution. The source and U.S. federal income tax status of all distributions
will be reported to shareholders annually, and shareholders receiving
distributions in the form of additional shares of the Fund will receive a report
as to the net asset value of those shares.

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

Sales and other dispositions of the Fund's shares generally are taxable
events for shareholders that are subject to tax. Shareholders should consult
their own tax advisers with reference to their individual circumstances to
determine whether any particular transaction in the Fund's shares is properly
treated as a sale for tax purposes, as the following discussion assumes, and the
tax treatment of any gains or losses recognized in such transactions. In
general, if shares of the Fund are sold, the shareholder will recognize gain or
loss equal to the difference between the amount realized on the sale and the
shareholder's adjusted basis in the shares sold. Such gain or loss generally
will be treated as long-term gain or loss if the shares were held for more than
one year and otherwise generally will be treated as short-term gain or loss. Any
loss recognized by a shareholder upon the sale or other disposition of shares
with a tax holding period of six months or less will be disallowed to the extent
of any exempt-interest dividends paid with respect to such shares, and any
portion of such loss that exceeds the amount disallowed will be treated as a
long-term capital loss to the extent of any amounts

treated as distributions of long-term capital gains with respect to such shares.
Losses on sales or other dispositions of shares may be disallowed under "wash
sale" rules in the event substantially identical shares of the Fund are
purchased (including those made pursuant to reinvestment of dividends and/or
capital gains distributions) within a period of 61 days beginning 30 days before
and ending 30 days after a sale or other disposition of shares. The ability to
otherwise deduct capital losses may be subject to other limitations under the
Code.

The Fund is required in certain circumstances to backup withhold on
reportable payments, including dividends, capital gains distributions, and
proceeds of sales or other dispositions of the Fund's shares paid to certain
holders of the Fund's shares who do not furnish the Fund with their correct
Social Security number or other taxpayer identification number and make certain
other certifications, or who are otherwise subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld from payments made to
a shareholder may be refunded or credited against such shareholder's U.S.
federal income tax liability, if any, provided that the required information is
furnished to the IRS.

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

NET ASSET VALUE

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

The Fund uses an independent pricing service to value most Senior Loans at
their market value. If market quotations for them are not readily available or
are deemed unreliable, or if events occurring after the close of a securities
market and before the Fund values its assets would materially affect net asset
value, the Fund may value Senior Loans at fair value pursuant to procedures
adopted by the Board of Trustees. A Senior Loan that is fair valued may be
valued at a price higher or lower than actual market quotations or the value
determined by other funds using their own fair valuation procedures. The Fund
may, with the approval of the Board of Trustees, implement new fair value
pricing methodologies of Senior Loans in the future, which may result in a
change in the Fund's net asset value per share. The Fund's net asset value per
share will also be affected by fair value pricing decisions and by changes in
the market for Senior Loans. In determining the fair value of a Senior Loan, the
Fund will consider relevant factors, data, and information, such as: (i) the
characteristics of and fundamental analytical data relating to the Senior Loan,
including the cost, size, current interest rate, period until next interest rate
reset, maturity and base lending rate of the Senior Loan, the terms and
conditions of the Senior Loan and any related agreements, and the position of
the Senior Loan in

the borrower's debt structure; (ii) the nature, adequacy and value of the
collateral, including the Fund's rights, remedies and interests with respect to
the collateral; (iii) the creditworthiness of the borrower, based on an
evaluation of its financial condition, financial statements and information
about the borrower's business, cash flows, capital structure and future
prospects; (iv) information relating to the market for the Senior Loan,
including price quotations for and trading in the Senior Loan and interests in
similar Senior Loans and the market environment and investor attitudes towards
the Senior Loan and interests in similar Senior Loans; (v) the experience,
reputation, stability and financial condition of the agent and any intermediate
participants in the Senior Loan; and (vi) general economic and market conditions
affecting the fair value of the Senior Loan.

With respect to other securities, the Fund generally values securities
using closing market prices or readily available market quotations. The Fund may
use a pricing service or a pricing matrix to value some of its assets. When
closing market prices or market quotations of assets other than Senior Loans are
not available or are considered by the Fund to be unreliable, the Fund may use a
security's fair value. Fair value is the valuation of a security determined on
the basis of factors other than market value in accordance with procedures
approved by the Fund's Board of Trustees. The Fund also may use the fair value
of a security, including a non-U.S. security, when the Fund determines that the
closing market price on the primary exchange where the security is traded no
longer accurately reflects the value of the security due to factors affecting
one or more relevant securities markets or the specific issuer. The use of fair
value pricing by the Fund may cause the net asset value of its shares to differ
from the net asset value that would be calculated using closing market prices.
International securities markets may be open on days when the U.S. markets are
closed. For this reason, the value of any international securities owned by the
Fund could change on a day you cannot buy or sell shares of the Fund. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, which is a method of estimating their fair value. The value of interest
rate swaps, caps and floors is determined in accordance with a formula and then
confirmed periodically by obtaining a bank quotation. Positions in options are
valued at the last sale price on the market where any such option is principally
traded. Positions in futures contracts are valued at closing prices for such
contracts established by the exchange on which they are traded. Repurchase
agreements are valued at cost plus accrued interest. This is a method, approved
by the Board of Trustees, of determining such repurchase agreement's fair value.

DESCRIPTION OF SHARES

The Fund is authorized to issue an unlimited number of common shares,
without par value. The Fund is also authorized to issue preferred shares. After
the completion of this offering, the Fund will only have common shares
outstanding. The Board of Trustees is authorized to classify and reclassify any
unissued shares into one or more additional classes or series of shares. The
Board of Trustees may establish such series or class, including preferred
shares, from time to time by setting or changing in any one or more respects the
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such shares and, pursuant to such classification or
reclassification, to increase or decrease the number of authorized shares of any
existing class or series. The Board of Trustees, without shareholder approval,
is authorized to amend the Fund's Agreement and Declaration of Trust (the
"Declaration of Trust") and By-Laws to reflect the terms of any such class or
series, including any class of preferred shares. The Fund currently anticipates
that it will issue preferred shares as soon as practicable after the closing of
this offering. See "Leverage." The Fund is also authorized to issue other
securities, including debt securities.

COMMON SHARES

Common shares, when issued and outstanding, will be fully paid and
non-assessable. Shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to common shareholders upon liquidation of
the Fund. Common shareholders are entitled to one vote for each share held.

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

The Fund will send unaudited semi-annual reports and audited annual
financial statements to all of its shareholders.

The Adviser provided the initial capital for the Fund by purchasing common
shares of the Fund. As of the date of this prospectus, the Adviser owned 100% of
the outstanding common shares of the Fund. The Adviser may be deemed to control
the Fund until such time as it owns less than 25% of the outstanding shares of
the Fund.

PREFERRED SHARES

The Fund may use leverage through the issuance of preferred shares. The
Fund currently anticipates issuing preferred shares with an aggregate
liquidation preference representing approximately 33 1/3% of the Fund's total
assets immediately after such issuance; however, in the future, the Fund may
increase or decrease from time to time based on the degree of leverage used by
the Fund. 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.

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

The 1940 Act requires that the holders of any preferred shares, voting
separately as a single class, have the right to elect at least two Trustees at
all times. The remaining Trustees will be elected by holders of common shares
and preferred shares, voting together as a single class. In addition, subject to
the prior rights, if any, of the holders of any other class of senior securities
outstanding, the holders of any preferred shares have the right to elect a
majority of the Trustees at any time two years' dividends on any preferred
shares are unpaid. The 1940 Act also requires that, in addition to any approval
by shareholders that might otherwise be required, the approval of the holders of
a majority of

any outstanding preferred shares, voting separately as a class, would be
required to (1) adopt any plan of reorganization that would adversely affect the
preferred shares and (2) take any action requiring a vote of security holders
under Section 13(a) of the 1940 Act, including, among other things, changes in
the Fund's subclassification as a closed-end investment company or changes in
its fundamental investment restrictions. See "Certain Provisions of the
Agreement and Declaration of Trust and By-Laws." As a result of these voting
rights, the Fund's ability to take any such actions may be impeded to the extent
that there are any preferred shares outstanding. The Board of Trustees presently
intends that, except as otherwise indicated in this prospectus and except as
otherwise required by applicable law, holders of preferred shares will have
equal voting rights with holders of common shares (one vote per share, unless
otherwise required by the 1940 Act) and will vote together with holders of
common shares as a single class.

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

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

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

CERTAIN PROVISIONS OF THE AGREEMENT AND DECLARATION OF
TRUST AND BY-LAWS

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

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

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

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

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

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

- a liquidation or dissolution of the Fund;

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

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

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

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

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

- the issuance of any securities of the Fund to any Principal
Shareholder for cash, other than pursuant to any automatic dividend
reinvestment plan;

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

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

The Declaration of Trust and By-Laws provide that the Board of Trustees
has the power, to the exclusion of shareholders, to make, alter or repeal any of
the By-Laws (except for any By-Law specified not to be amended or repealed by
the Board), subject to the requirements of the 1940 Act. Neither this provision
of the Declaration of Trust, nor any of the foregoing provisions thereof
requiring the affirmative vote of 75% of outstanding shares of the Fund, can be
amended or repealed except by the vote of such required number of shares. The
Fund's By-Laws generally require that advance notice be given to the Fund in the
event a shareholder desires to nominate a person for election to the Board of
Trustees or to transact any other business at an annual meeting of shareholders.
With respect to an annual meeting following the first annual meeting of
shareholders, notice of any such nomination or business must be delivered to or
received at the principal executive offices of the Fund not less than 90
calendar days nor more than 120 calendar days prior to the anniversary date of
the prior year's annual meeting (subject to certain exceptions). In the case of
the first annual meeting of shareholders, the notice must be given no later than
the tenth calendar day following public disclosure of the date of the meeting,
as specified in the By-Laws. Any notice by a shareholder must be accompanied by
certain information as provided in the By-Laws.

UNDERWRITING

Subject to the terms and conditions stated in the 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
COMMON SHARES
UNDERWRITER -------------
-----------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
UBS Securities LLC..........................................
A.G. Edwards & Sons, Inc. ..................................
Advest, Inc. ...............................................
Robert W. Baird & Co. Incorporated..........................
Ferris, Baker Watts, Incorporated...........................
J.J.B. Hilliard, W.L. Lyons, Inc. ..........................
KeyBanc Capital Markets, a division of McDonald Investments
Inc. .....................................................
Morgan Keegan & Company, Inc. ..............................
Oppenheimer & Co. Inc. .....................................
RBC Capital Markets Corporation.............................
Ryan Beck & Co., Inc. ......................................
Stifel, Nicolaus & Company, Incorporated....................
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 shares included in this offering are subject to the approval of
certain legal matters by counsel and to 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 Subadviser have jointly agreed to
indemnify the underwriters against certain liabilities, including liabilities
arising under the Securities Act of 1933, as amended, or to contribute 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 share. The sales
load the Fund will pay of $.90 per share is equal to 4.50% of the initial
offering price. The underwriters may allow, and the dealers may reallow, a
discount not in excess of $ per share on sales to other 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, sales load, estimated
offering expenses and proceeds to the Fund. The information assumes either no
exercise or full exercise by the underwriters of their overallotment option.

WITHOUT WITH
OVERALLOTMENT OVERALLOTMENT
PER SHARE OPTION OPTION
--------- ------------- -------------

Public offering price.................... $20.00 $ $
Sales load............................... $.90 $ $
Estimated offering expenses.............. $19.10 $ $
Proceeds, after expenses, to the Fund.... $19.06 $ $

The expenses of the offering are estimated to be approximately $ or
$ per 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 Adviser has agreed to pay all of the
Fund's organizational expenses and to pay the amount by which the aggregate
offering expenses (other than the sales load, but including the reimbursement of
expenses described above) exceed $.04 per share.

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 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 Fund's common shares. However, the representative
may engage in transactions that stabilize the price of common shares, such as
bids or purchases to peg, fix or maintain that price.

If the underwriters create a short position in the Fund's common shares in
connection with the offering, that is, if they sell more common shares than are
listed on the cover of this prospectus, the representatives 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 are repurchased by the
syndicate in stabilizing or covering transactions. Purchases of common shares to
stabilize its price or to reduce a short position may cause the price of the
Fund's common shares to be higher than it might be in the absence of such
purchases.

Neither the Fund nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transaction
described above may have on the price of common shares. In addition, neither the
Fund nor any of the underwriters make any representation that the
representatives 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 common shares to the
underwriters pursuant to the purchase agreement and certain transactions
relating to the Fund's automatic dividend reinvestment plan.

The Fund anticipates that the underwriters may from time to time act as
brokers or dealers in connection with 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.

The common shares will be sold to ensure that New York Stock Exchange
distribution standards (that is, round lots, public shares and aggregate market
value) will be met.

ADDITIONAL COMPENSATION TO CERTAIN UNDERWRITERS

The Adviser and the Subadviser have also agreed to pay from their own
assets additional compensation to Merrill Lynch. This additional compensation
will be payable quarterly at the aggregate annual rate of .15% of the Fund's
average weekly assets and will continue, with respect to the Adviser, for the
term of the Advisory Agreement or other advisory agreement between the Adviser
and the Fund, and with respect to the Subadviser, for the term of the
Subadvisory Agreement. Merrill Lynch has agreed to, among other things, provide
as requested by the Adviser certain after-market support services to the Adviser
designed to maintain the visibility of the Fund on an ongoing basis, to provide
as requested by the Adviser relevant information, studies or reports regarding
the Fund and the closed-end investment company industry and advice as to
strategies for addressing any discount of the market value of the Fund's shares
to its net asset value. The total amount of these additional payments to Merrill
Lynch for these services will not exceed % ($ ) of the total price to the
public of the common shares sold in this offering.

The Adviser and the Subadviser have also agreed to pay from their own
assets additional compensation to UBS Securities LLC. This additional
compensation will be payable quarterly at the aggregate annual rate of .15% of
the Fund's average weekly assets attributable to common shares sold by UBS
Securities LLC in this offering, such fees will continue, with respect to the
Adviser, for the term of the Advisory Agreement or other advisory agreement
between the Adviser and the Fund, and with respect to the Subadviser, for the
term of the Subadvisory Agreement. UBS Securities LLC has agreed to, among other
things, provide as requested by the Adviser certain after-market support
services to the Adviser designed to maintain the visibility of the Fund on an
ongoing basis and to provide as requested by the Adviser relevant information,
studies or reports regarding the Fund and the closed-end investment company
industry and advice as to strategies for addressing any discount of the market
value of the Fund's shares to its net asset value. The total amount of these
additional payments to UBS Securities LLC for these services will not exceed
% ($ )of the total price to the public of the common shares sold in
this offering.

One or more of the underwriters of the common shares may also act as an
underwriter of the Fund's preferred shares, and as a broker-dealer in connection
with auctions of the preferred shares. The Adviser has retained an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated to provide certain
sub-administrative services to the Fund on its behalf.

The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is 4
World Financial Center, New York, New York 10080.

The sum total of all compensation to underwriters in connection with this
public offering of common shares, including sales load and all forms of
compensation to or reimbursement of underwriters, will be limited to 9.0% of the
total price to the public of the common shares sold in this

offering. Once this 9.0% limit is reached, all payments of additional
compensation by the Adviser and Subadviser to Merrill Lynch and UBS Securities
LLC will cease.

In connection with this offering, certain of the underwriters or dealers
may distribute prospectuses electronically.

ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT, REGISTRAR AND
DIVIDEND DISBURSING AGENT

Pioneer Investment Management, Inc. will serve as the Fund's
administrator. Pioneer Investment Management, Inc. has appointed Princeton
Administrators, L.P. as a sub-administrator to the Fund. Princeton
Administrators, L.P., is an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, one of the underwriters of this offering. The Fund's securities
and cash are held under a custodian agreement with Brown Brothers Harriman & Co.
Pioneer Investment Management Shareholder Services, Inc. is the Fund's transfer
agent, registrar and dividend disbursing agent for the Fund's shares. Mellon
Investor Services LLC will serve as the sub-transfer agent, sub-registrar and
sub-dividend disbursing agent.

VALIDITY OF COMMON SHARES

Certain legal matters in connection with the shares offered hereby have
been passed upon for the Fund by Wilmer Cutler Pickering Hale and Dorr LLP,
Boston, Massachusetts. Certain matters have been passed upon for the
underwriters by Clifford Chance US LLP, New York, New York. Clifford Chance US
LLP may rely on the opinion of Wilmer Cutler Pickering Hale and Dorr LLP as to
certain matters of Delaware Law.

TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION

PAGE
----

Use of Proceeds............................................. 2
Investment Objectives and Policies.......................... 2
Investment Restrictions..................................... 20
Management of the Fund...................................... 21
Portfolio Transactions...................................... 35
Repurchase of Common Shares................................. 36
Federal Income Tax Matters.................................. 37
Performance-Related, Comparative and Other Information...... 42
Independent Registered Public Accounting Firm............... 43
Additional Information...................................... 43
Financial Statements and Report of Independent Registered
Public Accounting Firm.................................... 44
Appendix A -- Description of Ratings........................ A-1
Appendix B -- Proxy Voting Policies and Procedures.......... B-1

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

Until (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
dealer's obligation to deliver a prospectus when acting as underwriter and with
respect to its unsold allotments and subscriptions.

(PIONEER LOGO)
PIONEER FLOATING RATE TRUST

COMMON SHARES
$20.00 PER SHARE
----------------
PROSPECTUS
----------------

MERRILL LYNCH & CO.
UBS INVESTMENT BANK
A.G. EDWARDS
ADVEST, INC.
ROBERT W. BAIRD & CO.
FERRIS, BAKER WATTS
INCORPORATED

J.J.B. HILLIARD, W.L. LYONS, INC.
KEYBANC CAPITAL MARKETS
MORGAN KEEGAN & COMPANY, INC.
OPPENHEIMER & CO.
RBC CAPITAL MARKETS
RYAN BECK & CO., INC.
STIFEL, NICOLAUS & COMPANY
INCORPORATED

SUNTRUST ROBINSON HUMPHREY
WEDBUSH MORGAN SECURITIES INC.
WELLS FARGO SECURITIES, LLC
, 2004
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
16477-00-1104

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.

SUBJECT TO COMPLETION
DATED DECEMBER 21, 2004

PIONEER FLOATING RATE TRUST

STATEMENT OF ADDITIONAL INFORMATION

Pioneer Floating Rate Trust (the "Fund") is a newly organized, non-diversified,
closed-end management investment company. This statement of additional
information relating to the common shares does not constitute a prospectus, but
should be read in conjunction with the prospectus relating thereto, dated , 2004
(the "prospectus"). This statement of additional information does not include
all information that a prospective investor should consider before purchasing
common shares, and investors should obtain and read the prospectus prior to
purchasing such shares. A copy of the prospectus may be obtained without charge
by calling 1-800-225-6292. You may also obtain a copy of the prospectus on the
Securities and Exchange Commission's web site (http://www.sec.gov).

TABLE OF CONTENTS

USE OF PROCEEDS........................................................... 2
INVESTMENT OBJECTIVES AND POLICIES........................................ 2
INVESTMENT RESTRICTIONS................................................... 20
MANAGEMENT OF THE FUND.................................................... 22
PORTFOLIO TRANSACTIONS.................................................... 35
REPURCHASE OF COMMON SHARES............................................... 36
FEDERAL INCOME TAX MATTERS................................................ 37
PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION.................... 42
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM............................. 43
ADDITIONAL INFORMATION.................................................... 43
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM......................................... 44
APPENDIX A--DESCRIPTION OF RATINGS........................................ A-1
APPENDIX B--PROXY VOTING POLICIES AND PROCEDURES.......................... B-1

This statement of additional information is dated , 2004.

USE OF PROCEEDS

The net proceeds will be invested in accordance with the Fund's investment
objectives and policies during a period not to exceed three months from the
closing of this offering. Pending such investment, the net proceeds may be
invested in U.S. government securities or high grade, short-term money market
instruments. If necessary, the Fund may also purchase, as temporary investments,
securities of other open-end and closed-end investment companies that invest in
equity and fixed-income securities.

INVESTMENT OBJECTIVES AND POLICIES

The prospectus presents the investment objectives and the principal investment
strategies and risks of the Fund. This section supplements the disclosure in the
Fund's prospectus and provides additional information on the Fund's investment
policies or restrictions. Restrictions or policies stated as a maximum
percentage of the Fund's assets are only applied immediately after a portfolio
investment to which the policy or restriction is applicable (other than the
limitations on borrowing). Accordingly, any later increase or decrease resulting
from a change in values, net assets or other circumstances will not be
considered in determining whether the investment complies with the Fund's
restrictions and policies.

PRIMARY INVESTMENTS

As a fundamental policy, under normal market conditions, the Fund seeks to
achieve its investment objectives by investing at least 80% of its assets (net
assets plus borrowing for investment purposes) in senior floating rate loans
("Senior Loans"). Senior Loans are made to corporations, partnerships and other
business entities that operate in various industries and geographical regions,
including non-U.S. borrowers. Senior Loans pay interest at rates that are
redetermined periodically on the basis of a floating base lending rate plus a
premium. The Fund also may invest in other floating and variable rate
instruments and loans, including second lien loans, high yield, high risk
corporate bonds, investment grade fixed-income debt securities, preferred stocks
(many of which have fixed maturities), convertible securities, securities that
make "in-kind" interest payments, bonds not paying current income, bonds that do
not make regular interest payments and money market instruments. The Fund may
invest in Senior Loans and other securities of any credit quality, including
Senior Loans and other investments that are rated below investment grade, or are
unrated but are determined by the investment subadviser to be of equivalent
credit quality, commonly referred to as "junk bonds." The Fund may invest all
or a portion of its assets in securities of issuer that are in default or that
are in bankruptcy. The Fund does not have a policy of maintaining a specific
average credit quality of its portfolio or a minimum portion of its portfolio
that must be rated investment grade. The Fund may invest up to 10% of its total
assets in Senior Loans and other securities of non-U.S. issuers, including
emerging market issuers, and may engage in certain hedging transactions.

SENIOR LOANS

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

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

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

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

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

RANKING IN CAPITAL STRUCTURE; LOAN COLLATERAL. Senior Loans typically have the
most senior position in a Borrower's capital structure, although some Senior
Loans may hold an equal ranking with the Borrower's other senior securities. The
capital structure of a Borrower may include Senior Loans, senior unsecured
loans, senior and junior subordinated debt, preferred stock and common stock,
typically in descending order of seniority with respect to claims on the
Borrower's assets. Although Senior Loans typically have the most senior position
in a Borrower's capital structure, they remain subject to the risk of
non-payment of scheduled interest or principal. Such non-payment would result in
a reduction of income to the Fund, a reduction in the value of the investment
and a potential decrease in the net asset value of the Fund. There can be no
assurance that the liquidation of any collateral securing a Senior Loan would
satisfy a borrower's obligation in the event of non-payment of scheduled
interest or principal payments, or that such collateral could be readily
liquidated. In the event of bankruptcy of a borrower, the Fund could experience
delays or limitations with respect to its ability to realize the benefits of the
collateral securing a Senior Loan. Although a Senior Loan may be senior to
equity and other debt securities in an issuer's capital structure, such
obligations may be structurally subordinated to obligations of the issuer's
subsidiaries. For example, if a holding company were to issue a Senior Loan,
even if that issuer pledges the capital stock of its subsidiaries to secure the
obligations under the Senior Loan, the assets of the operating companies are
available to the direct creditors of an operating company before they would be
available to the holders of the Senior Loan issued by the holding company.

In order to borrow money pursuant to a Senior Loan, a Borrower will frequently,
for the term of the Senior Loan, pledge collateral, including but not limited
to, (i) working capital assets, such as accounts receivable and inventory; (ii)
tangible fixed assets, such as real property, buildings and equipment; (iii)
intangible assets, such as trademarks and patent rights (but excluding
goodwill); and (iv) security interests in shares of stock of subsidiaries or
affiliates. In the case of Senior Loans made to non-public companies, the
company's shareholders or owners may provide collateral in the form of secured
guarantees and/or security interests in assets that they own. In many instances,
a Senior Loan may be secured only by stock in the Borrower or its subsidiaries.
Collateral may consist of assets that may not be readily liquidated, and there
is no assurance that the liquidation of such assets would satisfy fully a
Borrower's obligations under a Senior Loan. Some Senior Loans are subject to the
risk that a court, pursuant to fraudulent conveyance or other similar laws,
could subordinate Senior Loans to presently existing or future indebtedness of
the borrower or take other action detrimental to the holders of Senior Loans
including, in certain circumstances, invalidating Senior Loans or causing
interest previously paid to be refunded to the borrower. If interest were
required to be refunded, it could result in a loss to the Fund negatively
affecting the Fund's performance.

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

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

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

OBLIGATIONS TO MAKE ADDITIONAL LOANS. A Loan Investor may have certain
obligations pursuant to loan agreements documenting Senior Loans, which may
include the obligation to make additional loans in certain circumstances. The
Fund generally will reserve against these contingent obligations by segregating
or otherwise designating a sufficient amount of permissible liquid assets. The
Fund will not purchase interests in Senior Loans that would require the Fund to
make additional loans if these additional loan commitments in the aggregate
would cause the Fund to fail to meet its federal tax diversification
requirements.

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

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

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

Fund's performance because the Fund typically is able to reinvest prepayments in
other Senior Loans that have similar yields and because receipt of such fees may
mitigate any adverse impact on the Fund's yield.

OTHER INFORMATION REGARDING SENIOR LOANS. From time to time, Highland Capital
Management, L.P., the Fund's subadviser ("Highland"), and its affiliates may
borrow money from various banks in connection with their business activities.
Such banks may also sell interests in Senior Loans to or acquire them from the
Fund or may be intermediate participants with respect to Senior Loans in which
the Fund owns interests. Such banks may also act as Agents for Senior Loans held
by the Fund. Neither Highland nor its affiliates will be an obligor of any
Senior Loan or obligation underlying a participation in which the Fund may
invest.

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

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

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

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

INTEREST RATES; PORTFOLIO MATURITY AND DURATION. Interest rates on Senior Loans
in which the Fund invests adjust periodically. The interest rates are adjusted
based on a base rate plus a premium or spread over the base rate. The base rate
usually is London Interbank Offered Rate ("LIBOR"), the Federal Reserve federal
funds rate, the Prime Rate or other base lending rates used by commercial
lenders. LIBOR usually is an average of the interest rates quoted by several
designated banks as the rates at which they pay interest to major depositors in
the London interbank market on U.S. dollar-denominated deposits. The Fund's
subadviser believes that changes in short-term

LIBOR rates are closely related to changes in the Federal Reserve federal funds
rate, although the two are not technically linked. The Prime Rate quoted by a
major U.S. bank is generally the interest rate at which that bank is willing to
lend U.S. dollars to its most creditworthy Borrowers, although it may not be the
bank's lowest available rate.

Highland expects that the average effective duration of the Fund's portfolio of
Senior Loans will normally be between zero and 1.5 years, reflecting the Fund's
focus on floating rate instruments. As a measure of a fixed-income security's
cash flow, duration is an alternative to the concept of "term to maturity" in
assessing the price volatility associated with changes in interest rates.
Generally, the longer the duration, the more volatility an investor should
expect. For example, the market price of a fixed-income security with a duration
of three years would be expected to decline 3% if interest rates rose 1%.
Conversely, the market price of the same security would be expected to increase
3% if interest rates fell 1%. The market price of a fixed-income security with a
duration of six years would be expected to increase or decline twice as much as
the market price of a security with a three-year duration. Duration is a way of
measuring a security's maturity in terms of the average time required to receive
the present value of all interest and principal payments as opposed to its term
to maturity. The maturity of a security measures only the time until final
payment is due; it does not take account of the pattern of a security's cash
flows over time, which would include how cash flow is affected by prepayments
and by changes in interest rates. Because the interest on Senior Loans held by
the Fund will reset at short-term intervals, the duration of Senior Loans will
be shorter than a fixed income security with a comparable term to maturity.
Highland can manage the duration of the portfolio by selecting Senior Loans with
different interest rates, reset periods and final maturity dates. Incorporating
a security's yield, coupon interest payments, final maturity and option features
into one measure, duration is computed by determining the weighted average
maturity of a fixed-income security's cash flows, where the present values of
the cash flows serve as weights. In computing the duration of the Fund's
portfolio, Highland will estimate the duration of obligations that are subject
to features such as prepayment or redemption by the issuer, put options retained
by the investor or other imbedded options, taking into account the influence of
interest rates on prepayments and coupon flows.

Loans in which the Fund invests typically have interest rates that reset at
least quarterly and may reset as frequently as daily. Because of prepayments,
the actual remaining maturity of a loan may be considerably less than its stated
maturity. Longer interest rate reset periods generally will increase
fluctuations in the Fund's net asset value as a result of changes in market
interest rates. The Fund may find it possible and appropriate to use interest
rate swaps and other investment practices to shorten the effective interest rate
adjustment period of loans. If the Fund does so, it will consider the shortened
period to be the adjustment period of the loan. As short-term interest rates
rise, interest payable to the Fund should increase. As short-term interest rates
decline, interest payable to the Fund should decrease.

During normal market conditions, changes in market interest rates will affect
the Fund in certain ways. The principal effect will be that the yield on the
Fund's shares will tend to rise or fall as market interest rates rise and fall.
This is because almost all of the assets in which the Fund invests pay interest
at rates which float in response to changes in market rates. However, because
the interest rates on the Fund's assets reset over time, there will be an
imperfect correlation between changes in market rates and changes to rates on
the portfolio as a whole. This means that changes to the rate of interest paid
on the portfolio as a whole will tend to lag behind changes in market rates. The
amount of time that will pass before the Fund experiences the effects of
changing short-term interest rates will depend on the dollar-weighted average
time until the next interest rate adjustment on the Fund's portfolio of loans.
Because the rates of interest paid on the loans in which the Fund invests have a
weighted average reset period that typically is less than 90 days, the impact of
the lag between a change in market interest rates and the change in the overall
rate on the portfolio is expected to be minimal.

To the extent that changes in market rates of interest are reflected not in a
change to a base rate such as LIBOR but in a change in the spread over the base
rate which is payable on loans of the type and quality in which the Fund
invests, the Fund's net asset value could be adversely affected. This is because
the value of a loan asset in the Fund is partially a function of whether it is
paying what the market perceives to be a market rate of interest for the
particular loan, given its individual credit and other characteristics. However,
unlike changes in market rates of interest for which there is generally only a
temporary lag before the portfolio reflects those changes, changes in a loan's
value based on changes in the market spread on loans in the Fund's portfolio may
be of longer duration.

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

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

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

OTHER PERMISSIBLE PORTFOLIO INVESTMENTS

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

FIXED-INCOME SECURITIES. In addition to corporate debt securities, which include
corporate bonds, debentures and notes, fixed-income securities also include
preferred, preference and convertible securities, equipment lease certificates,
equipment trust certificates and conditional sales contracts. Preference stocks
are stocks that have many characteristics of preferred stocks, but are typically
junior to an existing class of preferred stocks. Equipment lease certificates
are debt obligations secured by leases on equipment (such as railroad cars,
airplanes or office equipment), with the issuer of the certificate being the
owner and lessor of the equipment. Equipment trust certificates are debt
obligations secured by an interest in property (such as railroad cars or
airplanes), the title of which is held by a trustee while the property is being
used by the borrower. Conditional sales contracts are agreements under which the
seller of property continues to hold title to the property until the purchase
price is fully paid or other conditions are met by the buyer.

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

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

The rate of interest on a corporate debt security may be fixed, floating or
variable, and may vary inversely with respect to a reference rate. The rate of
return or return of principal on some debt obligations may be linked or indexed
to the level of exchange rates between the U.S. dollar and a foreign currency or
currencies.

HIGH YIELD SECURITIES

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

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

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

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

In the event that a rating agency or Highland downgrades its assessment of the
credit characteristics of a particular issue, the Fund is not required to
dispose of such security. In determining whether to retain or sell a downgraded

security, Highland may consider such factors as Highland's assessment of the
credit quality of the issuer of such security, the price at which such security
could be sold and the rating, if any, assigned to such security by other rating
agencies. However, analysis of the creditworthiness of issuers of non-investment
grade bonds may be more complex than for issuers of high quality debt
securities.

ZERO-COUPON BONDS, DEFERRED INTEREST BONDS AND PAYMENT-IN-KIND SECURITIES

Zero-coupon securities are debt obligations that do not entitle the holder to
any periodic payments of interest either for the entire life of the obligation
or for an initial period after the issuance of the obligations. While zero
coupon bonds do not require the periodic payment of interest, deferred interest
bonds provide for a period of delay before the regular payment of interest
begins. Payment-in-kind securities ("PIKs") pay dividends or interest in the
form of additional securities of the issuer, rather than in cash. To the extent
the Fund invests in such instruments, they will not contribute to the Fund's
primary goal of current income. Each of these instruments is typically issued
and traded at a deep discount from its face amount. The amount of the discount
varies depending on such factors as the time remaining until maturity of the
securities, prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. The market prices of zero-coupon bonds,
deferred interest bonds and PIKs generally are more volatile than the market
prices of debt instruments that pay interest currently and in cash and are
likely to respond to changes in interest rates to a greater degree than do other
types of securities having similar maturities and credit quality. In order to
satisfy a requirement for qualification as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), an investment
company, such as the Fund, must distribute each year at least 90% of its net
investment income, including the original issue discount accrued on zero-coupon
bonds, deferred interest bonds and PIKs. Because the Fund will not, on a current
basis, receive cash payments from the issuer of these securities in respect of
any accrued original issue discount, in some years the Fund may have to
distribute cash obtained from selling other portfolio holdings of the Fund. In
some circumstances, such sales might be necessary in order to satisfy cash
distribution requirements even though investment considerations might otherwise
make it undesirable for the Fund to sell securities at such time. Under many
market conditions, investments in zero-coupon bonds, deferred interest bonds and
PIKs may be illiquid, making it difficult for the Fund to dispose of them or
determine their current value.

HYBRID INSTRUMENTS

The Fund may invest in "hybrid" instruments that combine the characteristics of
securities, futures, and options. For example, the principal amount or interest
of a hybrid could be tied (positively or negatively) to the price of some
securities index or another interest rate (each a "benchmark"). The interest
rate or (unlike many debt obligations) the principal amount payable at maturity
of a hybrid security may be increased or decreased, depending on changes in the
value of the benchmark. Hybrids can be used as an efficient means of pursuing a
variety of investment goals, including duration management and increased total
return. Hybrids may not bear interest or pay dividends. The value of a hybrid or
its interest rate may be a multiple of a benchmark and, as a result, may be
leveraged and move (up or down) more steeply and rapidly than the benchmark.
These benchmarks may be sensitive to economic and political events that cannot
be readily foreseen by the purchaser of a hybrid. Under certain conditions, the
redemption value of a hybrid could be zero. Thus, an investment in a hybrid may
entail significant market risks that are not associated with a similar
investment in a traditional, U.S. dollar-denominated bond that has a fixed
principal amount and pays a fixed rate or floating rate of interest. The
purchase of hybrids also exposes the Fund to the credit risk of the issuer of
the hybrids. These risks may cause significant fluctuations in the net asset
value of the Fund.

SECOND LIEN LOANS AND DEBT OBLIGATIONS

COLLATERALIZED LOAN OBLIGATIONS AND BOND OBLIGATIONS

The Fund may invest in certain asset-backed securities that are secured by
certain financial assets. A financing company (generally called a Special
Purpose Vehicle or "SPV") issues commercial paper or other short-term
instruments to finance the purchase of the financial assets. These securitized
assets are, as a rule, corporate financial assets brought into a pool according
to specific diversification rules. The SPV is a company founded solely for the
purpose of securitizing these claims and its only asset is the diversified asset
pool. On this basis, marketable securities are issued which, due to the
diversification of the underlying risk, generally represent a lower level of
risk than the original assets. The redemption of the securities issued by the
SPV takes place at maturity out of the cash flow generated by the collected
claims.

A collateralized loan obligation ("CLO") is a structured debt security issued by
an SPV that was created to reapportion the risk and return characteristics of a
pool of assets. The assets, typically Senior Loans, are used as collateral
supporting the various debt tranches issued by the SPV. The key feature of the
CLO structure is the prioritization of the cash flows from a pool of debt
securities among the several classes of securities issued by a CLO.

The Fund may also invest in collateralized bond obligations ("CBOs"), which are
structured debt securities backed by a diversified pool of high yield, public or
private fixed income securities. These may be fixed pools or may be "market
value" (or managed) pools of collateral. The CBO issues debt securities that are
typically separated into tranches representing different degrees of credit
quality. The top tranche of securities has the greatest collateralization and
pays the lowest interest rate. Lower CBO tranches have a lesser degree of
collateralization quality and pay higher interest rates intended to compensate
for the attendant risks. The bottom tranche specifically receives the residual
interest payments (i.e., money that is left over, if any, after the higher
tranches have been paid) rather than a fixed interest rate. The return on the
lower tranches of CBOs is especially sensitive to the rate of defaults in the
collateral pool. Under normal market conditions, the Fund expects to invest in
the lower tranches of CBOs.

DEBT SECURITIES SELECTION

In selecting fixed income securities for the Fund, Highland gives primary
consideration to the Fund's investment objective, the attractiveness of the
market for debt securities given Highland's outlook for the equity markets and
the Fund's liquidity requirements. Once Highland determines to allocate a
portion of the Fund's assets to debt securities, Highland generally focuses on
short-term instruments to provide liquidity and may invest in a range of fixed
income securities if the Fund is investing in such instruments for income or
capital gains. Highland selects individual securities based on broad economic
factors and issuer specific factors including the terms of the securities (such
as yields compared to U.S. Treasuries or comparable issues), liquidity and
rating, sector and issuer diversification.

CONVERTIBLE DEBT SECURITIES

The Fund may invest in convertible debt securities, which are debt obligations
convertible at a stated exchange rate or formula into common stock or other
equity securities of or owned by the issuer. Convertible securities rank senior
to common stocks in an issuer's capital structure and consequently may be of
higher quality and entail less risk than the issuer's common stock. As with all
debt securities, the market values of convertible securities tend to increase
when interest rates decline and, conversely, tend to decline when interest rates
increase.

DEBT SECURITIES RATING CRITERIA

Investment grade debt securities are those rated "BBB" or higher by Standard &
Poor's or the equivalent rating of other nationally recognized statistical
rating organizations. Debt securities rated BBB are considered medium grade
obligations with speculative characteristics, and adverse economic conditions or
changing circumstances may weaken the issuer's ability to pay interest and repay
principal. If the rating of an investment grade debt security falls below
investment grade, Highland will consider if any action is appropriate in light
of the Fund's investment objectives and policies.

Below investment grade debt securities are those rated "BB" and below by
Standard & Poor's or the equivalent rating of other nationally recognized
statistical rating organizations. See Appendix A for a description of rating
categories.

Below investment grade debt securities or comparable unrated securities are
commonly referred to as "junk bonds" and are considered predominantly
speculative and may be questionable as to principal and interest payments.
Changes in economic conditions are more likely to lead to a weakened capacity to
make principal payments and interest payments. The amount of high yield
securities outstanding has proliferated as an increasing number of issuers have
used high yield securities for corporate financing. An economic downturn could
severely affect the ability of highly leveraged issuers to service their debt
obligations or to repay their obligations upon maturity. Factors having an
adverse impact on the market value of lower quality securities will have an
adverse effect on the Fund's net asset value to the extent that it invests in
such securities. 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.

The secondary market for high yield securities may not be as liquid as the
secondary market for more highly rated securities, a factor which may have an
adverse effect on the Fund's ability to dispose of a particular security when
necessary to meet its liquidity needs. 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. As a result, the Fund could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating the Fund's net asset value.

Since investors generally perceive that there are greater risks associated with
lower 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 issuers' 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. Lower rated and comparable unrated debt securities
tend to offer higher yields than higher rated securities with the same
maturities because the historical financial condition of the issuers of such
securities may not have been as strong as that of other issuers. However, lower
rated securities generally involve greater risks of loss of income and principal
than higher rated securities. Highland will attempt to reduce these risks
through portfolio diversification and by analysis of each issuer and its ability
to make timely payments of income and principal, as well as broad economic
trends and corporate developments.

U.S. GOVERNMENT SECURITIES

U.S. government securities in which the Fund may invest include debt obligations
of varying maturities issued by the U.S. Treasury or issued or guaranteed by an
agency or instrumentality of the U.S. government, including the Federal Housing
Administration, Federal Financing Bank, Farmers Home Administration,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal National Mortgage Association ("FNMA"),
Maritime Administration, Tennessee Valley Authority, District of Columbia Armory
Board, Student Loan Marketing Association, Resolution Trust Corporation and
various institutions that previously were or currently are part of the Farm
Credit System (which has been undergoing reorganization since 1987). Some U.S.
government securities, such as U.S. Treasury bills, Treasury notes and Treasury
bonds, which differ only in their interest rates, maturities and times of
issuance, are supported by the full faith and credit of the United States.
Others are supported by (i) the right of the issuer to borrow from the U.S.
Treasury, such as securities of the Federal Home Loan Banks; (ii) the
discretionary authority of the U.S. government to purchase the agency's
obligations, such as securities of the FNMA; or (iii) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support in the future to U.S. government agencies, authorities or
instrumentalities that are not supported by the full faith and credit of the
United States. Securities guaranteed as to principal and interest by the U.S.
government, its agencies, authorities or instrumentalities include (i)
securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. government or any of its
agencies, authorities or instrumentalities; and (ii) participations in loans
made to non-U.S. governments or other entities that are so guaranteed. The
secondary market for certain of these participations is limited and, therefore,
may be regarded as illiquid.

U.S. government securities may include zero coupon securities that may be
purchased when yields are attractive and/or to enhance portfolio liquidity. Zero
coupon U.S. government securities are debt obligations that are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue and compound over the
period until maturity or the particular interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon U.S. government securities do not require the periodic payment of
interest. These investments benefit the issuer by mitigating its need for cash
to meet debt service, but generally require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. government securities
that make regular payments of interest. The Fund accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations, in which case the Fund will forgo the purchase of
additional income producing assets with these funds. Zero coupon U.S. government
securities include STRIPS and CUBES, which are issued by the U.S. Treasury as
component parts of U.S. Treasury bonds and represent scheduled interest and
principal payments on the bonds.

FOREIGN INVESTMENTS

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

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

WARRANTS AND STOCK PURCHASE RIGHTS

The Fund may invest in warrants, which are securities permitting, but not
obligating, their holder to subscribe for other securities. Warrants do not
carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holders to purchase, and they do not
represent any rights in the assets of the issuer.

The Fund may also invest in stock purchase rights. Stock purchase rights are
instruments, frequently distributed to an issuer's shareholders as a dividend,
that entitle the holder to purchase a specific number of shares of common stock
on a specific date or during a specific period of time. The exercise price on
the rights is normally at a discount from market value of the common stock at
the time of distribution. The rights do not carry with them the right to
dividends or to vote and may or may not be transferable. Stock purchase rights
are frequently used outside of the United States as a means of raising
additional capital from an issuer's current shareholders.

As a result, an investment in warrants or stock purchase rights may be
considered more speculative than certain other types of investments. In
addition, the value of a warrant or a stock purchase right does not necessarily
change with the value of the underlying securities, and warrants and stock
purchase rights expire worthless if they are not exercised on or prior to their
expiration date.

WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT TRANSACTIONS

The Fund may purchase and sell securities, including U.S. government securities,
on a when-issued, delayed delivery or forward commitment basis. Typically, no
income accrues on securities the Fund has committed to purchase prior to the
time delivery of the securities is made, although the Fund may earn income on
securities it has segregated. See " -- Asset Segregation."

When purchasing a security on a when-issued, delayed delivery, or forward
commitment basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price fluctuations, and takes such fluctuations
into account when determining its net asset value. Because the Fund is not
required to pay for the security until the delivery date, these risks are in
addition to the risks associated with the Fund's other investments. If the Fund
remains substantially fully invested at a time when when-issued, delayed
delivery, or forward commitment purchases are outstanding, the purchases may
result in a form of leverage.

When the Fund has sold a security on a when-issued, delayed delivery, or forward
commitment basis, the Fund does not participate in future gains or losses with
respect to the security. If the other party to a transaction fails to deliver or
pay for the securities, the Fund could miss a favorable price or yield
opportunity or could suffer a loss. The Fund may dispose of or renegotiate a
transaction after it is entered into, and may sell when-issued, delayed delivery
or forward commitment securities before they are delivered, which may result in
a capital gain or loss. There is no percentage limitation on the extent to which
the Fund may purchase or sell securities on a when-issued, delayed delivery, or
forward commitment basis.

INDEXED SECURITIES

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

SHORT SALES AGAINST THE BOX

The Fund may sell securities short "against the box." A short sale involves the
Fund borrowing securities from a broker and selling the borrowed securities. The
Fund has an obligation to return securities identical to the borrowed securities
to the broker. In a short sale against the box, the Fund at all times owns an
equal amount of the security sold short or securities convertible into or
exchangeable for, with or without payment of additional consideration, an equal
amount of the security sold short. The Fund intends to use short sales against
the box to hedge. For example, when the Fund believes that the price of a
current portfolio security may decline, the Fund may use a short sale against
the box to lock in a sale price for a security rather than selling the security
immediately. In such a case, any future losses in the Fund's long position
should be offset by a gain in the short position and, conversely, any gain in
the long position should be reduced by a loss in the short position.

If the Fund effects a short sale against the box at a time when it has an
unrealized gain on the security, it may be required to recognize that gain as if
it had actually sold the security (a "constructive sale") on the date it effects
the short sale. However, such constructive sale treatment may not apply if the
Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale provided that certain other
conditions

are satisfied. Uncertainty regarding certain tax consequences of effecting short
sales may limit the extent to which the Fund may make short sales against the
box.

ASSET SEGREGATION

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

INTEREST RATE TRANSACTIONS

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

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

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

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

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

CREDIT DEFAULT SWAP AGREEMENTS

The Fund may enter into credit default swap agreements. 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 "par value" (full notional value) of the reference
obligation in exchange for the reference obligation. The Fund may be either the
buyer or seller in the transaction. If the Fund is a buyer and no event of
default occurs, the Fund loses its investment and recovers nothing. However, if
an event of default occurs, the buyer receives full notional value for a
reference obligation that may have little or no value. As a seller, the Fund
receives a fixed rate of income throughout the term of the contract, which
typically is between six months and three years, provided that there is no
default event. If an event of default occurs, the seller must pay the buyer the
full notional value of the reference obligation. Credit default swaps involve
greater risks than if the Fund had invested in the reference obligation
directly. In addition to general market risks, credit default swaps are subject
to illiquidity risk, counterparty risk and credit risks. The Fund will enter
into swap agreements only with counterparties who are rated investment grade
quality by at least one nationally recognized statistical rating organization at
the time of entering into such transaction or whose creditworthiness is believed
by Highland to be equivalent to such rating. A buyer also will lose its
investment and recover nothing should an event of default occur. If an event of
default were to occur, the value of the reference obligation received by the
seller, coupled with the periodic payments previously received, may be less than
the full notional value it pays to the buyer, resulting in a loss of value to
the Fund. When the Fund acts as a seller of a credit default swap agreement it
is exposed to many of the same risks of leverage described under "Risk factors
-- Leverage" and "Leverage" in the prospectus since if an event of default
occurs the seller must pay the buyer the full notional value of the reference
obligation.

If the Fund enters into a credit default swap, the Fund may be required to
report the swap as a "listed transaction" for tax shelter reporting purposes on
the Fund's federal income tax return. If the Internal Revenue Service (the
"IRS") were to determine that the credit default swap is a tax shelter, the Fund
could be subject to penalties under the Code.

The Fund may in the future employ new or additional investment strategies and
hedging instruments if those strategies and instruments are consistent with the
Fund's investment objectives and are permissible under applicable regulations
governing the Fund.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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

FUTURES CONTRACTS. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash

settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).

When interest rates are rising or securities prices are falling, the Fund can
seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, the Fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases.

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

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

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

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

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

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

OTHER CONSIDERATIONS. The Fund will engage in futures and related options
transactions only in accordance with CFTC regulations which permit principals of
an investment company registered under the 1940 Act to engage in such
transactions without registering as commodity pool operators. The Fund will
engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Code for
maintaining its qualification as a regulated investment company for U.S. federal
income tax purposes.

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

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

OPTIONS ON SECURITIES AND SECURITIES INDICES

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

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

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

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

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

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

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

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

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

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

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

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

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

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts

for hedging purposes depends in part on Highland's ability to predict future
price fluctuations and the degree of correlation between the options and
securities markets.

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

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

SECURITIES LENDING

As described in the prospectus, the Fund may lend a portion of its of portfolio
Senior Loans or other securities to broker-dealers or other institutional
borrowers. Loans will be made only to organizations whose credit quality or
claims paying ability is considered by Highland to be at least investment grade.
All securities loans will be collateralized on a continuous basis by cash or
U.S. government securities having a value, marked to market daily, of at least
100% of the market value of the loaned securities. The Fund may receive loan
fees in connection with loans that are collateralized by securities or on loans
of securities for which there is special demand. The Fund may also seek to earn
income on securities loans by reinvesting cash collateral in securities
consistent with its investment objectives and policies, seeking to invest at
rates that are higher than the "rebate" rate that it normally will pay to the
borrower with respect to such cash collateral. Any such reinvestment will be
subject to the investment policies, restrictions and risk considerations
described in the Prospectus and in this SAI.

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

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

SHORT-TERM TRADING

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

TEMPORARY INVESTMENTS

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

PORTFOLIO TURNOVER

It is the policy of the Fund not to engage in trading for short-term profits
although portfolio turnover rate is not considered a limiting factor in the
execution of investment decisions for the Fund. A high rate of portfolio
turnover (100% or more) involves correspondingly greater transaction costs,
which must be borne by the Fund and its shareholders.

INVESTMENT RESTRICTIONS

The following are the Fund's fundamental investment restrictions. These
restrictions may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities (which for this purpose and
under the 1940 Act means the lesser of (i) 67% of the common shares represented
at a meeting at which more than 50% of the outstanding common shares are
represented or (ii) more than 50% of the outstanding common shares). If the Fund
were to issue a class of preferred shares, the investment restrictions could not
be changed without the approval of a majority of the outstanding common and
preferred shares, voting together as a class, and the approval of a majority of
the outstanding preferred shares, voting separately by class. Statements in
italics are not part of the restriction.

The Fund may not:

(1) Issue senior securities, other than as permitted by the 1940 Act. Senior
securities that the Fund may issue in accordance with the 1940 Act include
preferred shares, borrowing, futures, when-issued and delayed delivery
securities and forward foreign currency exchange transactions.

(2) Borrow money, other than as permitted by the 1940 Act. See "Leverage in the
prospectus for a discussion of the extent that the Fund may borrow in
accordance with the 1940 Act.

(3) Invest in real estate, except the Fund may invest in securities of issuers
that invest in real estate or interests therein, securities that are secured by
real estate or interests therein, securities of real estate investment trusts,
mortgage-backed securities and other securities that represent a similar
indirect interest in real estate, and the Fund may acquire real estate or
interests therein through exercising rights or remedies with regard to an
instrument.

(4) Make loans, except that the Fund may (i) make loans or lend portfolio
securities in accordance with the Fund's investment policies, (ii) enter into
repurchase agreements, (iii) purchase all or a portion of an issue of publicly
distributed debt securities, bank loan participation interests, bank
certificates of deposit, acceptances, debentures or other securities, whether or
not the purchase is made upon the original issuance of the securities, (iv)
participate in a credit facility whereby the Fund may directly lend to and
borrow money from other affiliated funds to the extent permitted under the 1940
Act or an exemption therefrom and (v) make loans in any other manner consistent
with applicable law, as amended and interpreted or modified from time to time by
any regulatory authority having jurisdiction.

(5) Invest in commodities or commodity contracts, except that the Fund may
invest in currency instruments and contracts and financial instruments and
contracts that might be deemed to be commodities and commodity contracts. A
futures contract, for example, may be deemed to be a commodity contract.

(6) Act as an underwriter, except insofar as the Fund technically may be deemed
to be an underwriter in connection with the purchase or sale of its portfolio
securities.

(7) Invest 25% or more of the value of its total assets in any one industry,
provided that this limitation does not apply to the purchase of obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities.

(8) Amend its policy to invest at least 80% of its assets in Senior Loans.

All other investment policies of the Fund are considered non-fundamental and may
be changed by the Board of Trustees without prior approval of the Fund's
outstanding voting shares.

The Fund has not adopted a fundamental policy prohibiting or limiting the Fund's
use of short sales, purchases on margin and the writing of put and call options.
The Fund is subject, however, to the limitations on its use of these investments
under the 1940 Act and the rules and interpretive positions of the SEC under the
1940 Act. Certain other non-fundamental investment policies are included in the
prospectus under "Investment Objectives and Principal Investment Strategies" and
this statement of additional information under "Investment Objectives and
Policies."

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

In addition, to comply with U.S. federal income tax requirements for
qualification as a "regulated investment company," the Fund's investments will
be limited in a manner such that at the close of each quarter of each tax year,
(a) no more than 25% of the value of the Fund's total assets are invested in the
securities (other than U.S. government securities or securities of other
regulated investment companies) of a single issuer or two or more issuers
controlled by the Fund and engaged in the same, similar or related trades or
businesses and (b) with regard to at least 50% of the Fund's total assets, the
securities (other than U.S. government securities or securities of other
regulated investment companies) of a single issuer do not represent more than 5%
of the value of the Fund's total assets and do not represent more than 10% of
the outstanding voting securities of such issuer. These tax-related limitations
may be changed by the Trustees to the extent appropriate in light of changes to
applicable tax requirements.

The Fund intends to apply for ratings for the preferred shares from one or more
nationally recognized statistical rating organizations. In order to obtain and
maintain the required ratings, the Fund will be required to comply with
investment quality, diversification and other guidelines established by such
rating agency or agencies. Such guidelines will likely be more restrictive than
the restrictions set forth above. The Fund does not anticipate that such
guidelines would have a material adverse effect on the Fund's holders of common
shares or its ability to achieve its investment objective. The Fund presently
anticipates that any preferred shares that it intends to issue would be
initially given the highest ratings by such rating agency or agencies, but no
assurance can be given that such ratings will be obtained. No minimum rating is
required for the issuance of preferred shares by the Fund.

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

The Fund's Board of Trustees provides broad supervision over the Fund's affairs.
The officers of the Fund are responsible for the Fund's operations. The Fund's
Trustees and officers are listed below, together with their principal
occupations during the past five years. Asterisks indicate those Trustees who
are interested persons of the Fund within the meaning of the 1940 Act, and such
Trustees are referred to as "Interested Trustees." Trustees who are not
interested persons of the Fund are referred to as "Independent Trustees." Each
of the Trustees serves as a trustee of each of the 72 U.S. registered investment
portfolios for which Pioneer Investment Management, Inc., the fund's investment
adviser, serves as investment adviser (the "Pioneer Funds"). The address for all
Interested Trustees and all officers of the Fund is 60 State Street, Boston,
Massachusetts 02109.

POSITIONS TERM OF OFFICE
NAME, AGE AND HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS
ADDRESS THE FUND SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE
---------------------------- ------------------- ------------------------ ------------------------------- ---------------------

INTERESTED TRUSTEES:

John F. Cogan, Jr. (78)* Chairman of the Since November 2004. Deputy Chairman and a Director of Harbor
Board, Trustee and Term expires in 2007. Director of Pioneer Global Global Company, Ltd.
President Asset Management S.p.A.
("PGAM"); Non-Executive
Chairman and a Director of
Pioneer Investment Management
USA Inc. ("PIM-USA"); Chairman
and a Director of Pioneer;
Director of Pioneer Alternative
Investment Management Limited
(Dublin); President and a
Director of Pioneer Alternative
Investment Management (Bermuda)
Limited and affiliated funds;
President and Director of
Pioneer Funds Distributor,
Inc.; President of all of the
Pioneer Funds; and Of Counsel
(since 2000, partner prior to
2000), Wilmer Cutler Pickering
Hale and Dorr LLP (counsel to
PIM-USA and the Pioneer Funds)

Osbert M. Hood* Trustee and Since October 2004. Term President and Chief Executive None
(52) Executive Vice expires in 2005. Officer, PIM-USA since May,
President 2003 (Director since January,
2001); President and Director
of Pioneer since May, 2003;
Chairman and Director of
Pioneer Investment Management
Shareholder Services, Inc.
("PIMSS") since May, 2003;
Executive Vice President of all
of the Pioneer Funds since June
3, 2003; Executive Vice
President and Chief Operating
Officer of PIMUSA, November
2000 - May 2003; Executive Vice
President, Chief Financial
Officer and Treasurer, John
Hancock Advisers, LLC, Boston,
MA, November 1999 - November
2000; Senior Vice President and
Chief Financial Officer, John
Hancock Advisers, LLC, April
1997 - November 1999

INDEPENDENT TRUSTEES:

Mary K. Bush (56) Trustee Since November 2004. President, Bush International Director of Brady
3509 Woodbine Street; Term expires in 2006. (international financial Corporation
Chevy Chase, MD 20815 advisory firm) (industrial
identification and
specialty coated
material products
manufacturer),
Millennium
Chemicals, Inc.
(commodity
chemicals), Mortgage
Guaranty Insurance
Corporation, and
R.J. Reynolds
Tobacco Holdings,
Inc. (tobacco)

Richard H. Egdahl, M.D. (77) Trustee Since November 2004. Alexander Graham Bell None
Boston University Term expires in 2007. Professor of Health Care
Healthcare Entrepreneurship Entrepreneurship, Boston
Program, 53 Bay State Road, University; Professor of
Boston, MA 02215 Management, Boston University
School of Management;
Professor of Public Health,
Boston University School of
Public Health; Professor of
Surgery, Boston University
School of Medicine; and
University Professor, Boston
University

Margaret B.W. Graham (57) Trustee Since November 2004. Founding Director, The None
1001 Sherbrooke Street Term expires in 2005. Winthrop Group, Inc.
West, Montreal, Quebec, (consulting firm);
Canada Professor of Management,
Faculty of Management,
McGill University

Marguerite A. Piret (56) Trustee Since November 2004. President and Chief Executive Director, New
One Boston Place, 26th Term expires in 2006. Officer, Newbury, Piret & America High Income
Floor, Boston, MA 02108 (investment Company, Inc. Fund, Inc.
banking firm) (closed-end
investment company)

Stephen K. West (76) Trustee Since November 2004. Senior Counsel, Sullivan & Director, The Swiss
125 Broad Street, New York, Term expires in 2007. Cromwell (law firm) Helvetia Fund, Inc.
NY 10004 (closed-end
investment company)
and AMVESCAP PLC
(investment
managers)

John Winthrop (68) Trustee Since November 2004. President, John Winthrop & None
One North Adgers Wharf, Term expires in 2005. Co., Inc. (private investment
firm)

Charleston, SC 29401 firm)

FUND OFFICERS:

Dorothy E. Bourassa (56) Secretary Since October 2004. Secretary of PIM-USA; Senior None
Serves at the discretion Vice President-Legal of
of board Pioneer; and Secretary/Clerk
of most of PIM-USA's
subsidiaries since October
2000; Secretary of all of the
Pioneer Funds since September
2003 (Assistant Secretary
from November 2000 to
September 2003); and Senior
Counsel, Assistant Vice
President and Director of
Compliance of PIM-USA from
April 1998 through October
2000

Christopher J. Kelley (39) Assistant Secretary Since October 2004. Assistant Vice President and None
Serves at the discretion Senior Counsel of Pioneer
of board since July 2002; Vice
President and Senior Counsel
of BISYS Fund Services, Inc.
(April 2001 to June 2002);
Senior Vice President and
Deputy General Counsel of
Funds Distributor, Inc. (July
2000 to April 2001; Vice
President and Associate
General Counsel from July
1996 to July 2000); Assistant
Secretary of all of the
Pioneer Funds since September
2003

David C. Phelan (47) Assistant Secretary Since October 2004. Partner, Wilmer Cutler None
Serves at the discretion Pickering Hale and Dorr LLP;
of board Assistant Secretary of all of
the Pioneer Funds since
September 2003

Vincent Nave (59) Treasurer Since October 2004. Vice President-Fund None
Serves at the discretion Accounting, Administration
of board and Custody Services of
Pioneer (Manager from
September 1996 to February
1999); and Treasurer of all
of the Pioneer Funds
(Assistant Treasurer from
June 1999 to November 2000)

FUND OFFICERS:

Mark E. Bradley (45) Assistant Treasurer Since November 2004. Deputy Treasurer of Pioneer None
Serves at the discretion since 2004; Treasurer and
of the board Senior Vice President, CDC
IXIS Asset Management
Services from 2002 to 2003;
Assistant Treasurer and Vice
President, MFS Investment
Management from 1997 to 2002;
and Assistant Treasurer of
all of the Pioneer Funds
since November 2004

Luis I. Presutti (39) Assistant Treasurer Since October 2004. Assistant Vice President-Fund None
Serves at the discretion Accounting, Administration
of board and Custody Services of
Pioneer (Fund Accounting
Manager from 1994 to 1999);
and Assistant Treasurer of
all of the Pioneer Funds
since November 2000

Gary Sullivan (46) Assistant Treasurer Since October 2004. Fund Accounting Manager - None
Serves at the discretion Fund Accounting,
of board Administration and Custody
Services of Pioneer; and
Assistant Treasurer of all of
the Pioneer Funds since May
2002

Katharine Kim Sullivan (30) Assistant Treasurer Since October 2004. Fund Administration None
Serves at the discretion Manager-Fund Accounting,
of board Administration and Custody
Services since June 2003;
Assistant Vice
President-Mutual Fund
Operations of State Street
Corporation from June 2002 to
June 2003 (formerly Deutsche
Bank Asset Management);
Pioneer Fund Accounting,
Administration and Custody
Services (Fund Accounting
Manager from August 1999 to
May 2002, Fund Accounting
Services Supervisor from 1997
to July 1999); Assistant
Treasurer of all of the
Pioneer Funds since September
2003

FUND OFFICERS:

Martin J. Wolin (37) Chief Compliance Since October 2004. Chief Compliance Officer of None
Officer Serves at the discretion Pioneer (Director of
of the Board Compliance and Senior Counsel
from November 2000 to
September 2004); Vice
President and Associate
General Counsel of UAM Fund
Services, Inc. (mutual fund
administration company) from
February 1998 to November
2000; and Chief Compliance
Officer of all of the Pioneer
Funds.

* Mr. Cogan and Mr. Hood are Interested Trustees because each is an officer or
director of Pioneer and certain of its affiliates.

The outstanding capital stock of Pioneer is indirectly majority owned by
UniCredito Italiano S.p.A. ("UniCredito"), one of the largest banking groups in
Italy.

The Fund's Board of Trustees consists of eight members. The term of one class
expires each year commencing with the first annual meeting following this public
offering and no term shall continue for more than three years after the
applicable election. The terms of Ms. Graham, Mr. Hood and Mr. Winthrop at the
first annual meeting following this public offering, the terms of Ms. Bush and
Ms. Piret expire at the second annual meeting, and the terms of Mr. Cogan, Dr.
Egdahl and Mr. West expire at the third annual meeting. Subsequently, each class
of Trustees will stand for election at the conclusion of its respective term.
Such classification may prevent replacement of a majority of the Trustees for up
to a two-year period.

BOARD COMMITTEES

The Board of Trustees has an Audit Committee, an Independent Trustees Committee,
a Nominating Committee, a Valuation Committee and a Policy Administration
Committee. Committee members are as follows:

AUDIT COMMITTEE

Marguerite A. Piret (Chair), Margaret B.W. Graham and John Winthrop

INDEPENDENT TRUSTEES COMMITTEE

Mary K. Bush, Richard H. Egdahl, Margaret B.W. Graham (Chair), Marguerite A.
Piret, Stephen K. West and John Winthrop

NOMINATING COMMITTEE

Mary K. Bush, Richard H. Egdahl (Chair) and Marguerite A. Piret

VALUATION COMMITTEE

Marguerite A. Piret (Chair), Stephen K. West and John Winthrop

POLICY ADMINISTRATION COMMITTEE

Mary K. Bush (Chair), Richard H. Egdahl and Margaret B.W. Graham

The Board of Trustees has adopted a charter for the Audit Committee. In
accordance with its charter, the purposes of the Audit Committee are to:

- act as a liaison between the Fund's independent public accounting firm and
the full Board of Trustees of the Fund;

- discuss with the Fund's independent public accounting firm and its
judgments about the quality of the Fund's accounting principles and
underlying estimates as applied in the Fund's financial reporting;

- together with the Independent Trustees Committee, review and assess the
renewal materials of all related party contracts and agreements, including
investment advisory agreements, underwriting contracts, administration
agreements, and transfer agency contracts, among any other instruments and
agreements that may be appropriate from time to time; and

- ensure that the independent public accounting firm submits on a periodic
basis to the Audit Committee a formal written statement delineating all
relationships between the auditors and the Fund or Pioneer; actively to
engage in a dialogue with the independent public accounting firm with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent public accounting firm;
and to recommend that the Trustees take appropriate action in response to
the independent public accounting firm's report to satisfy itself of the
independent public accounting firm's independence.

The Nominating Committee reviews the qualifications of any candidate recommended
by the Independent Trustees to serve as an Independent Trustee and makes a
recommendation regarding that person's qualifications. The Committee does not
accept nominations from shareholders.

The Valuation Committee reviews the valuation assigned to certain securities by
Pioneer in accordance with the Fund's valuation procedures.

The Policy Administration Committee reviews the implementation of certain of the
Fund's administration policies and procedures.

The Independent Trustees Committee reviews the Fund's investment advisory
agreement and other related party contracts annually and is also responsible for
any other action required to be taken, under the 1940 Act, by the Independent
Trustees acting alone.

The Fund's Declaration of Trust provides that the Fund will indemnify the
Trustees and officers against liabilities and expenses incurred in connection
with any litigation in which they may be involved because of their offices with
the Fund, unless it is determined in the manner specified in the Declaration of
Trust that they have not acted in good faith in the reasonable belief that their
actions were in the best interests of the Fund or that such indemnification
would relieve any officer or Trustee of any liability to the Fund or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.

COMPENSATION OF OFFICERS AND TRUSTEES

The Fund pays no salaries or compensation to any of its officers. The Pioneer
Funds, including the Fund, compensate their trustees as follows:

- If the Pioneer Fund has assets greater than $250 million, the Pioneer Fund
pays each Independent Trustee an annual base fee calculated on the basis
of the Pioneer Fund's net assets.

- If the Pioneer Fund has assets less than $250 million, the Pioneer Fund
pays each Independent Trustee an annual fee of $1,000.

- If the Pioneer Fund has assets greater than $50 million, the Pioneer Fund
pays each Interested Trustee an annual fee of $500, and if the Pioneer
Fund has assets less than $50 million, the Pioneer Fund pays each
Interested Trustee and annual fee of $200 (Pioneer reimburses the Fund for
these fees).

- Each Pioneer Fund with assets greater than $250 million pays each
Independent Trustee who serves on a board committee an annual committee
fee based the Pioneer Fund's net assets (with additional compensation for
chairpersons of such committees).

The following table sets forth certain information with respect to the
compensation paid to each Trustee by the Fund and the Pioneer Funds as a group.
Compensation from the Fund is for the current calendar year and is estimated.
Total compensation from the Pioneer Funds as a group is for the calendar year
ended December 31, 2003.

TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM THE FUND
COMPENSATION ACCRUED AS PART OF BENEFIT UPON AND OTHER
NAME OF TRUSTEE FROM FUND* FUND EXPENSES RETIREMENT PIONEER FUNDS**

INTERESTED TRUSTEES:
John F. Cogan, Jr. *** $ 500.00 $0.00 $0.00 $ 19,200.00
Osbert M. Hood *** + $ 500.00 $0.00 $0.00 $ 11,520.00
INDEPENDENT TRUSTEES:
Mary K. Bush $ 3,167.00 $0.00 $0.00 $104,000.00
Richard H. Egdahl, M.D. $ 3,167.00 $0.00 $0.00 $ 99,750.00
Margaret B.W. Graham $ 3,167.00 $0.00 $0.00 $104,000.00
Marguerite A. Piret $ 3,167.00 $0.00 $0.00 $113,562.50
Stephen K. West $ 3,167.00 $0.00 $0.00 $ 99,750.00
John Winthrop $ 3,167.00 $0.00 $0.00 $ 99,750.00
========== ===== ===== ===========
$20,002.00 $0.00 $0.00 $651,532.50

* Estimated for the fiscal year ending November 30, 2005.

** For the calendar year ended December 31, 2003. There are 65 U.S.
registered investment portfolios in the Pioneer Family of Funds.

*** Under the investment advisory agreement, Pioneer reimburses the Fund for
any Trustee fees paid by the Fund.

+ Mr. Hood became a trustee of the other Pioneer Funds during the calendar
year 2003.

OWNERSHIP OF SHARES OF THE FUND AND OTHER PIONEER FUNDS

The following table indicates the value of shares that each Trustee beneficially
owns in the Fund and the Pioneer Funds in the aggregate. The value of shares of
the Fund and any other closed-end fund are determined based on closing market
price on December 31, 2003. The value of shares of any Pioneer Fund that is an
open-end investment company is determined on the basis of the net asset value of
the class of shares held as of December 31, 2003. The value of the shares held
are stated in ranges in accordance with the requirements of the SEC. The table
reflects the Trustee's beneficial ownership of shares of the Pioneer Funds.
Beneficial ownership is determined in accordance with the rules of the SEC.

AGGREGATE DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT
NAME OF TRUSTEE SECURITIES IN THE FUND COMPANIES IN THE PIONEER FUNDS

INTERESTED TRUSTEES:
John F. Cogan, Jr. none Over $100,000
Osbert M. Hood none Over $100,000
INDEPENDENT TRUSTEES:
Mary K. Bush none $10,001-$50,000
Richard H. Egdahl, M.D. none $50,001-$100,000
Margaret B.W. Graham none $10,001-$50,000
Marguerite A. Piret none $50,001-$100,000
Stephen K. West none Over $100,000
John Winthrop none Over $100,000

MATERIAL RELATIONSHIPS OF THE INDEPENDENT TRUSTEES. For purposes of the
statements below:

- the immediate family members of any person includes their spouse, children
in the person's household (including step and adoptive children) and any
dependent of the person.

- an entity in a control relationship means any person who controls, is
controlled by or is under common control with the named person. For
example, UniCredito is an entity that is in a control relationship with
Pioneer.

- a related fund is a registered investment company or an entity exempt from
the definition of an investment company pursuant to Sections 3(c)(1) or
3(c)(7) of the 1940 Act, for which Pioneer or any of its affiliates act as
investment adviser, or for which PFD or any of its affiliates act as
principal underwriter. For example, the Fund's related funds include all
of the Pioneer Funds and any non-U.S. funds managed by Pioneer or its
affiliates.

As of December 31, 2003, none of the Independent Trustees, nor any of their
immediate family members, beneficially own any securities issued by Pioneer,
UniCredito or any other entity in a control relationship to Pioneer.

During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediately family members, had any direct or indirect interest
(the value of which exceeded $60,000), whether by contract, arrangement or
otherwise, in Pioneer, UniCredito or any other entity in a control relationship
to Pioneer.

During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediately family members, had an interest in a transaction or a
series of transactions, or in any currently proposed transaction, or series of
similar transactions, in which the aggregate amount involved exceeded $60,000
and to which any of the following were a party (each a "fund related party"):

- the Fund

- an officer of the Fund

- a related fund

- an officer of any related fund

- Pioneer

- an officer of Pioneer

- an entity in a control relationship to Pioneer

- an officer of any such entity in a control relationship to Pioneer

During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, had any relationship (the value of which
exceeded $60,000) with any fund related party, including, but not limited to,
relationships arising out of (i) the payments for property and services, (ii)
the provision of legal services, (iii) the provision of investment banking
services (other than as a member of the underwriting syndicate) or (iv) [the
provision of consulting services, except that Mr. West, an Independent Trustee,
is Senior Counsel to Sullivan & Cromwell and acts as counsel to the Independent
Trustees and the Independent Trustees of the other Pioneer Funds. The aggregate
compensation paid to Sullivan & Cromwell by the other Pioneer Funds was
approximately $53,000 and $125,603 in 2002 and 2003, respectively.

During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, served as a member of a board of
directors of a company on which an officer of any of the following entities also
serves as a director:

- Pioneer

- UniCredito

- any other entity in a control relationship with Pioneer

None of the Fund's Trustees or officers has any arrangement with any other
person pursuant to which that Trustee or officer serves on the Board of
Trustees. During the calendar years 2002 and 2003, none of the Independent
Trustees,

nor any of their immediate family members, had any position, including as an
officer, employee, director or partner, with any of the following:

- the Fund

- any related fund

- Pioneer

- any affiliated person of the Fund or Pioneer

- UniCredito

- any other entity in a control relationship to the Fund or Pioneer

FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE INVESTMENT
ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT.

The 1940 Act requires that a fund's investment advisory and subadvisory
agreements be approved annually by both the Board of Trustees and a majority of
the Independent Trustees voting separately. The Independent Trustees have
determined that the terms of the Fund's investment advisory agreement and
subadvisory agreement are fair and reasonable and that the contracts are in the
Fund's best interest. The Independent Trustees believe that the investment
advisory agreement and subadvisory agreement will enable the Fund to enjoy high
quality investment advisory and subadvisory services at a cost they deem
appropriate, reasonable and in the best interests of the Fund and its
shareholders. In making such determinations, the Independent Trustees met
independently from the Interested Trustees of the Fund and any officers of
Pioneer, Highland, or their affiliates. The Independent Trustees also relied
upon the assistance of counsel to the Independent Trustees and counsel to the
Fund.

In evaluating the investment advisory agreement and subadvisory agreement, the
Independent Trustees reviewed materials furnished by Pioneer, including
information regarding Pioneer, its affiliates and their personnel, operations
and financial condition, and materials furnished by Highland, including
information regarding Highland, its affiliates and their personnel, operations
and financial condition. The Independent Trustees discussed with representatives
of both firms the Fund's proposed operations and their respective abilities to
provide advisory and other services to the Fund. The Independent Trustees also
reviewed:

- the experience of Highland in managing other portfolios with significant
investments in Senior Loans and the performance of such portfolios;;

- the experience of the investment advisory and other personnel who would be
providing services to the Fund and the historical quality of the services
provided by Pioneer and Highland;

- the fee charged by Pioneer for investment advisory and administrative
services, as well as other compensation received by PIMSS, and the fees
Pioneer would pay to Highland;

- the Fund's projected total operating expenses, and Pioneer's agreement to
limit the Fund's expenses for three years;

- the fees and total expenses of investment companies with similar
objectives and strategies managed by other investment advisers; and

- the expected profitability to Pioneer of managing the Fund.

The Independent Trustees considered the following as relevant to their
recommendations: (1) the favorable history, reputation, qualification and
background of Pioneer, UniCredito and Highland, as well as the qualifications of
their personnel; (2) that the fee and expense ratios of the Fund are reasonable
given the quality of services expected to be provided and are comparable to or
lower than the fees and expense ratios of similar investment companies,
particularly other closed-end investment companies which are expected to be
leveraged that invest in dividend-paying equity securities and municipal
securities; and (3) the performance of other funds advised by Pioneer

and Highland that invest a significant portion of their assets in senior loans.
The Independent Trustees deemed each of these factors to be relevant to their
consideration of the Fund's investment advisory agreement and subadvisory
agreement.

CODE OF ETHICS

The Fund and Pioneer have adopted a code of ethics under Rule 17j-1 of the 1940
Act that is applicable to officers, directors/trustees and designated employees
of Pioneer and Pioneer Investment Management Limited ("PIML"). The code permits
such persons to engage in personal securities transactions for their own
accounts, including securities that may be purchased or held by the Fund, and is
designed to prescribe means reasonably necessary to prevent conflicts of
interest from arising in connection with personal securities transactions. The
code is on public file with and available from the SEC.

INVESTMENT ADVISER AND SUBADVISER

The Fund has contracted with Pioneer to act as its investment adviser. Pioneer
is an indirect, majority owned subsidiary of UniCredito. Pioneer is part of the
global asset management group providing investment management and financial
services to mutual funds, institutional and other clients. As of October 31,
2004, assets under management were approximately $159 billion worldwide,
including over $36 billion in assets under management by Pioneer. Certain
Trustees or officers of the Fund are also directors and/or officers of certain
of UniCredito's subsidiaries. Pioneer has entered into an agreement with its
affiliate, PIML, pursuant to which PIML provides certain services and personnel
to Pioneer.

Pioneer has engaged Highland Capital Management, L.P. (as defined above
"Highland") to act as the Fund's subadviser. Highland is a limited partnership
100% owned by its employees. Highland has one general partner, Strand Advisors,
Inc. Strand Advisors, Inc. is a Delaware corporation. As of September 30, 2004,
Highland had approximately $10 billion in assets under management.

As the Fund's investment adviser, Pioneer oversees the Fund's operations and
supervises Highland, which is responsible for the day-to-day management of the
Fund's portfolio (see "Investment Subadviser" below). Except as otherwise
provided under "Investment Subadviser" below, Pioneer also maintains books and
records with respect to the Fund's securities transactions, and reports to the
Trustees on the Fund's investments and performance. The Highland's expertise in
managing portfolios of Senior Loans and structured finance assets is
particularly suited to the Fund's focus on Senior Loans. Highland has strong
expertise in syndicated loans, high yield bonds and distressed investments.

In its capacity as subadviser to the Fund, Highland is responsible for the
selection and on-going monitoring of assets in the Fund's investment portfolio
and foreign currency hedging. Highland provides the Fund with investment
research, advice and supervision and furnishes the Fund with an investment
program consistent with the Fund's investment objectives and policies, subject
to the supervision of the Adviser and the Fund's Trustees. Highland determines
what portfolio securities will be purchased or sold, arranges for the placing of
orders for the purchase or sale of portfolio securities, selects brokers or
dealers to place those orders, maintains books and records with respect to the
Fund's securities transactions, and reports to the Trustees on the Fund's
investments and performance.

Highland is a defendant in an action entitled Richard Haskell, et al v. Goldman
Sachs & Co., Mellon Bank, N.A., Highland Capital Management, L.P., Genesis
Health Ventures, Inc. ("Genesis"), and George V. Hager, which was commenced on
January 27, 2004. The action was brought in the Supreme Court of the State of
New York, New York County, but has been moved to the U.S. Bankruptcy Court in
Wilmington, Delaware. The case was brought by certain junior creditors of
Genesis alleging fraud, conspiracy to commit fraud, and gross negligence with
respect to the defendants' actions as senior creditors in connection with
Genesis's Chapter 11 bankruptcy proceeding. The plaintiffs are seeking damages
in excess of $200 million. A motion to dismiss filed by the defendants is
currently pending.

Under the investment advisory agreement, Pioneer is not liable to the Fund
except by willful malfeasance, bad faith, gross negligence or reckless disregard
of its duties and obligations. In providing its services to the Fund, Pioneer
may draw upon the research and investment management expertise of Pioneer's
affiliate, PIML.

The Fund will enter into an administration agreement with the Adviser, pursuant
to which the Adviser will provide certain administrative and accounting services
to the Fund. The Adviser has appointed Princeton Administrators, L.P. as the
sub-administrator to the Fund to perform certain of the Adviser's administration
and accounts obligations to the Fund. Under the administration agreement, the
Fund will pay the Adviser a monthly fee equal to .07% of the Fund's average
daily managed assets up to $500 million and .03% for average daily managed
assets in excess of $500 million. The Adviser, and not the Fund, is responsible
for paying the fees of Princeton Administrators, L.P. Princeton

Administrators, L.P. is affiliated with Merrill, Lynch & Co., one of the
underwriters of the Fund's offering of common shares.

Pursuant to a separate agreement, the Fund may compensate the Adviser for
providing certain legal and accounting services.

PIMSS has entered into a transfer agency agreement with the Fund pursuant to
which PIMSS provides certain transfer agency services to the Fund. Under the
transfer agency agreement, the Fund will reimburse PIMSS for its cost of
providing such services to the Fund. PIMSS has retained Mellon Investor
Services, LLC ("Mellon") to provide sub-transfer agent, registrar, shareholder
servicing agent and dividend dispersing agent services for the Fund. The Fund
will pay PIMSS a fee for such services. The transfer agency agreement may be
terminated by the Fund or PIMSS (without penalty) at any time upon not less than
60 days' prior written notice to the other party to the agreement.

DIRECT REGISTRATION OF FUND SHARES. Through Mellon, the Fund has made its common
shares eligible for inclusion in the direct registration system ("DRS")
administered by The Depository Trust Company ("DTC"), wherein Mellon will
process transfers of common shares utilizing DTC's Profile Modification System.

COMPENSATION AND EXPENSES

Under the investment advisory agreement, the Fund will pay to Pioneer monthly,
as compensation for the services rendered and expenses paid by it, a fee equal
on an annual basis to 0.70% of the Fund's average daily managed assets. Because
the fees paid to Pioneer are determined on the basis of the Fund's managed
assets, Pioneer's interest in determining whether to leverage the Fund may
differ from the interests of the Fund. The advisory fee payable by the Fund to
Pioneer is higher than the fees paid by most U.S. investment companies.

The Fund's average daily managed assets are determined for the purpose of
calculating the advisory fee by taking the average of all the daily
determinations of total assets during a given calendar month. The fee is payable
for each calendar month as soon as practicable after the end of that month.

Under the terms of its investment advisory agreement with the Fund, Pioneer pays
all the operating expenses, including executive salaries and the rental of
office space, relating to its services for the Fund, with the exception of the
following, which are to be paid by the Fund: (a) charges and expenses for fund
accounting, pricing and appraisal services and related overhead, including, to
the extent such services are performed by personnel of Pioneer or its
affiliates, office space and facilities and personnel compensation, training and
benefits; (b) the charges and expenses of auditors; (c) the charges and expenses
of any administrator, custodian, transfer agent, plan agent, dividend disbursing
agent and registrar appointed by the Fund; (d) issue and transfer taxes
chargeable to the Fund in connection with securities transactions to which the
Fund is a party; (e) insurance premiums, interest charges, expenses in
connection with any preferred shares, organizational and offering expenses, dues
and fees for membership in trade associations and all taxes and corporate fees
payable by the Fund to federal, state or other governmental agencies; (f) fees
and expenses involved in registering and maintaining registrations of the Fund
and/or its shares with federal regulatory agencies, state or blue sky securities
agencies and foreign jurisdictions, including the preparation of prospectuses
and statements of additional information for filing with such regulatory
authorities; (g) all expenses of shareholders' and Trustees' meetings and of
preparing, printing and distributing prospectuses, notices, proxy statements and
all reports to shareholders and to governmental agencies; (h) charges and
expenses of legal counsel to the Fund and the Trustees; (i) compensation of
those Trustees of the Fund who are not affiliated with or interested persons of
Pioneer or the Fund (other than as Trustees); (j) the cost of preparing and
printing share certificates; (k) interest on borrowed money, if any; (l) the
fees and other expenses of listing the Fund's shares on the New York Stock
Exchange or any other national stock exchange; and (m) any other expense that
the Fund, Pioneer or any other agent of the Fund may incur (I) as a result of a
change in the law or regulations, (II) as a result of a mandate from the Board
of Trustees with associated costs of a character generally assumed by similarly
structured investment companies or (III) that is similar to the expenses listed
above, and that is approved by the Board of Trustees (including a majority of
the Trustees who are not affiliates of Pioneer) as being an appropriate expense
of the Fund. In addition, the Fund will pay all brokers' and underwriting
commissions or other fees chargeable to the Fund in connection with securities
transactions to which the Fund is a party or the origination of any Senior Loan
in which the Fund invests.

INVESTMENT SUBADVISER. As described in the prospectus, Highland serves as the
Fund's investment subadviser. Highland will, among other things, regularly
provide the Fund with investment research, advice and supervision, and furnish
continuously an investment program for the Fund and, subject to the supervision
of Pioneer, manage the investment and reinvestment of the Fund's assets.
Highland, a Delaware limited partnership, is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act").
Highland was established in 1993 and had, as of September 30, 2004,
approximately $10 billion in assets under management. Highland's principal place
of business is located at 13455 Noel Road, Suite 1300, Dallas, Texas 75240.

Pioneer and Highland have entered into a subadvisory contract, dated as of
December 22, 2004, pursuant to which Highland has agreed, among other things,
to:

- comply with the provisions of the Fund's Declaration of Trust and
By-laws, the 1940 Act, the Advisers Act and the investment
objectives, policies and restrictions of the Fund;

- not take any action to cause the Fund to fail to comply with the
requirements of Subchapter M of the Code for qualification as a
regulated investment company;

- comply with any policies, guidelines, procedures and instructions as
Pioneer may from time to time establish;

- be responsible for voting proxies and acting on other corporate
actions if authorized to do so by the Board of Trustees or by
Pioneer;

- maintain separate books and detailed records of all matters
pertaining to the portion of the Fund's assets advised by Highland
required by Rule 31a-1 under the 1940 Act relating to its
responsibilities provided under the subadvisory agreement with
respect to the Fund;

- require that its Access Persons comply in all respects with
Highland's Code of Ethics, as in effect from time to time; and

- furnish reports to the Trustees and Pioneer.

SUBADVISORY FEE. For its services, Highland is entitled to a subadvisory fee
from Pioneer at an annual rate of 0.35% of the Fund's average daily managed
assets as set forth below. The fee will be paid monthly in arrears. The Fund
does not pay a fee to Highland.

Pioneer has received an order from the Securities and Exchange Commission that
permits Pioneer, subject to the approval of the Fund's Board of Trustees, to
hire and terminate a subadviser or to materially modify an existing subadvisory
agreement for the Fund without shareholder approval. Pioneer retains the
ultimate responsibility to oversee and recommend the hiring, termination and
replacement of any subadviser.

EXPENSE LIMIT. Pioneer has agreed for the first three years of the Fund's
investment operations to limit the Fund's total expenses (excluding offering
costs for common and preferred shares, interest expense, the cost of defending
or

prosecuting any claim or litigation to which the Fund is a party (together with
any amount in judgment or settlement), indemnification expenses or taxes
incurred due to the failure of the Fund to qualify as a regulated investment
company under the Code or any other nonrecurring or non-operating expenses) to
0.95% of the Fund's average daily managed assets. The dividend on any preferred
shares is not an expense.

DURATION AND TERMINATIONS; NONEXCLUSIVE SERVICES

The economic terms of the investment advisory and subadvisory agreements were
approved by the Fund's Board of Trustees at a meeting of the Board of Trustees
held on December 2, 2004, including a majority of the Trustees who are not
parties to the agreement or interested persons of any such party (as such term
is defined in the 1940 Act). The 1940 Act requires that the investment advisory
agreement be approved by a majority of the Fund's Board of Trustees, including a
majority of the Trustees who are not interested persons as that term is defined
in the 1940 Act, at an in person meeting of the Board of Trustees.

The investment advisory and subadvisory agreements were approved by the sole
common shareholder of the Fund as of December 8, 2004.

Unless earlier terminated as described below, the investment advisory agreement
will remain in effect for two years from the date of its execution and from year
to year thereafter if approved annually (i) by a majority of the Independent
Trustees of the Fund and (ii) by the Board of Trustees or by a majority of the
outstanding voting securities of the Fund. The investment advisory agreement may
be terminated without penalty on 60 days' written notice by either party thereto
or by a vote of a majority of the outstanding voting securities of the Fund and
will terminate in the event it is assigned (as defined in the 1940 Act). The
services of Pioneer are not deemed to be exclusive, and nothing in the relevant
agreement will prevent Pioneer or its affiliates from providing similar services
to other investment companies and other clients (whether or not their investment
objectives and policies are similar to those of the Fund) or from engaging in
other activities.

POTENTIAL CONFLICTS OF INTEREST

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

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

PORTFOLIO TRANSACTIONS

All orders for the purchase or sale of portfolio securities are placed on behalf
of the Fund by Highland pursuant to authority contained in the Fund's investment
subadvisory agreement. Securities purchased and sold on behalf of the Fund
normally will be traded in the over-the-counter market on a net basis (i.e.,
without commission) through dealers acting for their own account and not as
brokers or otherwise through transactions directly with the issuer of the
instrument. The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the prices at which securities are
purchased and sold from and to dealers include a dealer's markup

or markdown. Highland normally seeks to deal directly with the primary market
makers unless, in its opinion, better prices are available elsewhere. Some
securities are purchased and sold on an exchange or in over-the-counter
transactions conducted on an agency basis involving a commission. Pioneer seeks
to obtain the best execution on portfolio trades. The price of securities and
any commission rate paid are always factors, but frequently not the only
factors, in judging best execution. In selecting brokers or dealers, Highland
considers various relevant factors, including, but not limited to, the size and
type of the transaction; the nature and character of the markets for the
security to be purchased or sold; the execution efficiency, settlement
capability and financial condition of the dealer; the dealer's execution
services rendered on a continuing basis; and the reasonableness of any dealer
spreads.

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

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

The Pioneer Funds have entered into third-party brokerage and/or expense offset
arrangements to reduce the Funds' total operating expenses. Pursuant to
third-party brokerage arrangements, certain of the funds that invest primarily
in U.S. equity securities may incur lower custody fees by directing brokerage to
third-party broker-dealers. Pursuant to expense offset arrangements, the funds
incur lower transfer agency expenses by maintaining their cash balances with the
custodian.

The Board of Trustees periodically reviews Pioneer's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund.

REPURCHASE OF COMMON SHARES

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), net asset value, call protection, dividend stability, relative demand
for and supply of such shares in the market, general market and economic
conditions and other factors. Shares of closed-end funds frequently trade at a
discount to their net asset value. Common shares of closed-end investment
companies like the Fund that invest predominantly in Senior Loans have during
some periods traded at prices higher than their net asset value (at a "premium")
and during other periods traded at prices lower than their net asset value (at a
"discount"). This is in part because the market price reflects the dividend
yield on the common shares. When the yield on the net asset value per share is
higher than yields generally available in the market for comparable securities,
the market price will tend to

reflect this by trading higher than the net asset value per share to adjust the
yield to a comparable market rate. To the extent the common shares do trade at a
discount, the Fund's Board of Trustees may from time to time engage in open
market repurchases or tender offers for shares after balancing the benefit to
shareholders of the increase in the net asset value per share resulting from
such purchases against the decrease in the assets of the Fund and potential
increase in the expense ratio of expenses to assets of the Fund and consequent
reduction in yield. The Board of Trustees believes that in addition to the
beneficial effects described above, any such purchases or tender offers may
result in the temporary narrowing of any discount but will not have any
long-term effect on the level of any discount.

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

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

Although the decision to take action in response to a discount from net asset
value will be made by the Board of Trustees at the time it considers such issue,
it is the board's present policy, which may be changed by the Board of 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 the Fund's
status as a regulated investment company under the Code (which would make the
Fund a taxable entity, causing the Fund's income to be taxed at the corporate
level in addition to the taxation of shareholders who receive dividends from the
Fund) or 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 New York banks, (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 foreign 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 that
would have a material adverse effect (including any adverse tax effect) on the
Fund or its shareholders if shares were repurchased. The Board of Trustees may
in the future modify these conditions in light of experience.

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

In addition, a purchase by the Fund of its common shares will decrease the
Fund's total assets, which would likely have the effect of increasing the Fund's
expense ratio. Any purchase by the Fund of its common shares at a time when
preferred shares are outstanding will increase the leverage applicable to the
outstanding common shares then remaining.

Before deciding whether to take any action if the common shares trade below net
asset value, the Fund's Board of Trustees would likely 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 Board of Trustees may
determine that, in the interest of the Fund and its shareholders, no action
should be taken.

FEDERAL INCOME TAX MATTERS

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

The Fund intends to elect to be treated and to qualify each year as a "regulated
investment company" under Subchapter M of the Code so that it generally will not
pay U.S. federal income tax on income of the Fund, including net capital gains
distributed to shareholders. In order to qualify as a regulated investment
company under Subchapter M of the Code, which qualification this discussion
assumes, the Fund must, among other things, derive at least 90% of its gross
income for each taxable year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, or other income (including gains from options, futures
and forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "90% income test"). In addition to
satisfying the requirements described above, the Fund must satisfy an asset
diversification test in order to qualify as a regulated investment company.
Under this test, at close of each quarter of the Fund's taxable year, at least
50% of the value of the Fund's assets must consist of cash and cash items
(including receivables), U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Fund must not have invested more than 5% of the value of the Fund's total assets
in securities of any one such issuer and as to which the Fund must not have held
more than 10% of the outstanding voting securities of any one such issuer), and
no more than 25% of the value of its total assets may be invested in the
securities (other than U.S. Government securities and securities of other
regulated investment companies) of any one issuer, or of two or more issuers
which the Fund controls and which are engaged in the same or similar or related
trades or businesses.

The American Jobs Creation Act of 2004 (the "2004 Tax Act"), which the President
recently signed into law, provides that for taxable years of a regulated
investment company beginning after October 22, 2004, net income derived from an
interest in a "qualified publicly traded partnership," as defined in the Code,
will be treated as qualifying income for purposes of the 90% income test, and
for the purposes of the diversification requirements described above, the
outstanding voting securities of any issuer includes the equity securities of a
qualified publicly traded partnership and no more than 25% of the value of a
regulated investment company's total assets may be invested in the securities of
one or more qualified publicly traded partnerships. In addition, the separate
treatment for publicly traded partnerships under the passive loss rules of the
Code applies to a regulated investment company holding an interest in a
qualified publicly traded partnership, with respect to items attributable to
such interest.

If the Fund qualifies as a regulated investment company and, for each taxable
year, it distributes to its shareholders an amount equal to or exceeding the sum
of (i) 90% of its "investment company taxable income" as that term is defined in
the Code (which includes, among other things, dividends, taxable interest, and
the excess of any net short-term capital gains over net long-term capital
losses, as reduced by certain deductible expenses) and (ii) 90% of the excess of
its gross tax-exempt interest, if any, over certain disallowed deductions, the
Fund generally will not be

subject to U.S. federal income tax on any income of the Fund, including "net
capital gain" (the excess of net long-term capital gain over net short-term
capital loss), distributed to shareholders. However, if the Fund has met such
distribution requirements but chooses not to retain some portion of its
investment company taxable income or net capital gain, it generally will be
subject to U.S. federal income tax at regular corporate rates on the amount
retained. The Fund intends to distribute at least annually all or substantially
all of its investment company taxable income, net tax-exempt interest, and net
capital gain. If for any taxable year, the Fund did not qualify as a regulated
investment company, it would be treated as a corporation subject to U.S. federal
income tax and all distributions out of earnings and profits would be taxed to
shareholders as ordinary income. In addition, the Fund could be required to
recognize unrealized gains, pay taxes and make distributions (which could be
subject to interest charges) before requalifying as a regulated investment
company.

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

Commencing within approximately 90 days from the date of the filing of the
prospectus, the Fund intends to declare a dividend from all or a portion of its
net investment income monthly. The Fund intends to distribute any net short- and
long-term capital gains at least annually. Dividends from income and/or capital
gains may also be paid at such other times as may be necessary for the Fund to
avoid U.S. federal income or excise tax.

Unless a shareholder is ineligible to participate or elects otherwise, all
distributions from the Fund will be automatically reinvested in additional
shares of the Fund. For U.S. federal income tax purposes, all dividends
generally are taxed as described below whether a shareholder takes them in cash
or reinvests them in additional shares of the Fund. In general, assuming that
the Fund has sufficient earnings and profits, dividends from investment company
taxable income are taxable as ordinary income and distributions from net capital
gain, if any, that are designated as capital gain dividends are taxable as
long-term capital gains for U.S. federal income tax purposes without regard to
the length of time the shareholder has held shares of the Fund. Since the Fund's
income is derived primarily from interest, dividends of the Fund from its
investment company taxable income generally will not constitute "qualified
dividend income" for federal income tax purposes and thus will not be eligible
for the favorable federal long-term capital gain tax rates on qualified dividend
income. In addition, the Fund's dividends are not expected to qualify for any
dividends-received deduction that might otherwise be available for certain
dividends received by shareholders that are corporations. Capital gain dividends
distributed by the Fund to individual shareholders generally will qualify for
the maximum 15% U.S. federal tax rate on long-term capital gains. Under current
law, the maximum 15% U.S. federal tax rate on qualified dividend income and
long-term capital gains will cease to apply to taxable years beginning after
December 31, 2008.

In the case of newly issued shares of the Fund (i.e. when there is a market
premium), the amount of the distribution and the basis for federal income tax
purposes of the shares to the shareholders will be equal to the fair market
value of the shares on the distribution date. In the case of shares acquired
through open market purchases (i.e. when there is a market discount), the amount
of the distribution and the basis to shareholders will be equal to the cash they
would have received had they elected to receive cash.

Although dividends generally will be treated as distributed when paid, any
dividend declared by the Fund as of a record date in October, November or
December and paid during the following January will be treated for U.S. federal
income tax purposes as received by shareholders on December 31 of the calendar
year in which it is declared. In addition, certain other distributions made
after the close of a taxable year of the Fund may be "spilled back" and treated
as paid by the Fund (except for purposes of the 4% excise tax) during such
taxable year. In such case, shareholders generally will be treated as having
received such dividends in the taxable year in which the distributions were
actually made.

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

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

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

For U.S. federal income tax purposes, the Fund is permitted to carry forward an
unused net capital loss for any year to offset its capital gains, if any, for up
to eight years following the year of the loss. To the extent subsequent capital
gains are offset by such losses, they would not result in U.S. federal income
tax liability to the Fund and are not expected to be distributed as such to
shareholders.

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

Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain options and futures contracts relating to foreign currency, foreign
currency forward contracts, foreign currencies, or payables or receivables
denominated in a foreign currency are

subject to Section 988 of the Code, which generally causes such gains and losses
to be treated as ordinary income and losses and may affect the amount, timing
and character of distributions to shareholders. Under Treasury regulations that
may be promulgated in the future, any gains from such transactions that are not
directly related to the Fund's principal business of investing in stock or
securities (or its options contracts or futures contracts with respect to stock
or securities) may have to be limited in order to enable the Fund to satisfy the
90% income test. If the net foreign exchange loss for a year were to exceed the
Fund's investment company taxable income (computed without regard to such loss),
the resulting ordinary loss for such year would not be deductible by the Fund or
its shareholders in future years.

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

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

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

The federal income tax treatment of the Fund's investment in transactions
involving swaps, caps, floors, and collars and structured securities is
uncertain and may be subject to recharacterization by the IRS. To the extent the
tax treatment of such securities or transactions differs from the tax treatment
expected by the Fund, the timing or character of income recognized by the Fund
could be affected, 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.

The IRS has taken the position that if a regulated investment company has two
classes or more of shares, it must designate distributions made to each class in
any year as consisting of no more than such class's proportionate share of
particular types of income, net capital gain, and ordinary income. A class's
proportionate share of a particular type of income is determined according to
the percentage of total dividends paid by the regulated investment company to
such class. Consequently, if both common shares and preferred shares are
outstanding, the Fund intends to designate distributions made to the classes of
particular types of income in accordance with the classes' proportionate shares
of such income. Thus, the Fund will designate dividends constituting capital
gain dividends and other taxable dividends in a manner that allocates such
income between the holders of common shares and preferred shares in proportion
to the total dividends paid to each class during the taxable year, or otherwise
as required by applicable law.

The Fund may be subject to withholding and other taxes imposed by foreign
countries, including taxes on interest, dividends and capital gains with respect
to its investments in those countries, which would, if imposed, reduce the yield
on or return from those investments. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. The Fund does not
expect to satisfy the requirements for passing through to its shareholders their
pro rata shares of qualified foreign taxes paid by the Fund, with the general
result that shareholders would not be entitled to any deduction or credit for
such taxes on their own tax returns.

Federal law requires that the Fund withhold (as "backup withholding") 28% of
reportable payments, including dividends, capital gain distributions and the
proceeds of redemptions and exchanges or repurchases of Fund shares, paid to
shareholders who have not complied with IRS regulations. In order to avoid this
withholding requirement, shareholders must certify on their Account
Applications, or on separate IRS Forms W-9, that the Social Security Number or
other Taxpayer Identification Number they provide is their correct number and
that they are not currently subject to backup withholding, or that they are
exempt from backup withholding. The Fund may nevertheless be required to
withhold if it receives notice from the IRS or a broker that the number provided
is incorrect or backup withholding is applicable as a result of previous
underreporting of interest or dividend income.

The description of certain U.S. federal tax provisions above relates only to
U.S. federal income tax consequences for shareholders who are U.S. persons,
i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or
estates, and who are subject to U.S. federal income tax. Investors other than
U.S. persons may be subject to different U.S. tax treatment, including a
non-resident alien U.S. withholding tax at the rate of 30% or at a lower treaty
rate on amounts treated as ordinary dividends from the Fund and, unless an
effective IRS Form W-8BEN or other authorized withholding certificate is on
file, to backup withholding at the rate of 28% on certain other payments from
the Fund. Under the provisions the 2004 Tax Act, dividends paid by the Fund to
non-U.S. shareholders that are derived from short-term capital gains and
qualifying net interest income (including income from original issue discount
and market discount), and that are properly designated by the Fund as
"interest-related dividends" or "short-term capital gain dividends," will
generally not be subject to U.S. withholding tax, provided that the income would
not be subject to federal income tax if earned directly by the non-U.S.
shareholder. In addition, pursuant to the 2004 Tax Act, distributions of the
Fund attributable to gains from sales or exchanges of "U.S. real property
interests" (as defined in the Code and regulations) (including certain U.S. real
property holding corporations) will generally be subject to U.S. withholding tax
and may give rise to an obligation on the part of the non-U.S. shareholder to
file a United States tax return. The provisions contained in the 2004 Tax Act
relating to distributions to shareholders who are non-U.S. persons generally
will apply to distributions with respect to taxable years of the Fund beginning
after December 31, 2004 and before January 1, 2008. Shareholders should consult
their own tax advisers on these matters and on state, local, foreign and other
applicable tax laws.

PERFORMANCE-RELATED, COMPARATIVE AND OTHER INFORMATION

PERFORMANCE-RELATED INFORMATION. From time to time, in advertisements, in sales
literature or in reports to shareholders, the past performance of the Fund may
be illustrated and/or compared with that of other investment companies with a
similar investment objectives. For example, yield or total return of the Fund's
shares may be compared to averages or rankings prepared by Lipper, Inc., a
widely recognized independent service which monitors mutual fund performance;
the S&P 500 Index; the Russell U.S. Equity Indexes; the Dow Jones Industrial
Average; the Wilshire Total Market Value Index,; or other comparable indices or
investment vehicles. In addition, the performance of the Fund's shares may be
compared to alternative investment or savings vehicles and/or to indices or
indicators of economic activity, e.g., inflation or interest rates. The Fund may
also include securities industry or comparative performance information
generally and in advertising or materials marketing the Fund's shares.
Performance rankings and listings reported in newspapers or national business
and financial publications, such as Barron's, Business Week, Consumers Digest,
Consumer Reports, Financial World, Forbes, Fortune, Investors Business Daily,
Kiplinger's Personal Finance Magazine, Money Magazine, New York Times, Smart
Money, USA Today, U.S. News and World Report, The Wall Street Journal and Worth,
may also be cited (if the Fund is listed in any such publication) or used for
comparison, as well as performance listings and rankings from various other
sources including Bloomberg Financial Markets, CDA/Wiesenberger, Donoghue's
Mutual Fund Almanac, Ibbotson Associates, Investment Company Data, Inc.,
Johnson's Charts, Kanon Bloch Carre and Co., Lipper, Inc., Micropal, Inc.,
Morningstar, Inc., Schabacker Investment Management and Towers Data Systems,
Inc. In addition, from time to time, quotations from articles from financial
publications such as those listed above may be used in advertisements, in sales
literature or in reports to shareholders of the Fund.

The Fund may also present, from time to time, historical information depicting
the value of a hypothetical account in one or more classes of the Fund since
inception.

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

PIONEER. From time to time, Pioneer or the Fund may use, in advertisements or
information furnished to present or prospective shareholders, information
regarding Pioneer including, without limitation, information regarding Pioneer's
and Highland's investment style, countries of operation, organization,
professional staff, clients (including other registered investment companies),
assets under management and performance record. These materials may refer to
opinions or rankings of Pioneer's and Highland's overall investment management
performance contained in third-party reports or publications. Pioneer's U.S.
mutual fund investment history includes creating in 1928 one of the first mutual
funds. Pioneer has traditionally served a mutual fund and an institutional
clientele. Pioneer has more than [ ] equity and fixed-income managers and
analysts worldwide.

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

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The statements of assets and liabilities and operations of the Fund as of
December 8, 2004 appearing in this statement of additional information has been
audited by Ernst & Young LLP, independent registered public accounting firm, as
set forth in its 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. Ernst & Young LLP, located at 200 Clarendon Street,
Boston, Massachusetts 02116, provides accounting, auditing and tax preparation
services to the Fund.

ADDITIONAL INFORMATION

A Registration Statement on Form N-2, including amendments thereto, relating to
the shares offered hereby, has been filed by the Fund with the SEC, Washington,
D.C. The prospectus and this statement of additional information do not contain
all of the information set forth in the Registration Statement, including any
exhibits and schedules thereto. For further information with respect to the Fund
and the shares offered hereby, reference is made to the

Registration Statement. Statements contained in the prospectus and this
statement of additional information as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. A copy of the Registration Statement may be inspected without
charge at the SEC's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the SEC upon the payment of certain fees
prescribed by the SEC.

FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

PIONEER FLOATING RATE TRUST

STATEMENT OF ASSETS AND LIABILITIES

December 8, 2004

ASSETS:

Cash $ 100,084
Receivable from Investment Adviser 40,000
Deferred offering costs 1,016,100
----------
Total
assets $1,156,184
----------

LIABILITIES:
Accrued organizational
Expenses $ 40,000
Accrued offering costs 1,016,100
----------
Total liabilities $1,056,100
----------

Net Assets (5,240, common shares issued and outstanding;
unlimited shares authorized) $ 100,084
----------
Net asset value per share $ 19.10
----------

STATEMENT OF OPERATIONS
ONE DAY ENDED December 08, 2004

Investment income $ --
--------
Organizational expenses 40,000

Less: Reimbursement from Investment
Adviser (40,000)
--------
Net Expenses --

Net Investment income $ --
--------

NOTES

1. ORGANIZATION

Pioneer Floating Rate Trust (the "Trust") is a non-diversified, closed-end
management investment company organized under the Investment Company Act of 1940
on October 6, 2004, which has had no operations other than the sale and issuance
of 5,240 shares at an aggregate purchase price of $100,084 to Pioneer Funds
Distributor, Inc., an affiliate of Pioneer Investment Management, Inc.
("Pioneer" or the "Adviser"). The Adviser has agreed to reimburse all of the
Trust's organizational expenses and the amount by which the aggregate of all
offering costs (other than the sales load but including reimbursement of
underwriters' expenses of $0.00667 per common share) exceeds $0.04 per common
share. The line items Receivable from Investment Adviser and Reimbursement from
Investment Adviser reflect the anticipated reimbursement by the Adviser of the
Trust's organizational expenses. Offering costs, estimated to be approximately
$1,016,100, up to $0.04 per common share, will be charged to the Trust's
paid-in-capital at the time shares of beneficial interest are sold.

2. ACCOUNTING POLICIES

The preparation of the financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from these estimates.

3. AGREEMENTS

The Trust has entered into an advisory agreement with the Adviser, which, upon
commencement of investment operations, provides for payment of a monthly fee
computed at the annual rate of 0.70% of the Trust's average daily Managed
Assets. "Managed Assets" means the total assets of the Trust (including any
assets attributable to leverage) minus accrued liabilities (other than
liabilities representing leverage). For purposes of calculating "Managed
Assets," the liquidation preference of any preferred shares outstanding is not
considered a liability. Pioneer Investment Management Shareholder Services, Inc.
("PIMSS"), a wholly owned indirect subsidiary of UniCredito Italiano S.p.A., and
a affiliate of the Adviser, has contracted with the Trust to provide transfer
agent and shareholder services to the Trust. PIMSS has retained Mellon Investor
Services, LLC ("Mellon") to provide sub-transfer agent, registrar, shareholder
servicing agent and dividend dispersing agent services for the Trust. The Trust
will pay PIMSS its cost of providing such services to the Trust, including the
cost of Mellon's services.

As described in the prospectus, Highland Capital Management, L.P. ("Highland")
serves as the Trust's investment subadviser. Highland will, among other things,
regularly provide the Trust with investment research, advice and supervision and
furnish continuously an investment program for the Trust and, subject to the
supervision of Pioneer, manage the investment and reinvestment of the Trust's
assets. For its services, Highland is entitled to a subadvisory fee from Pioneer
at an annual rate of 0.35% of the Trust's average daily Managed Assets as set
forth below. The fee will be paid monthly in arrears. The Trust does not pay a
fee to Highland.

The Adviser has agreed for the first three years of the Trust's investment
operations to limit the Trust's total annual expenses (excluding offering costs
for common and preferred shares, interest expense, the cost of defending or
prosecuting any claim or litigation to which the Trust is a party [together with
any amount in judgment or settlement], indemnification expenses or taxes
incurred due to the failure of the Trust to qualify as a regulated investment
company under the Internal Revenue Code or any other non-recurring or
non-operating expenses) to 0.95% of the Trust's average daily Managed Assets.
The dividend on any preferred shares is not an expense.

The Trust has entered into an administration agreement with the Adviser,
pursuant to which the Adviser will provide certain administrative and accounting
services to the Trust. The Adviser has appointed Princeton Administrators, L.P.
("Princeton") as the sub-administrator to the Trust to perform certain of the
Adviser's administration and accounts obligations to the Trust. Under the
administration agreement, the Trust will pay the Adviser a monthly fee equal to
0.07% of the Trust's average daily Managed Assets up to $500 million and 0.03%
for average daily Managed Assets in excess of $500 million. The Adviser, and not
the Trust, is responsible for paying the fees of Princeton, which is affiliated
with Merrill, Lynch & Co., one of the underwriters of the Trust's offering of
common shares. Pursuant to a separate agreement, the Trust may compensate the
Adviser for providing certain legal and accounting services.

4. FEDERAL INCOME TAXES

The Trust intends to qualify as a "regulated investment company" and to comply
with the applicable provisions of the Internal Revenue Code, such that it will
not be subject to Federal income tax on taxable income (including realized
capital gains) that is distributed to shareholders.

Report of Independent Registered Public Accounting Firm

To the Shareholder and
Board of Trustees of
Pioneer Floating Rate Trust

We have audited the accompanying statement of assets and liabilities of Pioneer
Floating Rate Trust (the "Trust") as of December 8, 2004 (date of
capitalization) and the related statement of operations for the one-day period
then ended. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Pioneer Floating Rate Trust at
December 8, 2004 (date of capitalization), and the results of its operations for
the one-day period then ended, in conformity with U.S. generally accepted
accounting principles.

ERNST & YOUNG LLP

December 15, 2004
Boston, Massachusetts

APPENDIX A - DESCRIPTION OF RATINGS(1)

MOODY'S PRIME RATING SYSTEM

Moody's short-term ratings are opinions of the ability of issuers to honor
senior financial obligations and contracts. Such obligations generally have an
original maturity not exceeding one year, unless explicitly noted.

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

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

Leading market positions in well-established industries.

High rates of return on funds employed.

Conservative capitalization structure with moderate reliance on debt and ample
asset protection. Broad margins in earnings coverage of fixed financial charges
and high internal cash generation. Well-established access to a range of
financial markets and assured sources of alternate liquidity.

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

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

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

In addition, in certain countries the prime rating may be modified by the
issuer's or guarantor's senior unsecured long-term debt rating.

MOODY'S DEBT RATINGS

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

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

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

Baa: Bonds and preferred stock which are rated Baa are considered as
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the

A-1

present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.

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

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

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

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

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

Moody's assigns ratings to individual debt securities issued from medium-term
note ("MTN") programs, in addition to indicating ratings to MTN programs
themselves. Notes issued under MTN programs with such indicated ratings are
rated at issuance at the rating applicable to all pari passu notes issued under
the same program, at the program's relevant indicated rating, provided such
notes do not exhibit any of the characteristics listed below. For notes with any
of the following characteristics, the rating of the individual note may differ
from the indicated rating of the program:

1) Notes containing features which link the cash flow and/or market value to the
credit performance of any third party or parties.

2) Notes allowing for negative coupons, or negative principal.

3) Notes containing any provision which could obligate the investor to make any
additional payments.

Market participants must determine whether any particular note is rated, and if
so, at what rating level.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the 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.

STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS

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-2

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.

STANDARD & POOR'S 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;

- 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 rating 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. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not conform exactly with the category definition.

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.

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-3

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: A subordinated debt or preferred stock obligation rated C is currently highly
vulnerable to nonpayment. The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued. A C also will be assigned to a preferred stock
issue in arrears on dividends or sinking fund payments, but that is currently
paying.

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.

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating.

N.R.: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.

LOCAL CURRENCY AND FOREIGN CURRENCY RISKS

Country risk considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key factor
in this analysis. An obligor's capacity to repay foreign currency obligations
may be lower than its capacity to repay obligations in its local currency due to
the sovereign government's own relatively lower capacity to repay external
versus domestic debt. These sovereign risk considerations are incorporated in
the debt ratings assigned to specific issues. Foreign currency issuer ratings
are also distinguished from local currency issuer ratings to identify those
instances where sovereign risks make them different for the same issuer.

A-4

PROXY VOTING POLICIES AND
PROCEDURES OF
PIONEER INVESTMENT
MANAGEMENT, INC.

B-1

TABLE OF CONTENTS

OVERVIEW.................................................................. 3

PROXY VOTING PROCEDURES................................................... 3

PROXY VOTING SERVICE.......................................... 3

PROXY COORDINATOR............................................. 4

REFERRAL ITEMS................................................ 4

CONFLICTS OF INTEREST......................................... 4

SECURITIES LENDING............................................ 5

SHARE-BLOCKING................................................ 5

RECORD KEEPING................................................ 5

DISCLOSURE.................................................... 6

PROXY VOTING OVERSIGHT GROUP.................................. 6

PROXY VOTING POLICIES..................................................... 7

ADMINISTRATIVE................................................ 7

AUDITORS...................................................... 8

BOARD OF DIRECTORS............................................ 8

CAPITAL STRUCTURE............................................. 10

COMPENSATION.................................................. 11

CORPORATE GOVERNANCE.......................................... 12

MERGERS AND RESTRUCTURINGS.................................... 13

MUTUAL FUNDS.................................................. 14

SOCIAL ISSUES................................................. 14

TAKEOVER-RELATED MEASURES..................................... 14

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OVERVIEW

Pioneer is a fiduciary that owes each of its client's duties of care and
loyalty with respect to all services undertaken on the client's behalf,
including proxy voting. When Pioneer has been delegated proxy-voting
authority for a client, the duty of care requires Pioneer to monitor
corporate events and to vote the proxies. To satisfy its duty of loyalty,
Pioneer must cast the proxy votes in a manner consistent with the best
interest of its clients and must place the client's interests ahead of its
own. Pioneer will vote all proxies presented to it in a timely manner on
its behalf.

The Proxy Voting Policies and Procedures are designed to complement
Pioneer's investment policies and procedures regarding its general
responsibility to monitor the performance and/or corporate events of
companies that are issuers of securities held in accounts managed by
Pioneer. These Proxy Voting Policies summarize Pioneer's position on a
number of issues solicited by underlying held companies. The policies are
guidelines that provide a general indication on how Pioneer would vote but
do not include all potential voting scenarios.

Pioneer's Proxy Voting Procedures detail monitoring of voting, exception
votes, and review of conflicts of interest and ensure that case-by-case
votes are handled within the context of the overall guidelines (i.e. best
interest of client). The overriding goal is that all proxies for US and
non-US companies that are received promptly will be voted in accordance
with Pioneer's policies or specific client instructions. All shares in a
company held by Pioneer-managed accounts will be voted alike, unless a
client has given us specific voting instructions on an issue or has not
delegated authority to us or the Director of Portfolio Management US
determines, after consultation with the Proxy Voting Oversight Group, that
the circumstances justify a different approach.

ANY QUESTIONS ABOUT THESE POLICIES AND PROCEDURES SHOULD BE DIRECTED TO
THE PROXY COORDINATOR.

PROXY VOTING PROCEDURES

PROXY VOTING SERVICE

Pioneer has engaged an independent proxy voting service to assist in the
voting of proxies. The proxy voting service works with custodians to
ensure that all proxy materials are received by the custodians and are
processed in a timely fashion. To the extent applicable, the proxy voting
service votes all proxies in accordance with the proxy voting policies
established by Pioneer. The proxy voting service will refer proxy
questions to the Proxy Coordinator (described below) for instructions
under circumstances where: (1) the application of the proxy voting
guidelines is unclear; (2) a particular proxy question is not covered by
the guidelines; or (3) the guidelines call for specific instructions on a
case-by-case basis. The proxy voting service is also requested to call to
the Proxy Coordinator's attention specific proxy questions that, while
governed by a guideline, appear to involve unusual or controversial
issues.

PROXY COORDINATOR

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Pioneer's Director of Investment Operations (the "Proxy Coordinator")
coordinates the voting, procedures and reporting of proxies on behalf of
Pioneer's clients. The Proxy Coordinator will deal directly with the proxy
voting service and, in the case of proxy questions referred by the proxy
voting service, will solicit voting recommendations and instructions from
the Director of Portfolio Management US. The Proxy Coordinator is
responsible for ensuring that these questions and referrals are responded
to in a timely fashion and for transmitting appropriate voting
instructions to the proxy voting service. The Proxy Coordinator is
responsible for verifying with the Compliance Department whether Pioneer's
voting power is subject to any limitations or guidelines issued by the
client (or in the case of an employee benefit plan, the plan's trustee or
other fiduciaries).

REFERRAL ITEMS

From time to time, the proxy voting service will refer proxy questions to
the Proxy Coordinator that are described by Pioneer's policy as to be
voted on a case-by-case basis, that are not covered by Pioneer's
guidelines or where Pioneer's guidelines may be unclear with respect to
the matter to be voted on. Under such certain circumstances, the Proxy
Coordinator will seek a written voting recommendation from the Director of
Portfolio Management US. Any such recommendation will include: (i) the
manner in which the proxies should be voted; (ii) the rationale underlying
any such decision; and (iii) the disclosure of any contacts or
communications made between Pioneer and any outside parties concerning the
proxy proposal prior to the time that the voting instructions are
provided. In addition, the Proxy Coordinator will ask the Compliance
Department to review the question for any actual or apparent conflicts of
interest as described below under "Conflicts of Interest." The Compliance
Department will provide a "Conflicts of Interest Report," applying the
criteria set forth below under "Conflicts of Interest," to the Proxy
Coordinator summarizing the results of its review. In the absence of a
conflict of interest, the Proxy Coordinator will vote in accordance with
the recommendation of the Director of Portfolio Management US.

If the matter presents a conflict of interest for Pioneer, then the Proxy
Coordinator will refer the matter to the Proxy Voting Oversight Group for
a decision. In general, when a conflict of interest is present, Pioneer
will vote according to the recommendation of the Director of Portfolio
Management US where such recommendation would go against Pioneer's
interest or where the conflict is deemed to be immaterial. Pioneer will
vote according to the recommendation of its proxy voting service when the
conflict is deemed to be material and the Pioneer's internal vote
recommendation would favor Pioneer's interest, unless a client
specifically requests Pioneer to do otherwise. When making the final
determination as to how to vote a proxy, the Proxy Voting Oversight Group
will review the report from the Director of Portfolio Management US and
the Conflicts of Interest Report issued by the Compliance Department.

CONFLICTS OF INTEREST

Occasionally, Pioneer may have a conflict that can affect how its votes
proxies. The conflict may be actual or perceived and may exist when the
matter to be voted on concerns:

- An affiliate of Pioneer, such as another company belonging to
the UniCredito Italiano S.p.A. banking group;

B-4

- An issuer of a security for which Pioneer acts as a sponsor,
advisor, manager, custodian, distributor, underwriter, broker,
or other similar capacity; or

- A person with whom Pioneer (or any of its affiliates) has an
existing, material contract or business relationship that was
not entered into in the ordinary course of Pioneer's business.

Any associate involved in the proxy voting process with knowledge of any
apparent or actual conflict of interest must disclose such conflict to the
Proxy Coordinator and the Compliance Department. The Compliance Department
will review each item referred to Pioneer to determine whether an actual
or potential conflict of interest with Pioneer exists in connection with
the proposal(s) to be voted upon. The review will be conducted by
comparing the apparent parties affected by the proxy proposal being voted
upon against the Compliance Department's internal list of interested
persons and, for any matches found, evaluating the anticipated magnitude
and possible probability of any conflict of interest being present. For
each referral item, the determination regarding the presence or absence of
any actual or potential conflict of interest will be documented in a
Conflicts of Interest Report to the Proxy Coordinator

SECURITIES LENDING

Proxies are not available to be voted when the shares are out on loan
through either Pioneer's Lending Program or a client's managed security
lending program. If the Portfolio Manager would like to vote a block of
previously lent shares, the Proxy Coordinator will work with the Portfolio
Manager and Investment Operations to recall the security, to the extent
possible, to facilitate the vote on the entire block of shares.

SHARE-BLOCKING

"Share-blocking" is a market practice whereby shares are sent to a
custodian (which may be different than the account custodian) for record
keeping and voting at the general meeting. The shares are unavailable for
sale or delivery until the end of the blocking period (typically the day
after general meeting date).

Pioneer will vote in those countries with "share-blocking." In the event a
manager would like to sell a security with "share-blocking", the Proxy
Coordinator will work with the Portfolio Manager and Investment Operations
Department to recall the shares (as allowable within the market time-frame
and practices) and/or communicate with executing brokerage firm. A list of
countries with "share-blocking" is available from the Investment
Operations Department upon request.

RECORD KEEPING

The Proxy Coordinator shall ensure that Pioneer's proxy voting service:

- Retains a copy of the proxy statement received (unless the
proxy statement is available from the SEC's Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system);

- Retains a record of the vote cast;

B-5

- Prepares Form N-PX for filing on behalf of each client that is
a registered investment company; and

- Is able to promptly provide Pioneer with a copy of the voting
record upon its request.

The Proxy Coordinator shall ensure that for those votes that may require
additional documentation (i.e. conflicts of interest, exception votes and
case-by-case votes) the following records are maintained:

- A record memorializing the basis for each referral vote cast;

- A copy of any document created by Pioneer that was material in
making the decision on how to vote the subject proxy; and

- A copy of any conflict notice, conflict consent or any other
written communication (including emails or other electronic
communications) to or from the client (or in the case of an
employee benefit plan, the plan's trustee or other
fiduciaries) regarding the subject proxy vote cast by, or the
vote recommendation of, Pioneer.

Pioneer shall maintain the above records in the client's file for a period
not less than six (6) years.

DISCLOSURE

Pioneer shall take reasonable measures to inform its clients of the
process or procedures clients must follow to obtain information regarding
how Pioneer voted with respect to assets held in their accounts. In
addition, Pioneer shall describe to clients its proxy voting policies and
procedures and will furnish a copy of its proxy voting policies and
procedures upon request. This information may be provided to clients
through Pioneer's Form ADV (Part II) disclosure, by separate notice to the
client, or by Pioneer's website.

PROXY VOTING OVERSIGHT GROUP

The members of the Proxy Voting Oversight Group are Pioneer's: Director of
Portfolio Management US, Head of Investment Operations, and Director of
Compliance. Other members of Pioneer will be invited to attend meetings
and otherwise participate as necessary.

The Proxy Voting Oversight Group is responsible for developing,
evaluating, and changing (when necessary) Pioneer's Proxy Voting Policies
and Procedures. The group meets at least annually to evaluate and review
these policies and procedures and the services of its third-party proxy
voting service. In addition, the Proxy Voting Oversight Group will meet as
necessary to vote on referral items and address other business as
necessary.

PROXY VOTING POLICIES

Pioneer's sole concern in voting proxies is the economic effect of the
proposal on the value of portfolio holdings, considering both the short-
and long-term impact. In many instances, Pioneer believes that supporting
the company's strategy and voting "for" management's proposals builds
portfolio value. In other cases,

B-6

however, proposals set forth by management may have a negative effect on
that value, while some shareholder proposals may hold the best prospects
for enhancing it. Pioneer monitors developments in the proxy-voting arena
and will revise this policy as needed.

All proxies for U.S. companies and proxies for non-U.S. companies that are
received promptly will be voted in accordance with the specific policies
listed below. All shares in a company held by Pioneer-managed accounts
will be voted alike, unless a client has given us specific voting
instructions on an issue or has not delegated authority to us. Proxy
voting issues will be reviewed by Pioneer's Proxy Voting Oversight Group,
which consists of the Director of Portfolio Management US, the Director of
Investment Operations (the Proxy Coordinator), and the Director of
Compliance.

Pioneer has established Proxy Voting Procedures for identifying and
reviewing conflicts of interest that may arise in the voting of proxies.

Clients may request, at any time, a report on proxy votes for securities
held in their portfolios and Pioneer is happy to discuss our proxy votes
with company management. Pioneer retains a proxy voting service to provide
research on proxy issues and to process proxy votes.

ADMINISTRATIVE

While administrative items appear infrequently in U.S. issuer proxies,
they are quite common in non-U.S. proxies.

We will generally support these and similar management proposals:

- Corporate name change.

- A change of corporate headquarters.

- Stock exchange listing.

- Establishment of time and place of annual meeting.

- Adjournment or postponement of annual meeting.

- Acceptance/approval of financial statements.

- Approval of dividend payments, dividend reinvestment plans and
other dividend-related proposals.

- Approval of minutes and other formalities.

- Authorization of the transferring of reserves and allocation
of income.

- Amendments to authorized signatories.

- Approval of accounting method changes or change in fiscal
year-end.

- Acceptance of labor agreements.

B-7

- Appointment of internal auditors.

Pioneer will vote on a case-by-case basis on other routine business;
however, Pioneer will oppose any routine business proposal if insufficient
information is presented in advance to allow Pioneer to judge the merit of
the proposal. Pioneer has also instructed its proxy voting service to
inform Pioneer of its analysis of any administrative items inconsistent,
in its view, with supporting the value of Pioneer portfolio holdings so
that Pioneer may consider and vote on those items on a case-by-case basis.

AUDITORS

We normally vote for proposals to:

- Ratify the auditors. We will consider a vote against if we are
concerned about the auditors' independence or their past work
for the company. Specifically, we will oppose the ratification
of auditors and withhold votes from audit committee members if
non-audit fees paid by the company to the auditing firm exceed
the sum of audit fees plus audit-related fees plus permissible
tax fees according to the disclosure categories proposed by
the Securities and Exchange Commission.

- Restore shareholder rights to ratify the auditors.

We will normally oppose proposals that require companies to:

- Seek bids from other auditors.

- Rotate auditing firms.

- Indemnify auditors.

- Prohibit auditors from engaging in non-audit services for the
company.

BOARD OF DIRECTORS

On issues related to the board of directors, Pioneer normally supports
management. We will, however, consider a vote against management in
instances where corporate performance has been very poor or where the
board appears to lack independence.

GENERAL BOARD ISSUES

Pioneer will vote for:

- Audit, compensation and nominating committees composed of
independent directors exclusively.

- Indemnification for directors for actions taken in good faith
in accordance with the business judgment rule. We will vote
against proposals for broader indemnification.

B-8

- Changes in board size that appear to have a legitimate
business purpose and are not primarily for anti-takeover
reasons.

- Election of an honorary director.

We will vote against:

- Separate chairman and CEO positions. We will consider voting
with shareholders on these issues in cases of poor corporate
performance.

- Minimum stock ownership by directors.

- Term limits for directors. Companies benefit from experienced
directors, and shareholder control is better achieved through
annual votes.

- Requirements for union or special interest representation on
the board.

- Requirements to provide two candidates for each board seat.

ELECTIONS OF DIRECTORS

In uncontested elections of directors we will vote against:

- Individual directors with absenteeism above 25% without valid
reason. We support proposals that require disclosure of
director attendance.

- Insider directors and affiliated outsiders who sit on the
audit, compensation, stock option or nominating committees.
For the purposes of our policy, we accept the definition of
affiliated directors provided by our proxy voting service.

We will also vote against directors who:

- Have implemented or renewed a dead-hand or modified dead-hand
poison pill (a "dead-hand poison pill" is a shareholder rights
plan that may be altered only by incumbent or "dead"
directors. These plans prevent a potential acquirer from
disabling a poison pill by obtaining control of the board
through a proxy vote).

- Have ignored a shareholder proposal that has been approved by
shareholders for two consecutive years.

- Have failed to act on a takeover offer where the majority of
shareholders have tendered their shares.

- Appear to lack independence or are associated with very poor
corporate performance.

We will vote on a case-by case basis on these issues:

- Contested election of directors.

- Prior to phase-in required by SEC, we would consider
supporting election of a majority of independent directors in
cases of poor performance.

- Mandatory retirement policies.

B-9

CAPITAL STRUCTURE

Managements need considerable flexibility in determining the company's
financial structure, and Pioneer normally supports managements' proposals
in this area. We will, however, reject proposals that impose high barriers
to potential takeovers.

Pioneer will vote for:

- Changes in par value.

- Reverse splits, if accompanied by a reduction in number of
shares.

- Share repurchase programs, if all shareholders may participate
on equal terms.

- Bond issuance.

- Increases in "ordinary" preferred stock.

- Proposals to have blank-check common stock placements (other
than shares issued in the normal course of business) submitted
for shareholder approval.

- Cancellation of company treasury shares.

We will vote on a case-by-case basis on the following issues:

- Reverse splits not accompanied by a reduction in number of
shares, considering the risk of delisting.

- Increase in authorized common stock. We will make a
determination considering, among other factors:

- Number of shares currently available for issuance;

- Size of requested increase (we would normally approve
increases of up to 100% of current authorization);

- Proposed use of the additional shares; and

- Potential consequences of a failure to increase
the number of shares outstanding (e.g., delisting
or bankruptcy).

- Blank-check preferred. We will normally oppose issuance of a
new class of blank-check preferred, but may approve an
increase in a class already outstanding if the company has
demonstrated that it uses this flexibility appropriately.

- Proposals to submit private placements to shareholder vote.

- Other financing plans.

We will vote against preemptive rights that we believe limit a company's
financing flexibility.

B-10

COMPENSATION

Pioneer supports compensation plans that link pay to shareholder returns
and believes that management has the best understanding of the level of
compensation needed to attract and retain qualified people. At the same
time, stock-related compensation plans have a significant economic impact
and a direct effect on the balance sheet. Therefore, while we do not want
to micromanage a company's compensation programs, we will place limits on
the potential dilution these plans may impose.

Pioneer will vote for:

- 401(k) benefit plans.

- Employee stock ownership plans (ESOPs), as long as shares
allocated to ESOPs are less than 5% of outstanding shares.
Larger blocks of stock in ESOPs can serve as a takeover
defense. We will support proposals to submit ESOPs to
shareholder vote.

- Various issues related to the Omnibus Budget and
Reconciliation Act of 1993 (OBRA), including:

- Amendments to performance plans to conform with
OBRA;

- Caps on annual grants or amendments of
administrative features;

- Adding performance goals; and

- Cash or cash-and-stock bonus plans.

- Establish a process to link pay, including stock-option
grants, to performance, leaving specifics of implementation to
the company.

- Require that option repricings be submitted to shareholders.

- Require the expensing of stock-option awards.

- Require reporting of executive retirement benefits (deferred
compensation, split-dollar life insurance, SERPs, and pension
benefits).

- Employee stock purchase plans where the purchase price is
equal to at least 85% of the market price, where the offering
period is no greater than 27 months and where potential
dilution (as defined below) is no greater than 10%.

We will vote on a case-by-case basis on the following issues:

- Executive and director stock-related compensation plans. We
will consider the following factors when reviewing these
plans:

- The program must be of a reasonable size. We will
approve plans where the combined employee and
director plans together would generate less than
15% dilution. We will reject plans with 15% or
more potential dilution.

Dilution = (A + B + C) / (A + B + C + D), where

B-11

A = Shares reserved for plan/amendment,

B = Shares available under continuing plans,

C = Shares granted but unexercised and

D = Shares outstanding.

- The plan must not:

- Explicitly permit unlimited option
repricing authority or that have
repriced in the past without shareholder
approval.

- Be a self-replenishing "evergreen" plan,
plans that grant discount options and
tax offset payments.

- We are generally in favor of proposals that
increase participation beyond executives.

- All other employee stock purchase plans.

- All other compensation-related proposals, including deferred
compensation plans, employment agreements, loan guarantee
programs and retirement plans.

- All other proposals regarding stock compensation plans,
including extending the life of a plan, changing vesting
restrictions, repricing options, lengthening exercise periods
or accelerating distribution of awards and pyramiding and
cashless exercise programs.

We will vote against:

- Limits on executive and director pay.

- Stock in lieu of cash compensation for directors.

- Pensions for non-employee directors. We believe these
retirement plans reduce director objectivity.

- Elimination of stock option plans.

CORPORATE GOVERNANCE

Pioneer will vote for:

- Confidential Voting.

- Equal access provisions, which allow shareholders to
contribute their opinion to proxy materials.

- Disclosure of beneficial ownership.

We will vote on a case-by-case basis on the following issues:

- Change in the state of incorporation. We will support
reincorporations supported by valid business reasons. We will
oppose those that appear to be solely for the purpose of
strengthening takeover defenses.

B-12

- Bundled proposals. We will evaluate the overall impact of the
proposal.

- Adopting or amending the charter, bylaws or articles of
association.

- Shareholder appraisal rights, which allow shareholders to
demand judicial review of an acquisition price. We believe
that the courts currently handle this situation adequately
without this mechanism.

We will vote against:

- Shareholder advisory committees. While management should
solicit shareholder input, we prefer to leave the method of
doing so to management's discretion.

- Limitations on stock ownership or voting rights.

- Reduction in share ownership disclosure guidelines.

MERGERS AND RESTRUCTURINGS

Pioneer will vote on the following and similar issues on a case-by-case
basis:

- Mergers and acquisitions.

- Corporate restructurings, including spin-offs, liquidations,
asset sales, joint ventures, conversions to holding company
and conversions to self-managed REIT structure.

- Debt restructurings.

- Conversion of securities.

- Issuance of shares to facilitate a merger.

- Private placements, warrants, convertible debentures.

- Proposals requiring management to inform shareholders of
merger opportunities.

We will normally vote against shareholder proposals requiring that the
company be put up for sale.

MUTUAL FUNDS

Many of our portfolios may invest in shares of closed-end mutual funds or
exchange-traded funds. The non-corporate structure of these investments
raises several unique proxy voting issues.

Pioneer will vote for:

- Establishment of new classes or series of shares.

- Establishment of a master-feeder structure.

B-13

Pioneer will vote on a case-by-case on:

- Changes in investment policy. We will normally support changes
that do not affect the investment objective or overall risk
level of the Fund. We will examine more fundamental changes on
a case-by-case basis.

- Approval of new or amended advisory contracts.

- Changes from closed-end to open-end format.

- Authorization for, or increase in, preferred shares.

- Disposition of assets, termination, liquidation, or mergers.

SOCIAL ISSUES

Pioneer will abstain on proposals calling for greater disclosure of
corporate activities with regard to social issues. We believe these issues
are important and should receive management attention.

Pioneer will vote against proposals calling for changes in the company's
business. We will also normally vote against proposals with regard to
contributions, believing that management should control the routine
disbursement of funds.

TAKEOVER-RELATED MEASURES

Pioneer is generally opposed to proposals that may discourage takeover
attempts. We believe that the potential for a takeover helps ensure that
corporate performance remains high.

Pioneer will vote for:

- Cumulative voting.

- Increase ability for shareholders to call special meetings.

- Increase ability for shareholders to act by written consent.

- Restrictions on the ability to make greenmail payments.

- Submitting rights plans to shareholder vote.

- Rescinding shareholder rights plans ("poison pills").

- Opting out of the following state takeover statutes:

- Control share acquisition statutes, which deny
large holders voting rights on holdings over a
specified threshold.

B-14

- Control share cash-out provisions, which require large holders
to acquire shares from other holders.

- Freeze-out provisions, which impose a waiting period on large
holders before they can attempt to gain control.

- Stakeholder laws, which permit directors to consider interests
of non-shareholder constituencies.

- Disgorgement provisions, which require acquirers to disgorge
profits on purchases made before gaining control.

- Fair price provisions.

- Authorization of shareholder rights plans.

- Labor protection provisions.

- Mandatory classified boards.

We will vote on a case-by-case basis on the following issues:

- Fair price provisions. We will vote against provisions
requiring supermajority votes to approve takeovers. We will
also consider voting against proposals that require a
supermajority vote to repeal or amend the provision. Finally,
we will consider the mechanism used to determine the fair
price; we are generally opposed to complicated formulas or
requirements to pay a premium.

- Opting out of state takeover statutes regarding fair price
provisions. We will use the criteria used for fair price
provisions in general to determine our vote on this issue.

- Proposals that allow shareholders to nominate directors.

We will vote against:

- Classified boards.

- Limiting shareholder ability to remove or appoint directors.
We will support proposals to restore shareholder authority in
this area. We will review on a case-by-case basis proposals
that authorize the board to make interim appointments.

- Classes of shares with unequal voting rights.

- Supermajority vote requirements.

- Severance packages ("golden" and "tin" parachutes). We will
support proposals to put these packages to shareholder vote.

- Reimbursement of dissident proxy solicitation expenses. While
we ordinarily support measures that encourage takeover bids,
we believe that management should have full control over
corporate funds.

- Extension of advance notice requirements for shareholder
proposals.

B-15

- Granting board authority normally retained by shareholders
(e.g., amend charter, set board size).

- Shareholder rights plans ("poison pills"). These plans
generally allow shareholders to buy additional shares at a
below-market price in the event of a change in control and may
deter some bids.

B-16

PART C - OTHER INFORMATION

Item 24. Financial Statements and Exhibits

1. Financial Statements.

The Registrant's statements of assets and liabilities and operations dated
December 8, 2004, notes to those financial statements and report of independent
registered public accountants thereon are included in the Registrant's
prospectus.

2. Exhibits:

(a)(1) Agreement and Declaration of Trust. (1)

(a)(2) Certificate of Trust. (1)

(b) By-Laws. (1)

(d) None.

(e) Automatic Dividend Reinvestment Plan. (2)

(f) None.

(g)(1) Form of Investment Advisory Agreement with Pioneer
Investment Management, Inc. (2)

(g)(2) Form of Subadvisory Agreement between Pioneer Investment
Management, Inc. and Highland Capital Management, L.P. (3)

(h) Form of Purchase Agreement among the Registrant, Pioneer
Investment Management, Inc., Highland Capital Management,
L.P. and the Underwriters. (3)

(i) None.

(j) Custodian Agreement. (3)

(k)(1) Form of Sub-Administration Agreement between Princeton
Administrators, L.P. and Pioneer Investment Management,
Inc. (3)

(k)(2) Form of Administration Agreement with Pioneer Investment
Management, Inc. (3)

(k)(3) Form of Investment Company Service Agreement. (2)

(k)(4) Form of Sub-Transfer Agent Services Agreement. (2)

(k)(5) Form of Additional Compensation Agreement with Merrill
Lynch.(3)

(k)(6) Form of Expense Limitation Agreement between the
Registrant and Pioneer Investment Management,Inc. (2)

(k)(7) Form of Additional Compensation Agreement with UBS
Securities.(3)

(k)(8) Administration Agreement. (3)

(l) Opinion of Counsel. (3)

(m) None.

(n) Consent of Independent Registered Public Accounting Firm.
(4)

(o) Not applicable.

(p) Initial Share Purchase Agreement. (2)

(q) None.

(r)(1) Pioneer Code of Ethics. (2)

(r)(2) Highland Capital Management, L.P. Code of Ethics. (2)

(s) Powers of Attorney. (2)

page 1

(1) Previously filed. Incorporated herein by reference from the exhibits filed
with the Registration Statement as filed with the Securities and Exchange
Commission (the "SEC") on October 13, 2004 (Accession No. 0000950135-04-004766).

(2) Previously filed. Incorporated herein by reference from the exhibits filed
with the Registration Statement as filed with the SEC on November 19, 2004
(Accession No. 0000950135-04-005442).

(3) Previously filed. Incorporated herein by reference from the exhibits filed
with the Registration Statement as filed with the SEC on December 16, 2004
(Accession No. 0000950135-04-005693).

(4) Filed herewith.

Item 25. Marketing Arrangements

Reference is made to the Purchase Agreement among the Registrant, Pioneer
Investment Management, Inc., Highland Capital Management, L.P. and the
Underwriters for the Registrant's common shares of beneficial interest to be
filed by amendment.

Item 26. Other Expenses and Distribution

The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:

Registration Fees $ 83,000.00
NASD Filing Fee and Application Fee $ 30,500.00
Printing (other than certificates) $ 350,000.00
Accounting Fees and Expenses $ 28,900.00
Legal Fees and Expenses $ 200,000.00
NYSE Listing Fee $ 85,000.00
Miscellaneous $ 5,250.00
Underwriting Fee $ 233,450.00

Total $1,016,100.00

Item 27. Persons Controlled by or Under Common Control

None

Item 28. Number of Holders of Securities

As of December 21, 2004, the number of record holders of each class of
securities of the Registrant was

(1) (2)
Title of Class Number of Record Holders

Common Shares (no par value) 1

page 2

Item 29. Indemnification

The Registrant's Agreement and Declaration of Trust (the "Declaration"), dated
October 6, 2004, provides that every person who is, or has been, a Trustee or an
officer, employee or agent of the Registrant (including any individual who
serves at its request as director, officer, partner, trustee or the like of
another organization in which it has any interest as a shareholder, creditor or
otherwise) ("Covered Person") shall be indemnified by the Registrant or the
appropriate series of the Registrant to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Covered
Person and against amounts paid or incurred by him in the settlement thereof;
provided that no indemnification shall be provided to a Covered Person (i) who
shall have been adjudicated by a court or body before which the proceeding was
brought (A) to be liable to the Registrant or its shareholders by reason of
willful malfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, or (B) not to have acted in good
faith in the reasonable belief that his action was in the best interest of the
Registrant; or (ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful malfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.

The Declaration also provides that if any shareholder or former shareholder of
any series of the Registrant shall be held personally liable solely by reason of
his being or having been a shareholder and not because of his acts or omissions
or for some other reason, the shareholder or former shareholder (or his heirs,
executors, administrators or other legal representatives or in the case of any
entity, its general successor) shall be entitled out of the assets belonging to
the applicable series of the Registrant to be held harmless from and indemnified
against all loss and expense arising from such liability. The Registrant, on
behalf of its affected series, shall, upon request by such shareholder, assume
the defense of any claim made against such shareholder for any act or obligation
of the series and satisfy any judgment thereon from the assets of the series.

Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "1933 Act"), may be available to Trustees, officers and
controlling persons of the Registration pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant's expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, 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 1933 Act and will be governed by the final
adjudication of such issue.

page 3

Item 30. Business and Other Connections of Investment Adviser

Pioneer Investment Management, Inc. ("Pioneer Investments") is a registered
investment adviser under the Investment Advisers Act of 1940, as amended, and is
an indirect, wholly owned subsidiary of UniCredito Italiano S.p.A.
("UniCredito"). Pioneer Investment manages investment companies, pension and
profit sharing plans, trust, estates or charitable organizations and other
corporations or business entities.

To the knowledge of the Registrant, none of Pioneer Investment's directors or
executive officers is or has been during their employment with Pioneer
Investments engaged in any other business, profession, vocation or employment of
a substantial nature for the past two fiscal years, except as noted below.
Certain directors and officers, however, may hold or may have held various
positions with, and engage or have engaged in business for, the investment
companies that Pioneer Investments manages and/or other Unicredito subsidiaries.

OTHER BUSINESS, PROFESSION, VOCATION OR
EMPLOYMENT OF SUBSTANTIAL NATURE WITH
NAME OF DIRECTOR/OFFICER LAST TWO FISCAL YEARS

John F. Cogan, Jr. Of Counsel, Wilmer Cutler Pickering Hale
and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109

Item 31. Location of Accounts and Records

The accounts and records are maintained at the Registrant's office at 60 State
Street, Boston, Massachusetts 02109; contact the Treasurer.

Item 32. Management Services

Not applicable.

Item 33. Undertakings

1. The Registrant undertakes to suspend the offering of shares until
the prospectus is amended if (1) subsequent to the effective date of
its registration statement, the net asset value declines more than
ten 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. (a) For the purpose of determining any liability under the 1933 Act,
the

page 4

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 1933 Act 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 1933 Act,
each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of 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 prominent delivery within two business
days of receipt of a written or oral request the Registrant's
statement of additional information.

page 5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and/or 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 the
City of Boston and Commonwealth of Massachusetts, on the 21st day of December,
2004.

PIONEER FLOATING RATE TRUST

By: /s/ Osbert M. Hood
-----------------------------------
Osbert M. Hood
Executive Vice 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 dates indicated.

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

* Chairman of the Board, Trustee, and December 21, 2004
------------------------------- President
John F. Cogan, Jr.

* Chief Financial Officer
------------------------------- and Treasurer December 21, 2004
Vincent Nave

* Trustee
-------------------------------
Mary K. Bush

* Trustee
-------------------------------
Richard H. Egdahl

* Trustee
-------------------------------
Margaret B.W. Graham

/s/ Osbert M. Hood Trustee
---------------------
Osbert M. Hood

* Trustee
-------------------------------
Marguerite A. Piret

* Trustee
-------------------------------
Steven K. West

* Trustee
-------------------------------
John Winthrop

* By: /s/ Osbert M. Hood December 21, 2004
-------------------------------------------
Osbert M. Hood, Attorney-in-Fact

page 6

EXHIBIT INDEX

The following exhibits are filed as part of this Registration Statement:

EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------

(n) Consent of Independent Registered Public Accounting Firm.

page 7