(WILMER CUTLER PICKERING HALE AND DORR LLP LOGO)
March 23, 2005 David C. Phelan
VIA EDGAR 60 Street
BOSTON, MA 02109
Securities and Exchange Commission + 1 617 526 6372
Judiciary Plaza + 1 617 526 5000 fax
450 Fifth Street, N.W. david.phelan@wilmerhale.com
Washington, DC 20549
Mail Stop 0505
Attention: Dominic Minore, Esq.
Division of Investment Management
Re: Pioneer Floating Rate Trust (the "Fund")
Registration Statement on Form N-2
Registration Numbers 333-121930; 811-21654
Dear Ladies and Gentlemen:
The following information, transmitted to you electronically on March
18, 2005, contains: (1) draft responses to comments of the staff of the
Commission transmitted orally by Mr. Dominic Minore relating to amendment No. 1
to the Fund's Registration Statement on Form N-2, filed with the Commission on
March 8, 2005; (2) revised disclosure included in the prospectus pertaining to
the risks of investing in auctions and inquiries by the Commission; (3) updated
the net asset and portfolio disclosure information as of March 11, 2005; (4) the
proposed language for the "Tandy" letter to be delivered by Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as representative of the underwriters and
(5) marked pages of the prospectus that reflects the above referenced revisions.
If you have any questions or comments, please do not hesitate to
contact me at (617) 526-6372, Julian Bobb, Esq. at (617) 526-6575 or Christina
Lim, Esq. at (617) 526-6451, counsel to the Fund.
Best regards,
/s/ David C. Phelan
David C. Phelan
Enclosures
cc: Christopher J. Kelley, Esq.
BALTIMORE BEIJING BERLIN BOSTON BRUSSELS LONDON
MUNICH NEW YORK NORTHERN VIRGINIA OXFORD WALTHAM WASHINGTON
(WILMER CUTLER PICKERING HALE AND DORR LLP LOGO)
March 18, 2005 David C. Phelan
VIA EDGAR 60 Street
BOSTON, MA 02109
Securities and Exchange Commission + 1 617 526 6372
Judiciary Plaza + 1 617 526 5000 fax
450 Fifth Street, N.W. david.phelan@wilmerhale.com
Washington, DC 20549
Mail Stop 0505
Attention: Dominic Minore, Esq.
Division of Investment Management
Re: Pioneer Floating Rate Trust (the "Fund")
Registration Statement on Form N-2
Registration Numbers 333-121930; 811-21654
Dear Ladies and Gentlemen:
Attached hereto for electronic filing on behalf of the Fund pursuant to
(1) the Securities Act of 1933, as amended (the "1933 Act") and Rule 402
thereunder, (2) the Investment Company Act of 1940, as amended (the "1940 Act")
and Rule 8b-11 thereunder, (3) General Instruction C to Form N-2 and (4)
Regulation S-T is pre-effective amendment no. 2 to the Fund's Registration
Statement on Form N-2 (the "Amendment"), including the Fund's prospectus,
statement of additional information (the "SAI") and exhibit.
The Amendment has been manually signed by the persons specified in
Section 6(a) of the 1933 Act and, pursuant to Rule 302 under Regulation S-T, the
Fund will retain the manually executed copy of the Amendment; the electronic
copy of the Amendment contains conformed signatures. No filing fees are required
in connection with the transmission of this Amendment.
This letter responds to comments of the staff of the Securities and
Exchange Commission (the "Commission") transmitted orally by Mr. Dominic Minore
of the Commission's staff relating to amendment No. 1 to the Fund's Registration
Statement on Form N-2, filed with the Commission on March 8, 2005 (accession
number: 0000950135-05-001269). For the staff's convenience, its comments are
restated below, followed by the Fund's responses.
COMMENT 1. Under the heading "Portfolio Contents" on the cover of the prospectus
the first paragraph refers to below investment grade obligations both as (junk)
then throughout the prospectus by "commonly referred as 'junk bonds,' please
include a parenthetical to state such junk bonds includes junk obligations.
BALTIMORE BEIJING BERLIN BOSTON BRUSSELS LONDON
MUNICH NEW YORK NORTHERN VIRGINIA OXFORD WALTHAM WASHINGTON
Securities and Exchange Commission
March 18, 2005
Page 2
RESPONSE 1: Accepted.
COMMENT 2. Under the heading "Administrative Agreement," the prospectus
references a separate agreement with the Adviser where the Fund may compensate
the Adviser for providing certain legal and accounting services. Supplementally,
please confirm whether this separate agreement was previously filed as an
exhibit; in addition please confirm whether the fee table and estimated expense
ratios in the prospectus for the Fund's common shares included this
compensation; and finally, please confirm whether the compensation paid is
solely as reimbursement for costs incurred or whether there is any profit
component included in the compensation.
RESPONSE 2. The Administration Agreement was filed as an exhibit k8 to amendment
no.1 to the Registration Statement on Form N-2 in respect of the Fund's common
shares on December 16, 2004 (accession number: 0000950135-04-005693). The
payments, which are nominal, were reflected in the fee table and estimated
expense ratios in the prospectus for the Fund's common shares. The compensation
is solely for certain legal services provided by the Pioneer legal department at
cost.
In addition, the Fund has revised certain disclosure in the prospectus
pertaining to the risks of investing in auctions and inquiries by the Commission
as a result of recent conversations held with the Commission during the past
week. The Fund has therefore revised its responses to comments 24 - 27 of the
staff of the Commission transmitted by letter dated February 9, 2005, which were
originally transmitted to the Commission by letter on March 8, 2005.
Securities and Exchange Commission Inquiries, page 49
COMMENT 24. Indicate the date on which the requests were received from the
Securities and Exchange Commission.
RESPONSE: The Fund does not believe that details regarding this inquiry are
necessary to include in the Fund's prospectus. The inquiry does not relate to
the Fund and the subject of the inquiry is unrelated to the Fund. The Fund has
revised the disclosure included in the prospectus to reflect the current status
of discussions between the underwriters and the staff of the Commission. In
light of the Fund's view that the inquiry is not material to the Fund, which is
based on discussions with the underwriters as to the nature and status of the
inquiry, the Fund requests that the Commission withdraw this comment.
COMMENT 25. Identify the "certain Broker-Dealers" that have received the
referenced request for voluntary investigations. In this regard, also identify
any "other participants in the auction rate securities markets" that are
eligible to participate in the auction for the Preferred Shares that have
received the above-referenced request.
RESPONSE: The Fund does not believe that details regarding this inquiry are
necessary to include in the Fund's prospectus. The inquiry does not relate to
the Fund and the subject of the inquiry is unrelated to the Fund. The Fund has
revised the disclosure included in the prospectus to reflect
Securities and Exchange Commission
March 18, 2005
Page 3
the current status of discussions between the underwriters and the staff of the
Commission. In light of the Fund's view that the inquiry is not material to the
Fund, which is based on discussions with the underwriters as to the nature and
status of the inquiry, the Fund requests that the Commission withdraw this
comment.
COMMENT 26. Disclose the nature of the "practices and procedures" to which the
requests for voluntary investigations relate.
RESPONSE: The Fund does not believe that details regarding this inquiry are
necessary to include in the Fund's prospectus. The inquiry does not relate to
the Fund and the subject of the inquiry is unrelated to the Fund. The Fund has
revised the disclosure included in the prospectus to reflect the current status
of discussions between the underwriters and the staff of the Commission. In
light of the Fund's view that the inquiry is not material to the Fund, which is
based on discussions with the underwriters as to the nature and status of the
inquiry, the Fund requests that the Commission withdraw this comment.
COMMENT 27. Expand the last sentence to specify that the value of the Preferred
Shares may also be affected.
RESPONSE: The Fund does not believe that details regarding this inquiry are
necessary to include in the Fund's prospectus. The inquiry does not relate to
the Fund and the subject of the inquiry is unrelated to the Fund. The Fund has
revised the disclosure included in the prospectus to reflect the current status
of discussions between the underwriters and the staff of the Commission. In
light of the Fund's view that the inquiry is not material to the Fund, which is
based on discussions with the underwriters as to the nature and status of the
inquiry, the Fund requests that the Commission withdraw this comment.
If you have any questions regarding any response to the comment above,
please contact me at (617) 526-6372 or Julian Bobb at (617) 526-6575.
Best regards,
David C. Phelan
March [ ], 2005
VIA EDGAR
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Dominic Minore, Esq.
Re: Pioneer Floating Rate Trust (the "Fund")
Registration Statement on Form N-2
Registration Numbers 333-121930; 811-21654
Dear Mr. Minore:
As requested, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
representative of the Underwriters, hereby represents to the Commission, on
behalf of the Underwriters, that should the Commission or the Staff, acting
pursuant to delegated authority, declare the filing effective, it does not
foreclose the Commission from taking any action with respect to the section
entitled Prospectus Summary--Special Risks Considerations--Securities and
Exchange Commission Inquiries, the section entitled Risk Factors--Risks of
Investment in AMPS--Securities and Exchange Commission Inquiries and the fifth
paragraph under the heading Underwriting, of the registration statement and
represents that we will not assert the declaration of effectiveness as a defense
in any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Very truly yours,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
---------------------------
Name:
Title:
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 MARCH 18, 2005
PROSPECTUS
(PIONEER LOGO)
$234,500,000
PIONEER FLOATING RATE TRUST
AUCTION MARKET PREFERRED SHARES ("AMPS")
3,130 SHARES, SERIES M7
3,125 SHARES, SERIES W7
3,125 SHARES, SERIES TH7
LIQUIDATION PREFERENCE $25,000 PER SHARE
----------------------
Pioneer Floating Rate Trust (the "Fund") is offering 3,130 Series M7
Auction Market Preferred Shares, 3,125 Series W7 Auction Market Preferred Shares
and 3,125 Series TH7 Auction Market Preferred Shares. The shares are referred to
in this prospectus as "AMPS." The Fund is a recently organized, non-diversified,
closed-end management investment company. The AMPS do not have a maturity date
but are subject to mandatory redemption in certain circumstances. Any series of
AMPS may be redeemed, in whole or in part, at the option of the Fund at any
time, subject to certain circumstances. Dividends on the AMPS will be cumulative
from the date the shares are issued.
Investment Objectives. The Fund's primary investment objective is to
provide 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"), all or any portion of which may be below investment grade
("junk") obligations. 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" (which include
below investment grade "junk" obligations). 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.
(continued on following page)
INVESTING IN THE AMPS INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 49 OF THIS PROSPECTUS. THE MINIMUM PURCHASE
AMOUNT OF THE AMPS IS $25,000.
----------------------
<Table>
<Caption>
PER SHARE TOTAL
--------- -----
Public offering price (1)................................... $25,000 $234,500,000
Sales load.................................................. $250 $2,345,000
Estimated offering expenses................................. $33.05 $310,000
Proceeds, after expenses, to the Fund....................... $24,717 $231,845,000
</Table>
(1) Plus accumulated dividends, if any, from the date the AMPS are
issued.
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 underwriters are offering the AMPS subject to various conditions. The
AMPS will be ready for delivery, in book-entry form only, through the facilities
of The Depository Trust Company on or about , 2005.
----------------------
MERRILL LYNCH & CO.
UBS INVESTMENT BANK
CITIGROUP
----------------------
The date of this prospectus is , 2005.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Prospectus Summary.......................................... 5
Financial Highlights (Unaudited)............................ 31
The Fund.................................................... 33
Use of Proceeds............................................. 33
Capitalization (Unaudited).................................. 33
Portfolio Composition....................................... 34
Investment Objectives and Principal Investment Strategies... 35
Portfolio Contents.......................................... 38
Risk Factors................................................ 49
Management of the Fund...................................... 58
Description of AMPS......................................... 62
The Auction................................................. 72
Federal Income Tax Matters.................................. 79
Net Asset Value............................................. 82
Description of Common Shares................................ 83
Underwriting................................................ 86
Administrator, Custodian, Transfer Agent, Registrar and
Dividend Disbursing Agent................................. 87
Validity of Shares.......................................... 87
Table of Contents of the Statement of Additional
Information............................................... 88
</Table>
---------------------
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 AMPS,
especially the information set forth under the heading "Risk Factors." You
should review the more detailed information contained in this prospectus, the
Statement of Additional Information and the Fund's Statement of Preferences of
Auction Market Preferred Shares (the "Statement") attached as Appendix C to the
Statement of Additional Information.
THE FUND.................... The Pioneer Floating Rate Trust (the "Fund") is a
recently organized, non-diversified, closed-end
management investment company. The Fund closed an
initial public offering of 22,500,000 common
shares of beneficial interest, no par value, and
commenced investment operations on December 28,
2004. The Fund's common shares are traded on the
New York Stock Exchange under the symbol "PHD." As
of March 11, 2005, the Fund had 24,330,240 common
shares outstanding and had net assets of
$468,797,390. 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 Fund's principal offices
are located at 60 State Street, Boston,
Massachusetts 02109. See "The Fund."
THE OFFERING................ The Fund is offering an aggregate of 3,130 shares
of Series M7 AMPS, 3,125 shares of Series W7 AMPS
and 3,125 shares of Series TH7 AMPS, each at a
purchase price of $25,000 per share plus
dividends, if any, that have accumulated from the
date the Fund first issues the AMPS. The AMPS are
being offered through a group of underwriters led
by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch").
The AMPS entitle their holders to receive cash
dividends at an annual rate that may vary for
successive dividend periods. In general, except as
described under "Dividends and Dividend Periods"
below and "Description of AMPS -- Dividends and
Dividend Periods," the dividend period for each
series of AMPS will be seven days. Deutsche Bank
Trust Company Americas (the "Auction Agent") will
determine the dividend rate for any dividend
period by an auction conducted on the business day
immediately prior to the start of that dividend
period. See "The Auction."
The AMPS are not listed on an exchange. Instead,
investors may buy or sell AMPS at an auction by
submitting orders to broker-dealers
("Broker-Dealers") that have entered into an
agreement with the Auction Agent (a "Broker-Dealer
Agreement") or to broker-dealers that have entered
into separate agreements with a Broker-Dealer.
Generally, investors in the AMPS will not receive
certificates representing ownership of their
shares. The Depositary Trust Company or any
successor (the "Securities Depositary") or its
nominee for the account of the investor's
Broker-Dealer will maintain record ownership of
AMPS in book-entry form. An
offering) is available to pay dividends on the
AMPS, however, dividend rates on the AMPS would
need to exceed the rate of return on the Fund's
investment portfolio by a wide margin before the
Fund's ability to pay dividends on the AMPS would
be jeopardized.
Auction Risk. The dividend rate for the AMPS
normally is set through an auction process. In the
auction, holders of AMPS may indicate the dividend
rate at which they would be willing to hold or
sell their AMPS or purchase additional AMPS. The
auction also provides liquidity for the sale of
AMPS. An auction fails if there are more AMPS
offered for sale than there are buyers. You may
not be able to sell your AMPS at an auction if the
auction fails. A holder of the AMPS therefore can
be given no assurance that there will be
sufficient clearing bids in any auction or that
the holder will be able to sell its AMPS in an
auction. Also, if you place bid orders (orders to
retain AMPS) at an auction only at a specified
dividend rate, and that rate exceeds the rate set
at the auction, you will not retain your AMPS.
Additionally, if you buy AMPS or elect to retain
AMPS without specifying a dividend rate below
which you would not wish to buy or continue to
hold those AMPS, you could receive a lower rate of
return on your AMPS than the market rate. Finally,
the dividend periods for the AMPS may be changed
by the Fund, subject to certain conditions and
with notice to the holders of AMPS, which could
also affect the liquidity of your investment.
As noted above, if there are more auction rate
securities offered for sale than there are buyers
for those auction rate securities in any auction,
the auction will fail and you may not be able to
sell some or all of your auction rate securities
at that time. The relative buying and selling
interest of market participants in your auction
rate securities and in the auction rate securities
market as a whole will vary over time, and such
variations may be affected by, among other things,
news relating to the issuer, the attractiveness of
alternative investments, the perceived risk of
owning the security (whether related to credit,
liquidity or any other risk), the tax treatment
accorded the instruments, the accounting treatment
accorded auction rate securities, including recent
clarifications of U.S. generally accepted
accounting principles relating to the treatment of
auction rate securities, reactions to regulatory
actions or press reports, financial reporting
cycles and market sentiment generally. Shifts of
demand in response to any one or simultaneous
particular events cannot be predicted and may be
short-lived or exist for longer periods.
Secondary Market Risk. If you try to sell your
AMPS between auctions you may not be able to sell
any or all of your AMPS or you may not be able to
sell them for $25,000 per share or $25,000 per
share plus accumulated but unpaid dividends. If
the Fund has designated a special dividend period,
changes in interest rates could affect the price
you would receive if you sold your AMPS in the
secondary market. You may transfer AMPS outside
of auctions only to or through a Broker-Dealer
that has entered into a Broker-Dealer Agreement,
or other person as the Fund permits.
Securities and Exchange Commission Inquiries. The
Underwriters have advised the Fund that the
Underwriters and various other broker-dealers and
other firms that participate in the auction rate
securities market received letters from the staff
of the Securities and Exchange Commission last
spring. The letters requested that each of these
firms voluntarily conduct an investigation
regarding its respective practices and procedures
in that market. Pursuant to these requests, each
of the Underwriters conducted its own voluntary
review and reported its findings to the Securities
and Exchange Commission staff. At the Securities
and Exchange Commission staff's request, the
Underwriters are engaging in discussions with the
Securities and Exchange Commission staff
concerning its inquiry. Neither the Underwriters
nor the Fund can predict the ultimate outcome of
the inquiry or how that outcome will affect the
market for the AMPS or the auctions.
Ratings and Asset Coverage Risk. While it is
expected that Moody's will assign a rating of Aaa
to the AMPS and Fitch will assign a rating of AAA
to the AMPS, such ratings do not eliminate or
necessarily mitigate the risks of investing in
AMPS. Moody's or Fitch could downgrade its rating
of the AMPS or withdraw its rating of the AMPS at
any time, which may make your shares less liquid
at an auction or in the secondary market and may
materially and adversely affect the value of the
AMPS if sold outside an auction. If the Fund fails
to satisfy the asset coverage ratios discussed
under "Description of AMPS -- Rating Agency
Guidelines and Asset Coverage," the Fund will be
required to redeem, at a time that is not
favorable to the Fund or its shareholders, a
sufficient number of AMPS in order to return to
compliance with the asset coverage ratios.
Restrictions on Dividends and Other
Distributions. Restrictions imposed on the
declaration and payment of dividends or other
distributions to the holders of the Fund's common
shares and AMPS, both by the 1940 Act and by
requirements imposed by rating agencies, might
impair the Fund's ability to maintain its
qualification as a regulated investment company
for federal income tax purposes.
GENERAL RISKS OF INVESTING IN THE FUND. 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.
Limited Operating History. The Fund is a recently
organized, non-diversified, closed-end management
investment company and has a limited operating
history and a limited history of public trading.
In the event that the Fund does not satisfy these
coverage tests, some or all of the AMPS will be
subject to mandatory redemption. See "Description
of AMPS -- Redemption."
Based on the composition of the Fund's portfolio
as of March 11, 2005, the asset coverage of the
AMPS, as measured pursuant to the 1940 Act, would
be approximately 299% if the Fund were to issue
AMPS representing approximately 33.5% of the
Fund's managed assets.
MANDATORY REDEMPTION........ If the Preferred Shares Basic Maintenance Amount
or the 1940 Act Preferred Share Asset Coverage is
not maintained or restored as specified herein,
the AMPS will be subject to mandatory redemption,
out of funds legally available therefore, at the
mandatory redemption price of $25,000 per share
plus an amount equal to dividends thereon (whether
or not earned or declared) accumulated but unpaid
to the date fixed for redemption. Any such
redemption will be limited to the minimum number
of AMPS necessary to restore the Preferred Shares
Basic Maintenance Amount or the 1940 Act Preferred
Share Asset Coverage, as the case may be. The
Fund's ability to make such a mandatory redemption
may be restricted by the provisions of the 1940
Act.
OPTIONAL REDEMPTION......... The AMPS are redeemable at the option of the Fund,
as a whole or in part, on any dividend payment
date (except on an initial dividend payment date
or a special dividend period with respect to which
the Fund has agreed not to redeem AMPS voluntarily
(a "Non-Call Period")) at the optional redemption
price of $25,000 per share, plus an amount equal
to dividends thereon (whether or not earned or
declared) accumulated but unpaid to the date fixed
for redemption plus the premium, if any, resulting
from the designation of a Premium Call Period. A
"Premium Call Period" is a period during which
AMPS are only redeemable at the option of the Fund
at a price per share equal to $25,000 plus
accumulated but unpaid dividends, plus a premium.
LIQUIDATION PREFERENCE...... The liquidation preference for shares of AMPS will
be $25,000 per share plus accumulated but unpaid
dividends, if any, whether or not declared. See
"Description of AMPS -- Liquidation."
VOTING RIGHTS............... The holders of preferred shares, including the
AMPS, voting as a separate class, have the right
to elect at least two Trustees of the Fund at all
times. Such holders also have the right to elect a
majority of the Trustees in the event that two
years' dividends on such preferred shares are
unpaid. In each case, the remaining Trustees will
be elected by holders of common shares and
preferred shares, including the AMPS, voting
together as a single class. The holders of
preferred shares, including the AMPS, will vote as
a separate class or classes on certain other
matters required under the Statement, the 1940 Act
and Delaware law. See "Description of
AMPS -- Voting Rights," and "Description of Common
Shares -- Certain Provisions of the Agreement and
Declaration of Trust and By-Laws."
THE FUND
Pioneer Floating Rate Trust is a recently 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 a limited operating history.
The Fund's principal office is located at 60 State Street, Boston, Massachusetts
02109, and its telephone number is (617) 742-7825.
On December 28, 2004, the Fund issued an aggregate of 22,550,000 common
shares of beneficial interest, no par value, pursuant to an initial public
offering. On February 4, 2005, the Fund issued an additional 1,775,000 common
shares of beneficial interest, no par value, pursuant to an overallotment
option. The Fund's common shares are traded on the New York Stock Exchange under
the symbol "PHD."
The following provides information about the Fund's outstanding shares as
of March 11, 2005.
<Table>
<Caption>
AMOUNT HELD BY
AMOUNT THE FUND OR FOR ITS AMOUNT
TITLE OF CLASS AUTHORIZED ACCOUNT OUTSTANDING
- -------------- ---------- ------------------- -----------
Common Shares.................... Unlimited 0 24,330,240
Preferred Shares
Series M7 AMPS................. Unlimited 0 0
Series W7 AMPS................. Unlimited 0 0
Series TH7 AMPS................ Unlimited 0 0
</Table>
USE OF PROCEEDS
The net proceeds of this offering will be approximately $231,845,000 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 this 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."
CAPITALIZATION (UNAUDITED)
The following table sets forth the capitalization of the Fund as of March
11, 2005, and as adjusted to give effect to the issuance of the AMPS offered
hereby assuming the Fund issues 3,130 shares of Series M7 AMPS, 3,125 shares of
Series W7 AMPS and 3,125 shares of Series TH7 AMPS representing approximately
33.3% of the Fund's total assets (including estimated
offering expenses of $310,000 and a sales load of $250 per AMPS). The common
shareholders' paid in capital is charged with the cost of issuance of the AMPS.
<Table>
<Caption>
ACTUAL AS ADJUSTED
------------ ------------
AMPS, $.0001 par value, $25,000 stated value
per share, at liquidation value, including
dividends payable; unlimited shares
authorized (no shares issued; 9,380 shares
issued, as adjusted)........................ $ -- $234,500,000
============ ============
Shareholder's Equity:
Common shares, no par value per share;
unlimited shares authorized, 24,330,240
shares outstanding(1).................... $463,734,584 $461,079,584
Undistributed net investment income......... 560,855 560,855
Accumulated net realized gain/loss on
investments.............................. 122,118 122,118
Net unrealized appreciation/depreciation on
investments.............................. 4,665,205 4,665,205
Net unrealized appreciation/depreciation on
foreign currency transactions............ (285,372) (285,372)
------------ ------------
Net assets attributable to common shares.... 468,797,390 466,142,390
------------ ------------
Net assets, plus liquidation preferences of
AMPS..................................... $468,797,390 $700,642,390
============ ============
</Table>
- ------------
(1) None of these outstanding shares are held by or for the account of the
Fund.
PORTFOLIO COMPOSITION
As of March 11, 2005, approximately 94.3% of the market value of the
Fund's portfolio was invested in Senior Loans, approximately 1.5% of the market
value of the Fund's portfolio was invested in other fixed-income securities and
approximately 4.2% of the market value of the Fund's portfolio was invested in
short-term debt securities. The following table sets forth certain information
with respect to the composition of the Fund's investment portfolio as of March
11, 2005, based on the lowest rating assigned each investment.
<Table>
<Caption>
VALUE++
CREDIT RATING+ (000) PERCENT
- -------------- -------- -------
Senior Loans
Aaa/AAA............................................... -- --
Aa/AA................................................. -- --
A/A................................................... -- --
Baa/BBB............................................... -- --
Ba/BB................................................. $ 61,625 11.7%
B/B................................................... 295,626 56.0
Caa/CCC............................................... 36,623 6.9
Unrated+++............................................ 104,271 19.7
Other Fixed Income Securities
B/B................................................... 3,577 0.7
Caa/CCC............................................... 4,005 0.8
Short-Term
Unrated............................................... 22,000 4.2
-------- -----
TOTAL.............................................. $534,882 100.0%
======== =====
</Table>
- ------------
+ Ratings assigned by Moody's and S&P, respectively. These ratings are an
assessment of the capacity and willingness of an issuer to pay the principal
and interest on the securities being rated. The ratings are not a
recommendation to purchase, hold or sell the securities being rated inasmuch
as the rating does not comment as to market price or suitability for a
particular investor. The meanings assigned by Moody's and S&P to their
ratings are attached as an appendix to the Statement of Additional
Information.
offering expenses of $310,000 and a sales load of $250 per AMPS). The common
shareholders' paid in capital is charged with the cost of issuance of the AMPS.
<Table>
<Caption>
ACTUAL AS ADJUSTED
------------ ------------
AMPS, $.0001 par value, $25,000 stated value
per share, at liquidation value, including
dividends payable; unlimited shares
authorized (no shares issued; 9,380 shares
issued, as adjusted)........................ $ -- $234,500,000
============ ============
Shareholder's Equity:
Common shares, no par value per share;
unlimited shares authorized, 24,330,240
shares outstanding(1).................... $463,734,584 $461,079,584
Undistributed net investment income......... 560,855 560,855
Accumulated net realized gain/loss on
investments.............................. 122,118 122,118
Net unrealized appreciation/depreciation on
investments.............................. 4,665,205 4,665,205
Net unrealized appreciation/depreciation on
foreign currency transactions............ (285,372) (285,372)
------------ ------------
Net assets attributable to common shares.... 468,797,390 466,142,390
------------ ------------
Net assets, plus liquidation preferences of
AMPS..................................... $468,797,390 $700,642,390
============ ============
</Table>
- ------------
(1) None of these outstanding shares are held by or for the account of the
Fund.
PORTFOLIO COMPOSITION
As of March 11, 2005, approximately 89.0% of the market value of the
Fund's portfolio was invested in Senior Loans, approximately 0.7% of the market
value of the Fund's portfolio was invested in other fixed-income securities and
approximately 10.3% of the market value of the Fund's portfolio was invested in
short-term debt securities. The following table sets forth certain information
with respect to the composition of the Fund's investment portfolio as of March
11, 2005, based on the lowest rating assigned each investment.
<Table>
<Caption>
VALUE++
CREDIT RATING+ (000) PERCENT
- -------------- -------- -------
Senior Loans
Aaa/AAA............................................... -- --
Aa/AA................................................. -- --
A/A................................................... -- --
Baa/BBB............................................... -- --
Ba/BB................................................. $ 53,437 10.0%
B/B................................................... 195,230 36.5
Caa/CCC............................................... 30,297 5.6
Unrated+++............................................ 197,360 36.9
Other Fixed Income Securities
B/B................................................... 3,558 0.7
Short-Term
Unrated............................................... 55,000 10.3
-------- -----
TOTAL.............................................. $534,882 100.0%
======== =====
</Table>
- ------------
+ Ratings assigned by Moody's and S&P, respectively. These ratings are an
assessment of the capacity and willingness of an issuer to pay the principal
and interest on the securities being rated. The ratings are not a
recommendation to purchase, hold or sell the securities being rated inasmuch
as the rating does not comment as to market price or suitability for a
particular investor. The meanings assigned by Moody's and S&P to their
ratings are attached as an appendix to the Statement of Additional
Information.
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.
RISK FACTORS
Investing in the Fund involves risk, including the risk that you may
receive little or no return on your investment or that you may lose part or all
of your investment. Therefore, before investing you should consider carefully
the following risks that you assume when you invest in AMPS.
RISKS OF INVESTMENT IN AMPS
Leverage Risk. The Fund expects to use financial leverage on an ongoing
basis for investment purposes. Taking into account the AMPS being offered in
this prospectus, the amount of leverage would, as of March 11, 2005, represent
approximately 33.5% of the Fund's total assets. The Fund's leveraged capital
structure creates special risks not associated with unleveraged funds having a
similar investment objectives and policies. These include the possibility of
higher volatility of both the net asset value of the Fund and the value of
assets serving as asset coverage for the AMPS.
Because the fee paid to the Adviser will be calculated on the basis of the
Fund's managed assets (which equals the aggregate net asset value of the common
shares plus the liquidation preference of the AMPS), the fee will be higher when
leverage is utilized, giving the Adviser an incentive to utilize leverage.
Interest Rate Risk. The AMPS pay dividends based on shorter-term interest
rates. The Fund may invests the proceeds from the issuance of the AMPS in Senior
Loans which pay interest based upon rates that float with changes in interest
rates, similar to short-term rates. The interest rates on Senior Loans are
typically, although not always, higher than shorter-term interest rates of
issuers with AAA credit ratings that the Fund anticipates receiving from the
rating agencies. Shorter-term interest rates, including the floating rates paid
on the Fund's portfolio of Senior Loans, can be expected to fluctuate. If
shorter-term interest rates rise, dividend rates on the AMPS may also rise since
the auction setting the dividends on AMPS will compete for investors with other
short-term instruments. This rise in dividends rates could result in the amount
of dividends to be paid to holders of AMPS exceeding the income from the Senior
Loans purchased by the Fund with the proceeds from the sale of AMPS. Similarly,
the anticipated differential on the rate of interest paid on the AMPS and the
Fund's portfolio of Senior Loans would decline or be eliminated if, in the
future, the rating agencies lower the rating assigned to the AMPS. Because
income from the Fund's entire investment portfolio (not just the portion of the
portfolio purchased with the proceeds of the AMPS offering) is available to pay
dividends on the AMPS, however, dividend rates on the AMPS would need to exceed
the rate of return on the Fund's investment portfolio by a wide margin before
the Fund's ability to pay dividends on the AMPS would be jeopardized.
Auction Risk. The dividend rate for the AMPS normally is set through an
auction process. In the auction, holders of AMPS may indicate the dividend rate
at which they would be willing to hold or sell their AMPS or purchase additional
AMPS. The auction also provides liquidity for the sale of AMPS. An auction fails
if there are more AMPS offered for sale than there are buyers. You may not be
able to sell your AMPS at an auction if the auction fails. A holder of the AMPS
therefore can be given no assurance that there will be sufficient clearing bids
in any auction or that the holder will be able to sell its AMPS in an auction.
Also, if you place bid orders (orders to retain AMPS) at an auction only at a
specified dividend rate, and that rate exceeds the rate set at the auction, you
will not retain your AMPS. Additionally, if you buy AMPS or elect to retain AMPS
without specifying a dividend rate below which you would not wish to buy or
continue to hold those AMPS, you could receive a lower rate of return on your
AMPS than the market rate. Finally, the dividend periods for the AMPS may be
changed by the Fund, subject to certain conditions with notice to the holders of
AMPS, which could also effect the liquidation of your investment. See
"Description of AMPS" and "The Auction -- Auction Procedures."
As noted above, if there are more auction rate securities offered for sale
than there are buyers for those auction rate securities in any auction, the
auction will fail and you may not be able to sell some or all of your auction
rate securities at that time. The relative buying and selling interest of market
participants in your auction rate securities and in the auction rate securities
market as a whole will vary over time, and such variations may be affected by,
among other things, news relating to the issuer, the attractiveness of
alternative investments, the perceived risk of owning the security (whether
related to credit, liquidity or any other risk), the tax treatment accorded the
instruments, the accounting treatment accorded auction rate securities,
including recent clarifications of U.S. generally accepted accounting principles
relating to the treatment of auction rate securities, reactions to regulatory
actions or press reports, financial reporting cycles and market sentiment
generally. Shifts of demand in response to any one or simultaneous particular
events cannot be predicted and may be short-lived or exist for longer periods.
Secondary Market Risk. If you try to sell your AMPS between auctions you
may not be able to sell any or all of your AMPS or you may not be able to sell
them for $25,000 per share or $25,000 per share plus accumulated but unpaid
dividends. If the Fund has designated a special dividend period (a rate period
of more than seven days), changes in interest rates could affect the price you
would receive if you sold your AMPS in the secondary market. You may transfer
AMPS outside of auctions only to or through a Broker-Dealer that has entered
into a Broker-Dealer Agreement or such other person as the Fund permits. The
Fund does not anticipate imposing significant restrictions on transfers to other
persons. However, unless any such other person has entered into a relationship
with a Broker-Dealer that has entered into a Broker-Dealer Agreement with the
Auction Agent, that person will not be able to submit bids at auctions with
respect to the AMPS. Broker-dealers that maintain a secondary trading market for
AMPS are not required to maintain this market, and the Fund is not required to
redeem AMPS either if an auction or an attempted secondary market sale fails
because of a lack of buyers. The AMPS will not be listed on a stock exchange or
the Nasdaq National Market. If you sell your AMPS to a broker-dealer between
auctions, you may receive less than the price you paid for them, especially if
market interest rates have risen since the last auction. In addition, a
Broker-Dealer may, in its own discretion, decide to sell the AMPS in the
secondary market to investors at any time and at any price, including at prices
equivalent to, below or above the par value of the AMPS.
Securities and Exchange Commission Inquiries. The Underwriters have
advised the Fund that the Underwriters and various other broker-dealers and
other firms that participate in the auction rate securities market received
letters from the staff of the Securities and Exchange Commission last spring.
The letters requested that each of these firms voluntarily conduct an
investigation regarding its respective practices and procedures in that market.
Pursuant to these requests, each of the Underwriters conducted its own voluntary
review and reported its findings to the Securities and Exchange
Commission staff. At the Securities and Exchange Commission staff's request, the
Underwriters are engaging in discussions with the Securities and Exchange
Commission staff concerning its inquiry. Neither the Underwriters nor the Fund
can predict the ultimate outcome of the inquiry or how that outcome will affect
the market for the AMPS or the auctions.
Ratings and Asset Coverage Risk. While it is expected that Moody's will
assign a rating of Aaa to the AMPS and Fitch will assign a rating of AAA to the
AMPS, such ratings do not eliminate or necessarily mitigate the risks of
investing in AMPS. Moody's or Fitch could downgrade its rating of the AMPS or
withdraw its rating of the AMPS at any time, which may make your shares less
liquid at an auction or in the secondary market and may materially and adversely
affect the value of the AMPS if sold outside an auction. Moody's and Fitch are
not required to provide prior notice of a decision to downgrade the AMPS or to
withdraw their rating. If Moody's or Fitch downgrades the AMPS, the Fund may
alter its portfolio or redeem AMPS in an effort to improve the rating, although
there is no assurance that it will be able to do so to the extent necessary to
restore the prior rating. If the Fund fails to satisfy the asset coverage ratios
discussed under "Description of AMPS -- Rating Agency Guidelines and Asset
Coverage," the Fund will be required to redeem, at a time that is not favorable
to the Fund or its shareholders, a sufficient number of AMPS in order to return
to compliance with the asset coverage ratios. The Fund may be required to redeem
AMPS at a time when it is not advantageous for the Fund to make such redemption
or to liquidate portfolio securities in order to have available cash for such
redemption. The Fund may voluntarily redeem AMPS under certain circumstances in
order to meet asset maintenance tests. While a sale of substantially all the
assets of the Fund or the merger of the Fund into another entity would require
the approval of the holders of AMPS voting as a separate class as discussed
under "Description of AMPS -- Voting Rights," a sale of substantially all the
assets of the Fund or the merger of the Fund with or into another entity would
not be treated as a liquidation of the Fund nor require that the Fund redeem
AMPS, in whole or in part, provided that the Fund continued to comply with the
asset coverage ratios discussed under "Description of AMPS -- Rating Agency
Guidelines and Asset Coverage." See "Description of AMPS -- Rating Agency
Guidelines and Asset Coverage" for a description of the asset maintenance tests
the Fund must meet.
Restrictions on Dividends and Other Distributions. Restrictions imposed
on the declaration and payment of dividends or other distributions to the
holders of the Fund's common shares and AMPS, both by the 1940 Act and by
requirements imposed by rating agencies, might impair the Fund's ability to
maintain its qualification as a regulated investment company for federal income
tax purposes. While the Fund may redeem AMPS to enable the Fund to distribute
its income as required to maintain its qualification as a regulated investment
company under the Code, there can be no assurance that such redemptions can be
effected in time to meet the requirements of the Code. See "Federal Income Tax
Matters."
GENERAL RISKS OF INVESTING IN THE FUND
Limited Operating History. The Fund is a recently organized,
non-diversified, closed-end management investment company and has a limited
operating history and history of public trading.
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
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
The Fund has entered 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.
Pursuant to a separate agreement, the Fund may compensate the Adviser for
providing certain legal and accounting services. The compensation is provided
solely as reimbursement for such legal and accounting services provided by the
Adviser to the Fund at cost.
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.
liquidation preference of the AMPS then outstanding, together with the aggregate
liquidation preference on any other series of preferred shares (plus redemption
premium, if any), and (b) certain accrued and projected dividend and other
payment obligations of the Fund.
The Fund is also required under the 1940 Act to maintain the 1940 Act
Preferred Share Asset Coverage. The Fund's 1940 Act Preferred Share Asset
Coverage is tested as of the last business day of each month in which any senior
equity securities are outstanding. The minimum required 1940 Act Preferred Share
Asset Coverage amount of 200% may be increased or decreased if the 1940 Act is
amended. Based on the composition of the portfolio of the Fund and market
conditions as of March 11, 2005, the 1940 Act Preferred Share Asset Coverage
with respect to all of the Fund's preferred shares, assuming the issuance on
that date of all AMPS offered hereby and giving effect to the deduction of
related sales load and related offering costs estimated at approximately
$310,000 would have been computed as follows:
<Table>
Value of Fund assets less liabilities
not constituting senior securities $700,642,390
---------------------------------------- = ------------ = 299%
Senior securities representing $234,500,000
indebtedness plus liquidation value of
the preferred shares
</Table>
In the event the Fund does not timely cure a failure to maintain (a) a
discounted value of its portfolio at least equal to the Preferred Shares Basic
Maintenance Amount or (b) the 1940 Act Preferred Share Asset Coverage, in each
case in accordance with the requirements of the rating agency or agencies then
rating the AMPS, the Fund will be required to redeem Preferred Shares as
described under "Redemption -- Mandatory Redemption" above.
The Fund may, but is not required to, adopt any modifications to the
guidelines that may be established by Moody's or Fitch. Failure to adopt any
such modifications, however, may result in a change in the ratings assigned to
the AMPS or a withdrawal of ratings altogether. In addition, any rating agency
providing a rating for the AMPS may, at any time, change or withdraw any such
rating. The Board of Trustees may, without shareholder approval, amend, alter or
repeal any or all of the definitions and related provisions which have been
adopted by the Fund pursuant to the rating agency guidelines in the event such
rating agency is no longer rating the AMPS or the Fund receives written
confirmation from Moody's or Fitch, as the case may be, that any such amendment,
alteration or repeal would not impair the rating then assigned to the AMPS.
As recently described by Moody's and Fitch, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The rating on the AMPS is not a recommendation to purchase, hold or
sell those shares, inasmuch as the rating does not comment as to market price or
suitability for a particular investor. The rating agency guidelines described
above also do not address the likelihood that an owner of AMPS will be able to
sell such shares in an auction or otherwise. The rating is based on current
information furnished to Moody's and Fitch by the Fund and the Adviser and
information obtained from other sources. The rating may be changed, suspended or
withdrawn as a result of changes in, or the unavailability of, such information.
The common shares have not been rated by a nationally recognized statistical
rating organization.
The rating agency's guidelines will apply to the AMPS only so long as the
rating agency is rating the shares. The Fund will pay certain fees to Moody's
and Fitch for rating the AMPS.
UNDERWRITING
Subject to the terms and conditions stated in the purchase agreement dated
, 2005, 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
AMPS set forth opposite the name of such underwriter.
<Table>
<Caption>
NUMBER OF AMPS
----------------------------------
SERIES M7 SERIES W7 SERIES TH7
UNDERWRITER --------- --------- ----------
- -----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................
UBS Securities LLC...............................
Citigroup Global Markets Inc.....................
------ ------ ------
Total............................... 3,130 3,125 3,125
====== ====== ======
</Table>
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, including
without limitation the receipt by the underwriters of customary closing
certificates, opinions and other documents, and the receipt by the Fund of Aaa
and AAA ratings on the AMPS by Moody's and Fitch, respectively, as of the time
of the offering. The underwriters are obligated to purchase all the AMPS if they
purchase any of the AMPS. 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.
The underwriters propose to initially offer some of the AMPS directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the AMPS 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 $250 per share is equal to 1% of the initial offering price of the AMPS.
After this offering, the underwriters may change the public offering price and
the concession. Investors must pay for any AMPS purchased in this offering on or
before , 2005.
The Fund anticipates that the underwriters may from time to time act as
brokers or dealers in executing the Fund's portfolio transactions and that the
underwriters, or their affiliates, may act as counterparties in connection with
the interest rate transactions described herein after they have ceased to be
underwriters. 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, and perform
services for, the Fund.
The Underwriters have advised the Fund that the Underwriters and various
other broker-dealers and other firms that participate in the auction rate
securities market received letters from the staff of the Securities and Exchange
Commission last spring. The letters requested that each of these firms
voluntarily conduct an investigation regarding its respective practices and
procedures in that market. Pursuant to these requests, each of the Underwriters
conducted its own voluntary review and reported its findings to the Securities
and Exchange Commission staff. At the Securities and Exchange Commission staff's
request, the Underwriters are engaging in discussions with the Securities and
Exchange Commission staff concerning its inquiry. Neither the Underwriters nor
the Fund can predict the ultimate outcome of the inquiry or how that outcome
will affect the market for the AMPS or the auctions.
The Fund anticipates that the underwriters or their respective affiliates
may, from time to time, act in auctions as Broker-Dealers and receive fees as
set forth under "The Auction" and in the Statement of Additional Information.