Edgar Filing: Pioneer Diversified High Income Trust

PROSPECTUS MAY 24, 2007

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7,300,000 SHARES

(PIONEER LOGO)

PIONEER DIVERSIFIED HIGH INCOME TRUST

COMMON SHARES

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INVESTMENT OBJECTIVES. Pioneer Diversified High Income Trust (the "Fund") is a
newly organized, 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 capital appreciation 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
invests at least 80% of its managed assets (net assets plus borrowings or other
leverage for investment purposes) in a diversified portfolio of below investment
grade (high yield) debt securities, loans and preferred stocks. Investment in
securities of below investment grade quality, commonly referred to as "junk
bonds," involves substantial risk of loss. The Fund allocates its investments
principally among three sectors of the fixed income securities markets: (i)
below investment grade debt securities and preferred stocks of U.S. and non-U.S.
issuers, including governmental and corporate issuers in emerging markets
("global high yield debt securities"), (ii) floating rate loans and (iii)
"event-linked" bonds, which sometimes are referred to as "insurance-linked" or
"catastrophe" bonds.

The Adviser believes that this actively managed, diversified portfolio of asset
classes - global high yield debt securities, floating rate loans and event-
linked bonds - may provide investors with a range of potential benefits across
various market cycles and under various market conditions. These benefits
include, among others, the potential to provide investors with a relatively high
level of current income without undue risk as a result of the low correlation
among these asset classes, reduced volatility due to limited exposure to
interest rate and duration risk, as well as a favorable risk return profile.
Specifically, the floating rate feature of both floating rate loans and event-
linked bonds serves to reduce sensitivity to changes in prevailing interest
rates. In addition, the introduction of event-linked bonds to the diversified
portfolio enhances these benefits by reducing volatility, while providing the
potential for above average returns. Moreover, the Fund's investments in event-
linked bonds offer investors access to a unique asset class that otherwise may
be unavailable to them. (continued on following page)

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

INVESTING IN THE FUND'S COMMON SHARES INVOLVES RISKS THAT ARE DESCRIBED IN THE
"PROSPECTUS SUMMARY" BEGINNING ON PAGE 5 AND "RISK FACTORS" SECTION BEGINNING ON
PAGE 48 OF THIS PROSPECTUS.

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

ESTIMATED OFFERING PROCEEDS, AFTER
PRICE TO PUBLIC SALES LOAD(2) EXPENSES(3) EXPENSES, TO THE FUND
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Per share $ 25.00 $ 1.125 $ 0.05 $ 23.825

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Total(1) $182,500,000 $8,212,500 $365,000 $173,922,500

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(1) The underwriters may purchase up to 1,095,000 additional common shares of
the Fund at the public offering price, less the sales load, within 45 days
of the date of this Prospectus to cover any over-allotments. If the
underwriters exercise the over-allotment option in full, the total public
offering price, sales load, estimated offering expenses and proceeds, after
expenses, to the Fund will be $209,875,000, $9,444,375, $419,750 and
$200,010,875, respectively. See "Underwriting" on page 78 of this
Prospectus.

(2) Does not include additional compensation, shareholder servicing, structuring
or incentive fee payable by the Adviser to certain underwriters. See
"Underwriting - Additional Compensation to Certain Underwriters."

(3) The Adviser has agreed to pay all of the Fund's organizational expenses and
to pay the amount by which the aggregate common shares offering expenses,
other than the sales load, exceed $0.05 per share. The actual offering
expenses for the common shares are estimated to be approximately $8,577,500
or $1.175 per common share, and preferred shares offering expenses are
estimated to be approximately $1,169,612 or $0.160 per common share.

The underwriters expect to deliver the common shares to purchasers on or about
May 30, 2007.

UBS INVESTMENT BANK MERRILL LYNCH & CO.
RBC CAPITAL MARKETS JANNEY MONTGOMERY SCOTT LLC
ROBERT W. BAIRD & CO. FERRIS, BAKER WATTS MORGAN KEEGAN & COMPANY, INC.
INCORPORATED

(continued from prior page)

The Fund does not have a policy of maintaining a specific average credit quality
or a targeted maturity range for its portfolio. The Fund may invest any portion
of its assets in securities and other instruments of non-U.S. issuers, including
emerging market issuers, and may engage in certain strategic transactions.

In accordance with the Fund's principal investment strategies, the Fund
primarily invests in below investment grade (high yield) debt securities, loans
and preferred stocks. Below 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 Services, 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 adviser, Pioneer Investment Management, Inc. (the "Adviser") or the
Fund's subadviser, Montpelier Capital Advisors, Ltd. (the "Subadviser"), as
applicable, to be of comparable quality. "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. With respect to event-linked
bonds, the rating primarily reflects the rating agency's calculated probability
that a pre-defined trigger event will occur. The rating also assesses the event-
linked bond's credit risk and the model used to calculate the probability of the
trigger event. For event-linked bonds with a "BB" rating, the average expected
loss probability (i.e., the weighted average sum of both partial and total loss
models over a multi-year simulation period) is approximately 1% (i.e., loss
occurrence once every 100 years). There can be no assurance that an event-linked
bond rated "BB" will not experience either a partial or total loss of principal
and/or interest more frequently than once every 100 years. Given the relatively
new market for event-linked bonds, the rating system for event-linked bonds is
relatively new and significantly less developed than that of corporate bonds and
continues to evolve as the market develops. See "Portfolio contents - Event-
linked bond ratings."

The Fund's common shares have been approved for listing on the American Stock
Exchange under the symbol "HNW."

INVESTMENT ADVISER AND SUBADVISER. Pioneer Investment Management, Inc. is the
Fund's investment adviser. The Adviser is responsible for managing the Fund's
overall investment program, including allocating the Fund's investments among
the different asset classes and managing the Fund's investments in global high
income debt securities and floating rate loans. The Adviser is a wholly owned
subsidiary of UniCredito Italiano S.p.A., one of the largest banking groups in
Italy. The Adviser is part of a global asset management group providing
investment management and financial services to mutual funds and other clients.
As of March 31, 2007, assets under management by the Adviser and its affiliates
were approximately $310 billion worldwide, including over $81 billion in assets
under management by the Adviser.

The Adviser has engaged Montpelier Capital Advisors, Ltd. to act as the Fund's
investment subadviser with respect to the Fund's investments in event-linked
bonds. The Subadviser also assists the Adviser in the evaluation of the relative
value of investments in event-linked bonds, compared to other sectors of the
fixed income securities markets. Although the Subadviser is newly organized and
has not previously served as an investment adviser or subadviser to a registered
investment company, the Subadviser's management team has substantial experience
evaluating and monitoring event-linked instruments at its parent company,
Montpelier Re Holdings, Ltd., a leading provider of global property and casualty
reinsurance and insurance products through its wholly-owned subsidiary,
Montpelier Reinsurance Ltd. When analyzing the Fund's potential investments in
event-linked bonds, the Subadviser's management team intends to utilize the same
tools and skills for evaluating event-linked bonds that it has been using for
years in connection with underwriting insurance and reinsurance policies.

- 2 -

LEVERAGE. The Fund may use leverage through borrowing and/or 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 managed assets (as defined herein) immediately after such issuance. In
the future, the degree of leverage used by the Fund may increase or decrease
from time to time due to a change in the Fund's net assets as a result of
fluctuations in the value of the Fund's investments or because the Fund issues
or retires preferred shares or borrowings. 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, dividends on
preferred shares or interest on borrowings, and an increase in 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 May 24,
2007, 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 82 of this Prospectus. You may
request a free copy of the Statement of Additional Information, annual reports
and semi-annual reports to shareholders when available, and other information
about the Fund, and make shareholder inquiries by calling (800) 225-6292 (toll-
free), writing to the Fund or from the Fund's website
(http://www.pioneerinvestments.com). The information contained in, or that can
be accessed through, the Fund's website is not part of this Prospectus. You also
may obtain a copy of the Statement of Additional Information (and other
information regarding 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).

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

Until June 18, 2007 (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 each
dealer's obligation to deliver a Prospectus when acting as underwriter and with
respect to its unsold allotments or subscriptions.

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TABLE OF CONTENTS

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Prospectus summary.................. 5
Summary of Fund expenses............ 24
The Fund............................ 27
Use of proceeds..................... 27
Investment objectives and principal
investment strategies............. 27
Portfolio contents.................. 29
Leverage............................ 45
Risk factors........................ 48
Management of the Fund.............. 61
Dividends and distributions......... 64
Automatic dividend reinvestment
plan.............................. 65
Closed-end fund structure........... 68
Possible conversion to open-end
status............................ 68
Federal income tax matters.......... 69
Net asset value..................... 72
Description of shares............... 73
Certain provisions of the Agreement
and Declaration of Trust and By-
Laws.............................. 75
Underwriting........................ 78
Administrator, custodian, transfer
agent, registrar, dividend
disbursing agent and shareholder
servicing agent................... 80
Validity of common shares........... 81
Table of contents for the Statement
of Additional Information......... 82

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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

Pioneer Diversified High Income Trust (the "Fund") is a newly organized,
diversified, closed-end management investment company. See "The Fund."

THE OFFERING

The Fund is offering 7,300,000 common shares of beneficial interest, no par
value, at an initial offering price of $25.00 per share. The common shares are
being offered by a group of underwriters (the "Underwriters") led by UBS
Securities LLC. The common shares of beneficial interest are called "common
shares" in the rest of this Prospectus. You must purchase at least 100 common
shares ($2,500) 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 option to
purchase up to an additional 1,095,000 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 7,300,000 common shares, if any. The Fund will pay up
to $0.05 per share for the Fund's offering expenses. Consequently, giving effect
to the sales load and assuming offering expenses of $0.05 per share, the initial
net asset value of the common shares would be $23.825 immediately after their
issuance. Pioneer Investment Management, Inc., the Fund's investment adviser
(the "Adviser"), has agreed to pay all of the Fund's organizational expenses and
pay the amount by which the aggregate offering expenses (other than the sales
load) with respect to the common shares offering exceed $0.05 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 capital appreciation 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 Investment Company Act of 1940, as amended
(the "1940 Act")) of the Fund. There can be no assurance that the Fund will
achieve its investment objectives.

PRINCIPAL INVESTMENT STRATEGIES

The Fund allocates its investments principally among three sectors of the fixed
income securities markets: (i) below investment grade debt securities and
preferred stocks of U.S. and non-U.S. issuers, including governmental and
corporate issuers in emerging markets ("global high yield debt securities"),
(ii) floating rate loans and (iii) "event-linked" bonds, which sometimes are
referred to as "insurance-linked" or "catastrophe" bonds.

- 5 -

reduced volatility due to limited exposure to interest rate and duration risk,
as well as a favorable risk return profile. Specifically, the floating rate
feature of both floating rate loans and event-linked bonds serves to reduce
sensitivity to changes in prevailing interest rates. In addition, the
introduction of event-linked bonds to the diversified portfolio enhances these
benefits by reducing volatility, while providing the potential for above average
returns. Moreover, the Fund's investments in event-linked bonds offer investors
access to a unique asset class that otherwise may be unavailable to them. The
Fund's investments nevertheless involve significant risks since the Fund invests
at least 80% of its managed assets in below investment grade (high yield) debt
securities, loans and preferred stocks, as discussed below. For a complete
discussion on the risks related to the Fund's investments, please refer to the
"Prospectus summary - Special risk considerations" and "Risk factors.''

Pioneer Investment Management, Inc. is the Fund's investment adviser. The
Adviser is responsible for managing the Fund's overall investment program,
including allocating the Fund's investments among the different asset classes
and managing the Fund's investments in global high income debt securities and
floating rate loans. The Adviser considers both broad economic and issuer
specific factors in selecting a portfolio designed to achieve the Fund's
investment objectives. The Adviser selects individual securities based upon the
terms of the securities (such as yields compared to U.S. Treasuries or
comparable issues), liquidity and rating, sector and issuer diversification. The
Adviser also employs due diligence and fundamental quantitative and qualitative
research to assess an issuer's credit quality, taking into account financial
condition and profitability, future capital needs, potential for change in
rating, industry outlook, the competitive environment and management ability.
The Adviser may sell a portfolio security when it believes the security no
longer will contribute to meeting the Fund's investment objectives. The Adviser
makes that determination based on the same criteria it uses to select portfolio
securities. In making these portfolio decisions, Pioneer relies on the
knowledge, experience and judgment of its staff and the staff of its affiliates
who have access to a wide variety of research.

The Adviser has engaged Montpelier Capital Advisors, Ltd. (the "Subadviser") to
act as the Fund's investment subadviser with respect to the Fund's investments
in event-linked bonds. The Subadviser also assists the Adviser in the evaluation
of the relative value of investments in event-linked bonds, compared to other
sectors of the fixed income securities markets. Although the Subadviser is newly
organized and has not previously served as an investment adviser or subadviser
to a registered investment company, the Subadviser's management team has
substantial experience evaluating and monitoring event-linked instruments at its
parent company, Montpelier Re Holdings, Ltd., a leading provider of global
property and casualty reinsurance and insurance products through its wholly-
owned subsidiary, Montpelier Reinsurance Ltd. When analyzing the Fund's
potential investments in event-linked bonds, the Subadviser's management team
intends to utilize the same tools and skills for evaluating event-linked bonds
that it has been using for years in connection with underwriting insurance and
reinsurance policies.

CREDIT MANAGEMENT

The Fund may invest in securities and other obligations of any credit quality,
including those that are rated below investment grade or are unrated but
determined by the Adviser or Subadviser, as applicable, to be of equivalent
credit quality. The Fund does not have a policy of maintaining a specific
average credit quality of its portfolio. The Adviser and/or Subadviser, as
applicable, monitor the credit quality and price of the securities and other
instruments held by the Fund. See "Portfolio contents - Securities ratings,"
"Portfolio contents - Event-linked bond ratings" and "Risk factors - Credit risk
and junk bond risk."

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the Adviser and Subadviser generally give equal weight to the obligation'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.

EVENT-LINKED BOND MANAGEMENT

The Subadviser is responsible for assisting the Adviser in the evaluation the
Fund's investments in event-linked bonds. The Subadviser utilizes qualitative
and proprietary quantitative research to screen the potential universe of
investments in event-linked bonds. The Subadviser next utilizes multiple models
to calculate the probability of an expected loss to be incurred by an individual
pre-defined trigger event. The Subadviser seeks to minimize the Fund's overall
exposure to event-linked bonds by allocating the Fund's investments among
different issuers, geographic regions and types of pre-defined trigger events.

Event-linked bonds are typically rated by at least one nationally recognized
rating agency, primarily Standard & Poor's Ratings Group ("S&P"), Fitch Ratings,
Ltd. ("Fitch") and/or A.M. Best Company, Inc. ("A.M. Best"). Although each
rating agency utilizes its own general guidelines and methodology to evaluate
the risks of an event-linked bond, the average rating in the current market for
event-linked bonds is "BB" by S&P (or the equivalent rating for another rating
agency). However, there are event-linked bonds rated higher or lower than "BB."
The Subadviser anticipates that the Fund's investments in event-linked bonds
generally will be rated B, BB or BBB at the time of purchase, although the Fund
may invest in event-linked bonds rated higher or lower than these ratings, as
well as event-linked bonds that are unrated. The rating for an event-linked bond
primarily reflects the rating agency's calculated probability that a pre-defined
trigger event will occur. This rating also assesses the bond's credit risk and
model used to calculate the probability of the trigger event. Most rating
agencies rely upon one or more of the reports prepared by the following three
primary independent catastrophe-modeling firms: EQECAT, Inc., AIR Worldwide Corp
and Risk Management Solutions, Inc. These firms utilize different methodologies
to evaluate the probability of various types of pre-defined trigger events. For
event-linked bonds with a "BB" rating, the average expected loss probability
(i.e., the weighted average sum of both partial and total loss models over a
multi-year simulation period) is approximately 1% (i.e., loss occurrence once
every 100 years). There can be no assurance that an event-linked bond rated "BB"
will not experience either a partial or total loss of principal and/or interest
more frequently than once every 100 years. See "Portfolio contents - Event-
linked bond ratings" for more detailed discussion on event-linked bond ratings.

PORTFOLIO CONTENTS

Under normal market conditions, the Fund invests at least 80% of its managed
assets (net assets plus borrowings or other leverage for investment purposes) in
diversified portfolio of below investment grade (high yield) debt securities,
loans and preferred stocks. These securities are rated below investment grade by
the national rating agencies that cover the obligations (i.e., Ba and below by
Moody's Investors Services, Inc. ("Moody's") or BB and below by S&P), or if
unrated, are determined by the Adviser or Subadviser, as applicable, to be of
comparable quality. Investment in securities of below investment grade quality,
commonly referred to as "junk bonds," 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. With
respect to event-linked bonds, the rating reflects the probability that a pre-
defined trigger event will occur, rather than the bond's credit rating. The
rating also assesses the model used to calculate the probability of the trigger
event.

- 7 -

The Fund will provide written notice to shareholders at least 60 days prior to
any change to the requirement that it invest at least 80% of its managed assets
in below investment grade (high yield) debt securities, loans and preferred
stocks.

The Fund does not have a policy of maintaining a specific average credit quality
or a dollar weighted average maturity target or range for its portfolio. The
Fund may invest any portion of its assets in securities and other instruments of
non-U.S. issuers, including emerging market issuers, and may engage in certain
strategic transactions.

GLOBAL HIGH INCOME DEBT SECURITIES

The Fund's investments in global high yield debt securities may include below
investment grade convertible bonds and preferred stocks that are convertible
into the equity securities of the issuer. The Fund's investments in global high
yield debt securities may have fixed or variable principal payments and all
types of interest rate and dividend payment and reset terms, including fixed
rate, floating rate, adjustable rate, zero coupon, contingent, deferred, payment
in kind and auction rate features. The Fund's investments in global high yield
debt securities may have a broad range of maturities and may include securities
denominated in foreign currencies.

FLOATING RATE LOANS

The Fund will invest a portion of its assets in floating rate loans. Floating
rate loans are made by banks and other financial institutions to corporations,
partnerships and other business entities that operated in various industries and
geographical regions, including non-U.S. borrowers. The rates of interest on the
loans adjust or "float" periodically by reference to a base lending rate, such
as the London Interbank Offer Rate ("LIBOR"), the prime rate offered by one or
more major U.S. banks ("Prime Rate"), or the overnight federal funds rate, plus
a premium. LIBOR loans reset on set dates, typically every 30 to 90 days, but
not exceeding one year. Prime Rates and federal funds rate loans reset
periodically when the underlying rate resets. For purposes of the Fund's
investment policies, the Fund considers "floating rate" and "adjustable rate" to
be the same."

Floating rate loans typically are rated below investment grade. The Fund may
invest in floating rate loans and other debt securities of any credit quality,
including below investment grade obligations, or obligations that are unrated
but are determined by the Adviser to be of equivalent credit quality. The Fund
may invest a 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. In most instances, the Fund's
investments in floating rate loans will hold a senior position in the capital
structure of the borrower. Having a senior position means that, if the borrower
becomes insolvent, senior debtholders, such as the Fund, will be paid before
subordinated debtholders and stockholders of the borrower. Senior loans
typically are secured by specific collateral.

Floating rate loans are typically structured and administered by a financial
institution that acts as an agent for the holders of the loan. Loans can be
acquired directly through the agent, by assignment from another holder of the
loan, or as a participation interest in the loan. When the Fund is a direct
investor in the loan, the Fund may have the ability to influence the terms of
the loan, although the Fund does not act as the sole negotiator or sole
originator of the loan. Participation interests are fractional interests in a
loan issued by a lender or other financial institution. When the Fund invests in
a loan participation, the Fund does not have a direct claim against the borrower
and must rely on an intermediate participant to enforce any rights against the
borrower. As a result, the Fund is subject to the risk that an intermediate
participant between the Fund and the borrower will fail to meet its obligations
to the Fund, in addition to the risk that the issuer of the loan will default on
its obligations.

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EVENT-LINKED BONDS

The Fund anticipates an initial allocation to event-linked bonds of less than
25% of the Fund's total assets, although the actual allocation of the Fund's
investments will be subject to market conditions at the time the Fund commences
investment operations. In the future, the Adviser and Subadviser may modify this
allocation in response to market conditions and the development of event-linked
bonds as a sector of the fixed income securities markets, but at no time will
the Fund allocate greater than 35% of its total assets in event-linked bonds.

Event-linked bonds are a relatively new type of investment that were first
developed in the early-1990s and designed to assist property-casualty insurance
companies and reinsurers in managing their exposure to natural disasters, such
as earthquakes, hurricanes, typhoons and tornados, by transferring their risks
to the capital markets. Although the overall market for event-linked bonds is
less developed and may be more thinly traded than that of other types of debt
securities, the overall market for event-linked bonds has increased over the
past decade. According to a recent study, this market totaled approximately
$4.69 billion in issuances during 2006, which represents an increase of 136%
since 2005 and 311% since 2004.

Event-linked bonds consist of a fixed insurance premium and a floating rate of
interest. The rates of interest on the bonds adjust or "float" periodically by
reference to a base lending rate, such as LIBOR. In 2006, event-linked bonds had
an average scheduled maturity of three years, although maturities can be less
than or greater than three years. They may be issued by government agencies,
insurance companies, reinsurers, special purpose corporations or other on-shore
or off-shore entities. Typically, an insurance or reinsurance company sponsors
the establishment of a non-U.S. offshore reinsurance special purpose vehicle
("SPV"). The insurance company agrees to pay a future stream of premiums to the
SPV in return for a reinsurance contract to cover an identified portfolio of its
catastrophe exposure. The SPV issues the event-linked bonds to qualified
institutional buyers who receive interest payments. This interest typically
accrues and is paid on a quarterly basis. Although principal typically is repaid
only on the maturity date, it may be repaid in installments, depending on the
terms of the bond. The SPV's obligation to pay accrued but unpaid interest
and/or repay principal of an event-linked bond is reduced or eliminated,
depending on the specific circumstances, in the event the SPV would be required
to make payments upon a trigger event, as described below. At the same time as
the issuance of the event-linked bonds, the SPV invests the proceeds of the
issuance in high- grade securities. The premiums paid by the insurance company,
along with the interest on the high-grade debt securities, are directly paid to
the event-linked bondholders in the form of interest payments.

Event-linked bonds are debt obligations for which the return of principal and
the payment of interest are contingent on the non-occurrence of a pre-defined
"trigger" event, such as a hurricane or an earthquake of a specific magnitude.
If a trigger event, as defined within the terms of an event-linked bond,
involves losses or other metrics exceeding a specific magnitude in the
geographic region and time period specified therein, the Fund may lose a portion
or all of its accrued interest and/or principal invested in such event-linked
bond. If no trigger event occurs, the Fund is entitled to recover its principal
plus accrued interest.

The Fund's investments in event-linked bonds may be linked to a broad range of
insurance risks, which can be broken down into three major categories: natural
risks, weather risks and non-natural events. Investments in event-linked bonds
linked to natural risks will represent the largest portion of the Fund's event-
linked bond investments. The events covered are natural catastrophes, such as
hurricanes and earthquakes. Investments in event-linked bonds linked to weather
risks provide insurance to companies whose sales depend on the weather and
provide a hedge on the impact of weather-related risks. For example, a weather
event-linked bond could provide coverage based on the average temperature in a
region over a given period. Investments in event-linked bonds linked to

- 9 -

non-natural risks could cover a much broader array of insurable risks, such as
aerospace and shipping catastrophes.

The Fund may invest in other types of event-linked bonds where the trigger event
or magnitude of losses may be based on company-wide losses ("indemnity
triggers"), index-based losses ("index triggers") or a combination of triggers
("hybrid triggers")

- INDEMNITY TRIGGERS. Indemnity triggers are based on company-wide losses.
The trigger event would be considered to have occurred only if a company's
losses on catastrophic insurance claims exceeded a certain aggregate amount
of insured claims. If the company's losses were less than the pre-
determined aggregate amount, then the trigger event would not be considered
to have occurred and the Fund would be entitled to recover its principal
plus accrued but unpaid interest. Indemnity triggers require investors and
rating agencies to understand the risks of the insurance and reinsurance
policies underwritten by the company, which may be difficult to obtain and
ascertain, particularly in the case of complex commercial insurance and
reinsurance policies. In addition, event-linked bond investors are
dependent upon the company's ability to settle catastrophe claims in a
manner that would not be disadvantageous to investors' interests.

- INDEX TRIGGERS. Index triggers follow one of three broad approaches:
parametric, industry-loss and modeled-loss, and a combination thereof,
which is discussed below as "hybrid triggers." Index triggers are based on
pre-defined formulas, which eliminate the risks relating to a company's
insurance claims-handling practices and potential information barriers.
However, index triggers generally pose a higher risk on event-linked bond
investors than indemnity triggers, and investors are dependent upon the
accuracy of the models and reporting services used to calculate the
formulas.

- PARAMETRIC. Parametric trigger indices are based upon the occurrence
of a catastrophic event with certain defined physical parameters
(e.g., wind speed and location of a hurricane or magnitude and
location of an earthquake).

- INDUSTRY-LOSS. Industry loss trigger indices are based upon the
estimated loss for the insurance industry as a whole from a particular
catastrophe. Estimates are derived from a reporting service, such as
Property Claim Services.

- MODELED-LOSS. Modeled-loss trigger indices are based upon a
catastrophe-modeling firm's database estimate of an industry loss, or
a company's losses compared to a modeling firm's industry estimate of
losses.

- HYBRID TRIGGERS. Hybrid triggers involve more than one trigger type in a
single transaction or tranche of an event-linked bond. For example, a
hybrid trigger could involve the occurrence of both a U.S. hurricane and a
Japanese earthquake with a different kind of index trigger for each.
Another example of a hybrid trigger involves different trigger types
occurring in a particular sequence. For example, after the occurrence of a
qualifying U.S. earthquake, a modeled-loss index is used to establish a
company's overall market share, and then applied to the industry loss index
associated with the qualifying event to determine any principal reduction.
Hybrid triggers may be more complicated and difficult to understand for
investors, and involve the applicable risks associated with the types of
triggers described above.

OTHER FIXED INCOME INVESTMENTS

The Fund's investments also may include investment grade fixed income securities
and money market instruments, such as commercial paper. 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

- 10 -

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, which may be expensive and
the results of which are uncertain. 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 floating rate loans and bonds, the achievement of the Fund's
objectives depends more on the Adviser's judgment and analytical abilities than
would be the case if invested primarily in securities in the higher ratings
categories.

TEMPORARY DEFENSIVE 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.

STRATEGIC TRANSACTIONS

The Fund may, but is not required to, use various strategic transactions
described below 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
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.

The Fund may take advantage of opportunities in swaps, options and futures
contracts and any other derivative instruments that presently are not
contemplated by the Fund or currently are not available in the market, but which
may be developed in the future, including instruments that provide for event-
linked exposure, to the extent such investments are consistent with the Fund's
investment objectives. The Fund is not limited in the amount of assets it may
invest in these or other types of derivative investments.

USE OF LEVERAGE BY THE FUND

- 11 -

change in the Fund's net assets as a result of fluctuations in the value of the
Fund's investments or because the Fund issues or retires preferred shares or
borrowings. 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 net value of the Fund's portfolio is at least 200% of
the liquidation preference 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, dividends on preferred shares or interest on borrowings,
and an increase in management fees will be borne by holders of common shares.
Assuming the Fund issues 7,300,000 common shares and preferred shares in an
amount equal to 33 1/3% of the Fund's managed assets (after their issuance), the
preferred shares offering costs are estimated to be approximately $1,169,612 or
$0.160 per common share.

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
assets attributable to its 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 to
leverage the Fund only 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 48.

GENERAL

The Fund is a diversified, closed-end management investment company designed
primarily as a long-term investment and not as a trading tool. The Fund is not a
complete investment program and should be considered only as an addition to an
investor's existing diversified portfolio of investments. Because the Fund
invests predominantly in event-linked bonds, floating rate loans and global high
yield debt securities, an investment in the Fund's common shares may be
speculative in that it involves a high degree of risk. 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, diversified, closed-end management investment
company and has no operating history or history of public trading.

- 12 -

SUBADVISER RISK

The Subadviser is newly formed investment adviser registered with the Securities
and Exchange Commission and has no prior history of acting as an investment
adviser or subadviser to a registered investment company.

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. 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
offering expenses paid by the Fund.

CONCENTRATION RISK

The Fund intends to invest at least 25% of its managed assets in securities and
other instruments issued or structured by companies in the financial services
group of industries, such as banks, broker-dealers and insurance and reinsurance
companies. This policy makes the Fund more susceptible to adverse economic or
regulatory occurrences affected companies in these industries. These industries
may be sensitive to changes in interest rates and general economic activity and
are subject to extensive government regulation.

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. This risk may be greater for securities with longer
maturities. During periods of rising interest rates, the average life of certain
types of securities may be extended because of slower than expected principal
payments. This may lock in a below market interest rate, increase the security's
duration and reduce the value of the security. This is known as extension risk.
During periods of declining interest rates, the issuer of a security may
exercise its option to prepay principal earlier than scheduled, forcing the Fund
to reinvest in lower yielding securities. This is known as call or prepayment
risk.

The values of securities with floating interest rates generally are less
sensitive to interest rate changes but may decline in value if their interest
rates do not rise as much, or as quickly, as prevailing interest rates. Further,
in the case of some instruments, if the underlying reference interest rate does
not move by at least a prescribed increment, no adjustment will occur in the
floating rate instrument's interest rate. This means that, when prevailing
interest rates increase, a corresponding increase in the instrument's interest
rate may not result and the instrument may decline in value. Unlike fixed rate
securities, floating rate securities generally will not increase in value if
interest rates decline. Changes in interest rates also will affect the amount of
interest income the Fund earns on its floating rate investments. Unlike fixed
rate securities, when prevailing interest rates decrease, the interest rate
payable on floating rate investments will decrease.

CREDIT RISK AND JUNK BOND RISK

Credit risk is the risk that an issuer of a security in which the Fund invests
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
global high yield debt securities, floating rate loans, event-linked bonds and

- 13 -

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 Adviser
or Subadviser to be of comparable credit quality. Investment in debt 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.

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.

Instruments that allow for balloon payments or negative amortization payments
permit the borrower to avoid paying currently a portion of the interest accruing
on the instrument. While these features make the debt instrument more affordable
to the borrower in the near term, they increase the risk that the borrower will
be unable to make the resulting higher payment or payments that become due at
the maturity of the loan.

FLOATING RATE LOAN RISK

The risks associated with floating rate loans are similar to the risks of junk
bonds, although floating rate 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. See "Risk factors - Credit risk and
junk bond risk."

The Fund's investments in floating rate loans typically are rated 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 floating rate loans or floating rate 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.

- 14 -

will occur in the floating rate instrument's interest rate. This means that,
when prevailing interest rates increase, a corresponding increase in the
instrument's interest rate may not result and the instrument may decline in
value. Unlike fixed rate securities, floating rate securities generally will not
increase in value if interest rates decline. Changes in interest rates also will
affect the amount of interest income the fund earns on its floating rate
investments. Unlike fixed rate securities, when prevailing interest rates
decrease, the interest rate payable on floating rate investments will decrease.
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 floating rate 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 floating rate
loans.

Floating rate 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
an obligation 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 an obligation. To the extent that an
obligation 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. Loans that are obligations of a holding company are subject to
the risk that, in a bankruptcy of a subsidiary operating company, creditors of
the subsidiary may recover from the subsidiary's assets before the lenders to
the holding company would receive any amount on account of the holding company's
interest in the subsidiary. Some floating rate loans are subject to the risk
that a court, pursuant to fraudulent conveyance or other similar laws, could
subordinate floating rate loans to presently existing or future indebtedness of
the borrower or take other action detrimental to the holders of floating rate
loans including, in certain circumstances, invalidating floating rate 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. With respect to the Fund's investments in non-
U.S. floating rate investments, the Fund's access to collateral may be limited
by non-U.S. bankruptcy or other insolvency laws, which laws may be less
developed and more cumbersome than U.S. bankruptcy laws.

Many loans in which the Fund will invest may not be rated by a rating agency,
and most or all 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 floating rate loans will generally be less extensive than
that available for issuers of registered or exchange listed securities. In
evaluating the creditworthiness of borrowers, the Adviser will consider, and may
rely in part, on analyses performed by others. The Adviser does not view ratings
as the determinative factor in its investment decisions and relies more upon its
credit analysis abilities than upon ratings. Borrowers may have outstanding debt
obligations that are rated below investment grade by a rating agency. A high
percentage of floating rate loans held by the Fund may be rated below investment
grade by independent rating agencies. In the event floating rate loans are not
rated, they are likely to be 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. See "Risk
factors - Credit risk and junk bond risk." Because floating rate loans are

- 15 -

senior to subordinated creditors and stockholders in a borrower's capital
structure and are often secured by specific collateral, the Adviser believes,
based on its experience, that floating rate 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 Adviser's prior experience or
that the floating rate loans will achieve any specific loan recovery rate.

No active trading market may exist for many floating rate loans, and some
floating rate loans may be subject to restrictions on resale. 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 floating rate loan and
cause a material decline in the Fund's net asset value.

EVENT-LINKED BOND RISK

Event-linked bonds are debt obligations for which the return of principal and
the payment of interest are contingent on the non-occurrence of a pre-defined
"trigger" event, such as a hurricane or an earthquake of a specific magnitude.
For some event-linked bonds, the trigger event or magnitude of losses may be
based on company-wide losses, index-portfolio losses, industry indexes or
readings of scientific instruments rather than specified actual losses. Event-
linked bonds may be issued by government agencies, insurance companies,
reinsurers, special purpose corporations or other on-shore or off-shore
entities. If a trigger event, as defined within the terms of an event-linked
bond, involves losses or other metrics exceeding a specific magnitude in the
geographic region and time period specified therein, the Fund may lose a portion
or all of its accrued interest and/or principal invested in such event-linked
bond. The Fund is entitled to receive principal and interest payments so long as
no trigger event occurs of the description and magnitude specified by the
instrument. Because event-linked bond issuers currently are structured so as to
be bankruptcy remote SPVs, it is unlikely that the Fund could lose its entire
investment in an event-linked bond if the applicable trigger event never occurs.
However, there can be no assurance that event-linked bonds in which the Fund may
invest in the future will be structured in a similar manner or that a court
would uphold the intended bankruptcy remote characterization of the structure.
If an event-linked bond that is issued in the future is structured in a
different manner, if may be possible that the Fund would lose its entire
investment in an event-linked bond even though the applicable trigger event
never occurs.

- 16 -

trigger event. This may result in more frequent and greater than expected loss
of principal and/or interest, which would adversely impact the Fund's total
returns. Further, to the extent there are events that involve losses or other
metrics, as applicable, that are at, or near, the threshold for a trigger event,
there may be some delay in the return of principal and/or interest until it is
determined whether a trigger event has occurred. Finally, to the extent there is
a dispute concerning the definition of the trigger event relative to the
specific manifestation of a catastrophe, there may be losses or delays in the
payment of principal and/or interest on the event-linked bond. As such, there is
no significant trading history of these securities, and there can be no
assurance that a liquid market in these instruments will develop. Lack of a
liquid market may impose the risk of higher transactions costs and the
possibility that the Fund may be forced to liquidate positions when it would not
be advantageous to do so. See "Special risk considerations - Liquidity risk"
below.

Event-linked bonds typically are restricted to qualified institutional buyers
and, therefore, are not subject to registration with the Securities and Exchange
Commission or any state securities commission and are not listed on any national
securities exchange. The amount of public information available with respect to
event-linked bonds is generally less extensive than that available for issuers
of registered or exchange listed securities. Event-linked bonds may be subject
to the risks of adverse regulatory or jurisdictional determinations. There can
be no assurance that future regulatory determinations will not adversely affect
the overall market for event-linked bonds. In evaluating the rating of the bond
and the creditworthiness of the issuer, the Subadviser will consider, and may
rely in part, on analyses performed by others.

LIQUIDITY RISK

Some global high yield debt securities, floating rate loans, event-linked bonds
and other debt obligations are not readily marketable and may be subject to
restrictions on resale. Floating rate loans and event-linked bonds generally are
not listed on any national securities exchange or automated quotation system and
no active trading market may exist. Where a secondary market exists, such market
for some floating rate loans and event-linked bonds may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods.
The Fund's investments in illiquid securities 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 that are not readily
marketable, are subject to restrictions on resale, or are illiquid. In certain
situations, the Fund could find it more difficult to sell such securities at
desirable times and/or prices. Most global high yield debt securities, floating
rate loans and event-linked bonds are valued by an independent pricing service
that uses market quotations of investors and traders in these securities. In
other cases, these investments are valued at their fair value in accordance with
procedures approved by the Board of Trustees.

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.

REINVESTMENT RISK

Income from the Fund's portfolio will decline if the Fund invests the proceeds
of repayment or sale of floating rate loans or other obligations into lower
yielding instruments or floating rate 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.

- 17 -

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 on preferred shares issued by the Fund or interest rates on
borrowings by the Fund would likely increase, which would tend to further reduce
returns to common shareholders.

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.

- Special redemption rights. In certain varying circumstances, an issuer
of preferred securities may redeem the securities after a specified
date.

- 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.

- 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. investments
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, more volatile and may be
subject to a heightened level of inflation and default risk relative to
U.S. issuers. In a changing market, the Adviser or Subadviser, as
applicable, 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

- 18 -

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.

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 or sponsor event-linked
instruments, the availability of these types of instruments for investment may
be adversely affected. In addition, such legislation could depress the market
value of these instruments.

DERIVATIVES RISK

Even a small investment in derivatives can have a significant positive or
negative 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 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

- 19 -

- 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 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. The Fund may pledge up to
33 1/3% of its managed assets in connection with certain types of borrowing.

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, 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, to elect a majority of the Board of Trustees. 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.

MARKET DISRUPTION RISK

- 20 -

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 the Fund's investments
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. With
respect to investments of the Fund other than event-linked bonds, the Adviser 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 Adviser also is responsible for allocating the Fund's investments among the
different asset classes. The Adviser has engaged Montpelier Capital Advisors,
Ltd. to act as investment subadviser to the Fund with respect to the portion of
the Fund's portfolio invested in event-linked bonds. The Subadviser selects and
monitors the Fund's event-linked bond investments and also assists the Adviser
in the evaluations of the relative value of investment in event-linked bonds,
compared to other sectors of the fixed income securities market.

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 March
31, 2007, assets under management by the Adviser and its affiliates were
approximately $310 billion worldwide, including over $81 billion in assets under
management by the Adviser. The Adviser supervises the Subadviser's event-linked
bond investments on behalf of the Fund, supervises the Fund's overall compliance
program and provides for the general management of the business affairs of the
Fund.

The Subadviser, based in Bermuda, is a newly organized investment adviser
registered with the Securities and Exchange Commission. Although the Subadviser
is newly organized and has not previously served as investment adviser or
subadviser to a registered investment company, the Subadviser's management team
has substantial experience evaluating and monitoring event event-linked
instruments at its parent company, Montpelier Re Holdings, Ltd., a leading
provider of global property and casualty reinsurance and insurance products
through its wholly-owned subsidiary, Montpelier Reinsurance Ltd.

The Fund pays the Adviser a fee for its investment advisory services equal on an
annual basis to 0.85% of the Fund's average daily managed assets. "Managed
assets" means the total assets of the Fund, including any form of investment
leverage, minus all accrued expenses incurred in the normal course of
operations, but not excluding any liabilities or obligations attributable to
investment leverage obtained through (i) indebtedness of any type (including,
without limitation, borrowing through a credit facility or the issuance of debt
securities), (ii) the issuance of preferred stock or other similar preference
securities, (iii) the reinvestment of collateral received for securities loaned
in

- 21 -

accordance with the Fund's investment objectives and policies and/or (iv) any
other means. 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, 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. See
"Management of the Fund." The Adviser (and not the Fund) has agreed to provide
certain additional compensation to the underwriters. See "Underwriting."

LISTING

The Fund's common shares have been approved for listing on the American Stock
Exchange under the trading or "ticker" symbol "HNW."

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

Pioneer Investment Management, Inc. serves as the Fund's administrator and has
appointed Princeton Administrators, LLC 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. American Stock
Transfer & Trust Company will serve as the sub-transfer agent, sub-registrar and
sub-dividend disbursing agent. UBS Securities LLC will serve as the Fund's
shareholder servicing 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
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
approximately 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.

- 22 -

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.

For federal income tax purposes, dividends from the Fund's net investment income
and distributions of its net realized short-term capital gains generally will be
taxable as ordinary income to the extent of the Fund's current and accumulated
earnings and profits. 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. You should consult a tax
adviser about state, local and foreign taxes on your distributions from the
Fund.

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."

- 23 -

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 managed assets (after their issuance) and issues
approximately 7,300,000 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. 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 paid by common shareholders (as a percentage of
offering price)........................................ 4.50%
Estimated offering expenses borne by common shareholders
(as a percentage of offering price).................... 0.20%(1)
Dividend reinvestment plan fees........................... None(2)
Preferred shares offering expenses (paid by the common
shareholders).......................................... 0.64%(3)

AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO COMMON SHARES,
ASSUMING THE ISSUANCE OF PREFERRED SHARES(7)
-----------------------------------------------------------------------------------------------

Annual Expenses
Advisory fee.............................. 1.27%(4)
Other expenses............................ 0.47%(1)(3)
TOTAL ANNUAL EXPENSES..................... 1.74%(1)(5)(8)

TOTAL ANNUAL EXPENSES PLUS PREFERRED SHARE
DIVIDENDS.............................. 4.36%(6)

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 over-
allotment 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 offering expenses of this offering of $2.00 and the estimated offering
costs of issuing preferred shares of $6.40) assuming the Fund issues preferred
shares representing 33 1/3% of the Fund's managed assets after their issuance)
that you would pay on a $1,000 investment in common shares, assuming (1) total
annual expenses of 1.74% of net assets attributable to common shares and (2) a
5% annual return*:

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

Total expenses incurred......... $70 $105 $143 $248

Using the same dividends example as above, but taking into account "total annual
expenses plus preferred share dividends" of 4.36% of net assets attributable to
common shares, the total expenses incurred would be $95 in year 1, $178 in year
3, $263 in year 5 and $480 in year 10.

-------
* 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

- 24 -

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.

-------
(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 $1,000,000 or $0.05 per common
share. The Adviser has agreed to pay all, and will not be reimbursed for
any, organizational expenses. The Adviser has agreed to pay all offering
costs (other than sales load) that exceed $0.05 per common share.
Estimated offering costs of the common share offering to be paid by the
holders of the common shares are not included in the expenses shown in
"Other expenses" or "Total annual expenses." 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 1.36% 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 7,300,000
common shares and preferred shares in an amount equal to 33 1/3% of the
Fund's managed assets (after their issuance), these offering costs are
estimated to be approximately $9,747,112 or $1.34 per common share. These
offering costs are not included among the expenses shown in the annual
expense table. Estimated ongoing expenses of servicing the preferred
shares (such as fees paid to the auction agent, transfer agent and broker
dealers) are included in "Other expenses."

(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 table reflects the advisory fee as a percentage of net assets
attributable to common shareholders. Common shareholders bear all of the
advisory fee. Consequently, when the Fund is leveraged (i.e., issues
preferred shares or incurs borrowing, if any), the advisory fee stated as
a percentage of net assets attributable to common shareholders is higher
than when the Fund is not leveraged and increases as the amount of
leverage increases. See footnote (8).

(5) Assuming that the Fund issues preferred shares with an aggregate
liquidation preference of $86,961,250 (equal to 33 1/3% of the Fund's
managed assets (after their issuance)), the expense limitation discussed
in footnote (8) is estimated to be equivalent to an expense limitation of
1.34% of average daily net assets attributable to common shares. The
Fund's total annual expenses as a percentage of net assets attributable
to common shares are estimated to be 1.74% of average daily net assets
whether or not the underwriters' over-allotment 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 annual dividend payments on the preferred shares will vary with the
prevailing level of interest rates. Assuming the Fund issues preferred
shares with an aggregate liquidation preference of $86,961,250 and
dividends are paid on the preferred shares at an annual rate of 5.25%
then the annual dividend on the preferred shares would be $4,565,466.
There can be no assurance that the dividend rate on the preferred shares
on an annualized basis will not exceed 5.25% or that the aggregate dollar
amount of dividends payable to the holders of preferred shares will not
differ significantly from the above amount. Dividend payments are
reflected in the "Total annual expenses plus preferred share dividends."

(7) 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:

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

Annual Expenses
Advisory fee.......................................... 0.85%(4)
Other expenses........................................ 0.18%
Total annual expenses................................. 1.03%(8)

(8) 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 Internal Revenue
Code or any other nonrecurring or non-operating expenses) to 0.90% of the
Fund's average daily managed assets in year 1, 0.95% of the Fund's
average daily managed assets in year 2, and 1.00% of the Fund's average
daily managed assets in year 3. This is a contractual limit and may not
be terminated by the Adviser for three years. There can be no

- 25 -

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. This waiver is not reflected
in the table of Annual Expenses or in the Example.

- 26 -

THE FUND

Pioneer Diversified High Income Trust is a newly organized, diversified, closed-
end management investment company. The Fund was organized under the laws of the
State of Delaware on January 30, 2007, 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 $173,922,500 (or
approximately $200,010,875 assuming the underwriters exercise the over-allotment
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
Adviser or Subadviser, are appropriate investments for the Fund may not be
immediately available. Therefore, there will be an initial investment period of
approximately four 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."

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 capital appreciation 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

The Fund allocates its investments principally among three sectors of the fixed
income securities markets: (i) below investment grade debt securities and
preferred stocks of U.S. and non-U.S. issuers, including governmental and
corporate issuers in emerging markets ("global high income debt securities"),
(ii) floating rate loans and (iii) "event-linked" bonds, which sometimes are
referred to as "insurance-linked" or "catastrophe" bonds.

- 27 -

Fund's investments nevertheless involve significant risks since the Fund invests
at least 80% of its managed assets in below investment grade (high yield) debt
securities, loans and preferred stocks, as discussed below. For a complete
discussion on the risks related to the Fund's investments, see "Risk factors."

The Adviser has engaged Montpelier Capital Advisors, Ltd. to act as the Fund's
investment subadviser with respect to the Fund's investments in event-linked
bonds. The Subadviser also assists the Adviser in the evaluation of the relative
value of investments in event-linked bonds, compared to other sectors of the
fixed income securities markets. Although the Subadviser is newly organized and
has not previously served as an investment adviser or subadviser to an
investment company, the Subadviser's management team has substantial experience
evaluating and monitoring event-linked instruments at its parent company,
Montpelier Re Holdings, Ltd., a leading provider of global property and casualty
reinsurance and insurance products through its wholly-owned subsidiary,
Montpelier Reinsurance Ltd. When analyzing the Fund's potential investments in
event-linked bonds, the Subadviser's management team intends to utilize the same
tools and skills for evaluating event-linked bonds that it has been using for
years in connection with underwriting insurance and reinsurance policies.

CREDIT MANAGEMENT

The Fund may invest in event-linked bonds, floating rate loans and other
obligations of any credit quality, including those that are rated below
investment grade or are unrated but determined by the Adviser or Subadviser, as
applicable, to be of equivalent credit quality. The Fund does not have a policy
of maintaining a specific average credit quality of its portfolio. The Adviser
and/or Subadviser, as applicable, monitor the credit quality and price of the
securities and other instruments held by the Fund. See "Portfolio
contents - Securities ratings," "Portfolio contents - Event-linked bond ratings"
and "Risk factors - Credit risk and junk bond risk."

Although the Adviser and Subadviser consider ratings when making investment
decisions, each 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 obligation, whether rated or unrated, the Adviser
and Subadviser generally give equal weight to the obligation'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.

- 28 -

EVENT-LINKED BOND MANAGEMENT

The Subadviser is responsible for assisting the Adviser in the evaluation of the
Fund's investments in event-linked bonds. The Subadviser utilizes qualitative
and proprietary quantitative research to screen the potential universe of
investments in event-linked bonds. The Subadviser next utilizes multiple models
to calculate the probability of an expected loss to be incurred by an individual
pre-defined trigger event. The Subadviser seeks to minimize the Fund's overall
exposure to event-linked bonds by allocating the Fund's investments among
different issuers, geographic regions, and types of pre-defined trigger events.

Event-linked bonds are typically rated by at least one nationally recognized
rating agency, primarily S&P, Fitch and/or A.M. Best. Although each rating
agency utilizes its own general guidelines and methodology to evaluate the risks
of an event-linked bond, the average rating in the current market for event-
linked bonds is "BB" by S&P (or the equivalent rating for another rating
agency). However, there are event-linked bonds rated higher or lower than "BB."
The Subadviser anticipates that the Fund's investments in event-linked bonds
generally will be rated B, BB or BBB at the time of purchase, although the Fund
may invest in event-linked bonds rated higher or lower than these ratings, as
well as event-linked bonds that are unrated. The rating for event-linked bonds
primarily reflects the rating agency's calculated probability that a pre-defined
trigger event will occur. This rating also assesses the bond's credit risk and
the model used to calculate the probability of the trigger event. See "Portfolio
contents - Event-linked bond ratings" for more detailed discussion on event-
linked bond ratings.

PORTFOLIO CONTENTS

Under normal market conditions, the Fund invests at least 80% of its managed
assets (net assets plus borrowings or other leverage for investment purposes) in
a diversified portfolio of below investment grade (high yield) debt securities,
loans and preferred stocks. These securities are rated below investment grade by
the national rating agencies that cover the obligations (i.e., Ba and below by
Moody's or BB and below by S&P), or if unrated, are determined by the Adviser or
Subadviser, as applicable, to be of comparable quality. Investment in securities
of below investment grade quality, commonly referred to as "junk bonds,"
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. With respect to event-linked bonds,
the rating reflects the probability that a pre-defined trigger event will occur,
rather than the bond's credit rating. The rating also assesses the model used to
calculate the probability of the trigger event.

The Fund does not have a policy of maintaining a specific average credit quality
or a dollar-weighted average maturity target or range for its portfolio. The
Fund may invest any portion of its assets in securities and other instruments of
non-U.S. issuers, including emerging market issuers, and may engage in certain
strategic transactions.

GLOBAL HIGH YIELD DEBT SECURITIES

- 29 -

rate, adjustable rate, zero coupon, contingent, deferred, payment in kind and
auction rate features. The Fund's investments in global high yield debt
securities may have a broad range of maturities and may include securities
denominated in foreign currencies. 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. See
"Risk factors - Foreign securities risk."

SECURITIES RATINGS

Below 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
Adviser or Subadviser, as applicable. 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. 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. See "Risk factors - Credit risk and junk bond
risk."

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. 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).

EVENT-LINKED BOND RATINGS

Event-linked bonds are typically rated by at least one nationally recognized
rating agency, primarily S&P, Fitch and/or A.M. Best. Although each rating
agency utilizes its own general guidelines and methodology to evaluate the risks
of an event-linked bond, the average rating in the current market for event-
linked bonds is "BB" by S&P (or the equivalent rating for another rating
agency). The rating for event-linked bonds reflects the rating agency's
calculated probability that a pre-defined trigger event will occur. This rating
also assesses the bond's credit risk and the model used to calculate the
probability of the trigger event. Most rating agencies rely upon one or more of
the reports prepared by the following three primary independent catastrophe-
modeling firms: EQECAT, Inc., AIR Worldwide Corp and Risk Management Solutions,
Inc. These firms utilize different methodologies to evaluate the probability of
various types of pre-defined trigger events. For event-linked bonds with a "BB"
rating, the average expected loss probability (i.e., the weighted average sum of
both partial and total loss models over a multi-year simulation period) is
approximately 1% (i.e., loss occurrence once every 100 years). There can be no
assurance that an event-linked bond

- 30 -

rated "BB" will not experience either a partial or total loss of principal
and/or interest more frequently than once every 100 years.

Given the relatively new market for event-linked bonds, the rating system for
event-linked bonds is relatively new and significantly less developed than that
of corporate bonds and continues to evolve as the market develops. As discussed
above, rating agencies do not rely on a single factor but take into account
various factors when determining the rating for an event-linked bond. The key
factors that are taken into account include a bond's length of maturity, the
probability of attachment (i.e., the probability of an occurrence of an event
that would begin to impair the bond's principal), the probability of exhaustion
of the bond's principal, whether a single event or multiple events can trigger
an impairment of principal, and the rating agency's confidence in the modeling
firms' analysis of the probability of a trigger event. S&P, for example,
currently does not publish event-linked bond ratings based on specific
thresholds of expected loss probabilities. Instead, S&P assigns a rating to a
natural peril catastrophe bond, for example, based on its corporate default
study, which reflects 21 years of U.S. corporate note defaults. Under this
methodology, S&P derives its rating on a note by taking into account first, the
maturity of the note, and secondly, the probability of attachment. Where a
modeling firm provides more than one view of expected loss on a portfolio of
catastrophe risk, S&P will use the most conservative view in developing an
opinion of the note's probability of attachment. Based on these factors, S&P
calculates the maximum possible rating on a note. In addition, the bonds are
subject to a maximum rating of "BB+" for a bond that can be triggered by a
single, first event, "BBB+" for a second event trigger, and "A+" for a third-
event trigger. If the number of natural peril catastrophe loss events are
sufficiently large and independent, then S&P may assign a maximum rating of
"AA." For a note to be rated "AA," S&P would expect there to be limited
correlation among the modeled perils. In addition, the occurrence of any trigger
event cannot result in a downgrade, based on the probability of attachment, of
more than one rating category. In addition to evaluating the probability of
attachment, the rating on a natural peril catastrophe bond also includes an
analysis of many parties to the transaction, particularly the swap counterparty
or premium payer and, for indemnified bonds, the sponsoring insurance or
reinsurance company. This analysis covers the strength of the agreements binding
each party, the nature of any indemnification offered by these parties, and the
safety of the assets in the collateral account. This analysis also covers the
quality of the peril modeling and S&P's opinion of the sponsoring insurance or
reinsurance company's financial strength and underwriting abilities. Generally,
there have been relatively few instances where an event-linked bond's rating has
been downgraded. In order to achieve ratings above a certain threshold, for
example "A" or higher by S&P, more than one catastrophic event must occur in
order for any principal amount of the event-linked bond to be impaired. As a
result, with respect to a highly rated event-linked bond, the occurrence of only
one trigger event will result in a downgrade by S&P of no more than one rating
category. As a result of Hurricane Katrina, certain event-linked bonds were
downgraded in connection with adjustments made by modeling firms in their
expected loss calculations. There can be no assurance that either the rating
agencies or the modeling firms can precisely predict the probability of any
trigger event in light of the inherent unpredictability of natural catastrophes
and all trigger events. Although an event-linked bond's rating is an important
factor in determining market interest and value of a particular bond, the type
of trigger event (e.g., the region and type of peril) and its expected loss
probability are equally, if not more important, factors that affect the bond's
value.

THE FUND'S RATING POLICIES

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 upgraded 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

- 31 -

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. For purposes of the Fund's credit quality policies, if a security
receives different ratings from nationally recognized statistical rating
organizations, the fund will use the rating chosen by the portfolio manager as
most representative of the security's credit quality.

FLOATING RATE LOANS

The Fund will invest a portion of its assets in floating rate loans. Floating
rate loans are made by banks and other financial institutions to corporations,
partnerships and other business entities that operated in various industries and
geographical regions, including non-U.S. borrowers. The rates of interest on the
loans adjust or "float" periodically by reference to a base lending rate, such
as LIBOR, the prime rate offered by one or more major U.S. banks (Prime Rate),
or the overnight federal funds rate, plus a premium. LIBOR loans reset on set
dates, typically every 30 to 90 days, but not exceeding one year. Prime Rates
and federal funds rate loans reset periodically when the underlying rate resets.
For purposes of the Fund's investment policies, the Fund considers "floating
rate" and "adjustable rate" to be the same."

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 floating rate 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 floating rate loan. To the extent that a floating rate
loan is collateralized by stock in the borrower or its subsidiaries, such stock
may lose all or substantially all

- 32 -

of its value in the event of the bankruptcy of a borrower. Some floating rate
loans are subject to the risk that a court, pursuant to fraudulent conveyance or
other similar laws, could subordinate floating rate loans to presently existing
or future indebtedness of the borrower or take other action detrimental to the
holders of floating rate loans including, in certain circumstances, invalidating
such floating rate 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,
and most or all 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 floating rate loans will generally be less extensive than
that available for issuers of registered or exchange listed securities. In
evaluating the creditworthiness of borrowers, the Adviser will consider, and may
rely in part, on analyses performed by others. The Adviser does not view ratings
as the determinative factor in its investment decisions and relies more upon its
credit analysis abilities than upon ratings. Borrowers may have outstanding debt
obligations that are rated below investment grade by a rating agency. A high
percentage of floating rate loans in the Fund may be rated below investment
grade by independent rating agencies. In the event floating rate 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. See "Risk factors - Credit risk and junk bond risk." Because
floating rate loans are senior in a borrower's capital structure and are often
secured by specific collateral, the Adviser believes that floating rate 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 Adviser's
prior experience or that the Fund's floating rate loans will achieve any
specific loss recovery rates.

No active trading market may exist for many floating rate loans, and some
floating rate loans may be subject to restrictions on resale. The Fund is not
limited in the percentage of its assets that may be invested in floating rate
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 floating rate loan, and cause a material decline in
the Fund's net asset value. See "Liquidity risk."

USE OF AGENTS. Floating rate 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 floating
rate 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 floating rate 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 floating rate 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

- 33 -

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 floating rate loans may take one
of several forms, including acting as one of the group of lenders originating a
floating rate loan, purchasing an assignment of a portion of a floating rate
loan from a third party or acquiring a participation in a floating rate loan.
When the Fund is a member of the originating syndicate for a floating rate loan,
it may share in a fee paid to the syndicate. When the Fund acquires a
participation in, or an assignment of, a floating rate 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 floating rate loan only if the
agent is determined by the Adviser 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 holders of some specified percentage of the outstanding
principal amount of the floating rate loan. Certain decisions, such as reducing
the interest rate, or extending the maturity of a floating rate loan, or
releasing collateral securing a floating rate 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 floating rate
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 floating
rate 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
floating rate 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 Adviser 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 floating rate 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

- 34 -

floating rate loan will be deemed to be a floating rate loan for the purposes of
the Fund's investment objectives and policies.

Investing in floating rate loans involves investment risk. Some borrowers
default on their floating rate 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."

EVENT-LINKED BONDS

The Fund anticipates an initial allocation to event-linked bonds of less than
25% of the Fund's managed assets, although the actual allocation of the Fund's
investments will be subject to market conditions at the time the Fund commences
investment operations. In the future, the Adviser and Subadviser may modify this
allocation in response to market conditions and the development of event-linked
bonds as a sector of the fixed income securities markets, but at no time will
the Fund allocate greater than 35% of its managed assets to event-linked bonds.

Event-linked bonds consist of a fixed insurance premium and a floating rate of
interest. The rates of interest on the bonds adjust or "float" periodically by
reference to a base lending rate, such as LIBOR. In 2006, event-linked bonds had
an average scheduled maturity of three years, although maturities can be less
than or greater than three years. They may be issued by government agencies,
insurance companies, reinsurers, special purpose corporations or other on-shore
or off-shore entities. Typically, an insurance or reinsurance company sponsors
the establishment of a non-U.S. offshore reinsurance SPV. The SPV's assets are
owned by the SPV, subject to the obligation to make any payments required under
the terms of the event-linked bond as a result of the occurrence of a trigger
event, and generally are designed to be bankruptcy remote so that the SPV's
assets not subject to the claims of the sponsor's creditors in the event of the
bankruptcy. The insurance company agrees to pay a future stream of premiums to
the SPV in return for a reinsurance contract to cover an identified portfolio of
its catastrophe exposure. The SPV issues the event-linked bonds to qualified
institutional buyers who receive interest payments. This interest typically
accrues and is paid on a quarterly basis. Although principal typically is repaid
only on the maturity date, it may be repaid in installments, depending on the
terms of the bond. The SPV's obligation to pay accrued but unpaid interest
and/or repay principal of an event-linked bond is reduced or eliminated,
depending on the specific circumstances, in the event the SPV would be required
to make payments upon a trigger event, as described below. At the same time as
the issuance of the event-linked bonds, the SPV invests the proceeds of the
issuance in high-grade securities. The premiums paid by the insurance company,
along with the interest on the high-grade debt securities, are directly paid to
the event-linked bondholders in the form of interest payments.

Event-linked bonds are debt obligations for which the return of principal and
the payment of interest are contingent on the non-occurrence of a pre-defined
"trigger" event, such as a hurricane or an earthquake of a specific magnitude.
If a trigger event, as defined within the terms of an event-linked bond,
involves losses or other metrics exceeding a specific magnitude in the
geographic region and time period specified therein, the Fund may lose a portion
or all of its accrued interest and/or

- 35 -

principal invested in such event-linked bond. If no trigger event occurs, the
Fund is entitled to recover its principal plus accrued interest.

- INDEMNITY TRIGGERS. Indemnity triggers are based on company-wide losses.
The trigger event would be considered to have occurred if a company's
losses on catastrophic insurance claims exceeded a certain aggregate amount
of insured claims. If the company's losses were less than the pre-
determined aggregate amount, then the trigger event would not be considered
to have occurred and the Fund would be entitled to recover its principal
plus accrued but unpaid interest. Indemnity triggers require investors and
rating agencies to understand the risks of the insurance and reinsurance
policies underwritten by the company, which may be difficult to obtain and
ascertain, particularly in the case of complex commercial insurance and
reinsurance policies. In addition, event-linked bond investors are
dependent upon the company's ability to settle catastrophe claims in a
manner that would not be disadvantageous to investors' interests.

- PARAMETRIC. Parametric trigger indices are based upon the occurrence
of a catastrophic event with certain defined physical parameters (e.g.,
wind speed and location of a hurricane or magnitude and location of an
earthquake).

- MODELED-LOSS. Modeled-loss trigger indices are based upon a
catastrophe-modeling firm's database estimate of an industry loss, or a
company's losses compared to a modeling firm's industry estimate of losses.

- 36 -

index is used to establish a company's overall market share, and then
applied to the industry loss index associated with the qualifying event to
determine any principal reduction. Hybrid triggers may be more complicated
and difficult to understand for investors, and involve the applicable risks
associated with the types of triggers described above.

OTHER FIXED INCOME SECURITIES

The Fund may invest in all other types of fixed income securities, which are
described in this section or elsewhere under "Portfolio contents." 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's investments also may include unsecured or
subordinated loans, revolving credit facilities, investment grade fixed income
securities, convertible securities and money market instruments, such as
commercial paper. The Fund also may purchase 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).

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.

The Fund may hold securities that are unrated or in the lowest ratings
categories (rated C by Moody's or D by S&P). Because of the greater number of
investment considerations involved in investing in high yield, high risk
floating rate loans and bonds, the achievement of the Fund's objectives depends
more on the Adviser's judgment and analytical abilities than would be the case
if invested primarily in securities in the higher ratings categories. 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. See "Risk
factors - Credit risk and junk bond risk."

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.

- 37 -

The Fund may invest any portion of its assets in securities and other
instruments of non-U.S. issuers, including emerging market issuers, and may
engage in hedging transactions.

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.

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.

- 38 -

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.

MORTGAGE- AND ASSET-BACKED SECURITIES

The Fund may invest in mortgage-backed and asset-backed securities. Mortgage-
backed securities may be issued by private companies or by agencies of the U.S.
government and represent direct or indirect participation in, or are
collateralized by and payable from, mortgage loans secured by real property.
Asset-backed securities represent participations in, or are secured by and
payable from, assets such as installment sales or loan contracts, leases, credit
card receivables and other categories of receivables. The Fund's investments in
mortgage related securities may include mortgage derivatives and structured
securities.

To the extent the Fund invests significantly in asset-backed and mortgage-
related securities, its exposure to prepayment and extension risks may be
greater than if it invested in other fixed income securities.

Certain debt instruments may only pay principal at maturity or may only
represent the right to receive payments of principal or interest on underlying
pools of mortgage or government securities, but not both. The value of these
types of instruments may change more drastically than debt securities that pay
both principal and interest during periods of changing interest rates. Principal
only mortgage-backed securities generally increase in value if interest rates
decline, but are also subject to the risk of prepayment. Interest only
instruments generally increase in value in a rising interest rate environment
when fewer of the underlying mortgages are prepaid. Interest only instruments
could lose their entire value in a declining interest rate environment if the
underlying mortgages are prepaid.

The Fund may invest in mortgage derivatives and structured securities. Mortgage
derivatives or structured securities typically are not secured by real property.
Because these securities have imbedded leverage features, small changes in
interest or prepayment rates may cause large and sudden price movements.
Mortgage derivatives can also become illiquid and hard to value in declining
markets.

FLOATING RATE LOAN BASED DERIVATIVES

The Fund may obtain exposure to floating rate loans and baskets of floating rate
loans through the use of derivative instruments. Such derivative instruments
have recently become increasingly available. The Adviser reserves the right to
utilize these instruments and similar instruments that may be available in the
future. The liquidity of the market for these instruments will be subject to
liquidity in the secured loan and credit derivatives markets. Investment in
these instruments 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.

- 39 -

INVERSE FLOATING RATE OBLIGATIONS

Inverse floating rate obligations (a type of derivative instrument) represent
interests in tax-exempt bonds. The interest rate on inverse floating rate
obligations will generally decrease as short-term interest rates increase, and
increase as short-term rates decrease. Due to their leveraged structure, the
sensitivity of the market value of an inverse floating rate obligation to
changes in interest rates is generally greater than a comparable long-term bond
issued by the same municipality and with similar credit quality, redemption and
maturity provisions. Inverse floating rate obligations may be volatile and
involve leverage risk.

SECOND LIEN LOANS AND DEBT OBLIGATIONS

The Fund may invest in loans and other debt securities that have the same
characteristics as senior floating rate loans except that such loans are second
in lien property rather than first. Such "second lien" loans and securities,
like senior floating rate loans, typically have adjustable or floating rate
interest payments. 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 DEBT OBLIGATIONS

The Fund may invest in collateralized debt obligations ("CDOs"), which include
collateralized bond obligations ("CBOs"), collateralized loan obligations
("CLOs") and other similarly structured securities. CDOs have securitized
certain financial assets by issuing securities in the form of negotiable paper
that are issued by an 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.

The Fund also may invest in 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 a CBO 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 a CBO.

A 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 floating rate 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.

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

- 40 -

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.

CREDIT DEFAULT SWAPS

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 income throughout the term of the contract, which typically is between
six months and three years, provided that there is no default event.

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 Adviser to be equivalent to such
rating. 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.

EVENT-LINKED SWAPS

The Fund may obtain event-linked exposure by investing in event-linked swaps,
which are similar to credit default swaps but typically are contingent, or
formulaically related to defined trigger events. Trigger events include
hurricanes, earthquakes and weather-related phenomena, including statistics
relating to such events. If a trigger event occurs, the Fund may lose the swap's
notional amount. As derivative instruments, event-linked swaps are subject to
risks in addition to the risks of investing in event-linked bonds, including
counterparty risk and leverage risk.

BRADY BONDS

The Fund may also invest in Brady bonds, which are restructured debt of
governmental issuers of certain emerging market countries. Brady bonds may
involve a high degree of risk, may be in default or present the risk of default.
As part of the debt restructuring, Brady bonds are issued in exchange for cash
and certain of the country's outstanding commercial bank loans.

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

- 41 -

Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA),
Maritime Administration, Tennessee Valley Authority, District of Columbia Armory
Board, 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 U.S. 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.

MONEY MARKET INSTRUMENTS

The Fund may invest in money market instruments or a money market fund that
invests in 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.

COMMON STOCKS

The Fund may acquire an interest in common stocks upon the default of a floating
rate loan secured by such common stock or upon the conversion of a convertible
debt security or preferred stock. The Fund may also acquire warrants or other
rights to purchase a borrower's common stock in connection with the making of a
floating rate 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 the event the Adviser selects
common stocks for investment, the Adviser generally expects to focus primarily
on the security's dividend paying capacity rather than on its potential for
capital appreciation.

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 3% of
the total outstanding voting securities of any one investment company would be
held by the Fund, (ii) more than 5% of the Fund's total assets would be invested
in any one investment company or (iii) more than 10% of the Fund's total assets
would be invested in securities of other investment companies. 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

- 42 -

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 Fund's limitations on investment in other investment companies,
the Fund may invest in exchange-traded funds ("ETFs"). ETFs, such as SPDRs,
PowerShares QQQ(TM) (QQQQs), iShares and various country index funds, are funds
whose shares are traded on a national exchange. 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(R) 500 Index. 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.

STRATEGIC TRANSACTIONS

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 Adviser and Subadviser seek 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 Adviser and Subadviser do not anticipate that
strategic transactions other than interest rate, currency, credit-linked or
event-linked derivatives will initially be a significant part of the Fund's
investment approach. With changes in the market or the Adviser's or 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 take advantage of
opportunities in swaps, options and futures contracts and any other derivative
instruments that presently are not contemplated by the Fund or currently are not
available in the market, but which may be developed in the future, including
instruments that provide for event-linked exposure, to the extent such
investments are consistent with the Fund's investment objectives. The Fund is
not limited in the amount of assets it may invest in these or other types of
derivative investments.

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 event-linked bonds, floating rate loans or other securities held

- 43 -

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 Adviser's ability to predict pertinent market movements, which cannot be
assured. Thus, the use of Strategic Transactions may result in losses greater
than if they had not been used, may require the Fund to sell or purchase
portfolio securities at inopportune times or for prices other than current
market values, may limit the amount of appreciation the Fund can realize on an
investment, or may cause the Fund to hold a security that it might otherwise
sell. 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 Adviser 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 Adviser 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

- 44 -

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.

TEMPORARY DEFENSIVE INVESTMENTS

LEVERAGE

The Fund may use leverage through borrowing and/or 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 managed assets immediately after such issuance. In the future, the degree
of leverage used by the Fund may increase or decrease from time to time either
due to a change in the Fund's net assets as a result of fluctuations in the
value of the Fund's investments or because the Fund issues or retires preferred
shares or borrowings. 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 managed assets, including the proceeds of the issuance of preferred
shares or any outstanding borrowings. 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 than the securities in which the Fund invests. The
fees and expenses

- 45 -

attributed to leverage will be disproportionately borne by the holders of common
shares, who will bear all offering expenses, dividends on preferred shares or
interest on borrowings, and an increase in 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
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

- 46 -

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 net value of the Fund's portfolio is at
least 200% of the liquidation preference of the outstanding preferred shares
(that is, the liquidation preference 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 preference. 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: (1) issues 7,300,000 common shares and preferred shares with
a liquidation preference equal to approximately 33 1/3% of the Fund's managed
assets, (2) pays an annual dividend rate of 5.25% on the preferred shares and
(3) estimates that the combined costs of the common and preferred shares are
approximately $9,747,112, the Fund would need to achieve an annual return (net
of expenses) on its managed assets of 1.76% 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 managed assets,
assuming hypothetical annual returns of the Fund's portfolio of minus 10% to
plus 10%. As the table shows, leverage generally increases the return to
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)% 0.00% 5.00% 10.00%
Corresponding Common Share Return...... (17.56)% (10.09)% (2.63)% 4.84% 12.31%

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. The potential benefits of
leveraging 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.

- 47 -

RISK FACTORS

GENERAL

The Fund is a diversified, closed-end management investment company designed
primarily as a long-term investment and not as a trading tool. The Fund is not a
complete investment program and should be considered only as an addition to an
investor's existing diversified portfolio of investments. Because the Fund
invests predominantly in event-linked bonds, floating rate loans and global high
yield debt securities, 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, diversified, closed-end management investment
company and has no operating history or history of public trading.

SUBADVISER RISK

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. 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.

CONCENTRATION RISK

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. This risk may be greater for securities with longer
maturities. During periods of declining interest rates, the issuer of a security
may exercise its option to prepay principal earlier than scheduled, forcing the
Fund to reinvest in lower yielding securities. This is known as call or
prepayment risk. During periods of rising interest rates, the average life of
certain types of securities may be extended because of slower than expected
principal payments. This may lock in a below

- 48 -

market interest rate, increase the security's duration and reduce the value of
the security. This is known as extension risk. The Fund's investments in event-
linked bonds, floating rate loans and other securities have interest rates that
periodically adjust or "float." 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.

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 a significant portion of 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 some or all of 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 floating rate investments. Because the rates of interest
paid on the floating rate investments 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 floating rate
instruments 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 floating
rate instrument purchased by 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 instrument, 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
floating rate instrument's value based on changes in the market spread on the
instrument in the Fund's portfolio may be of longer duration.

CREDIT RISK AND JUNK BOND RISK

Credit risk is the risk that an issuer of an event-linked bond, floating rate
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 global high
yield debt securities, floating rate loans, event-linked bonds 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 Adviser or Subadviser
to be of comparable credit quality. Investment in debt 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
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

- 49 -

- 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.

If the national economy enters into a recessionary phase, 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 floating rate 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,

- 50 -

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.

Debt securities rated C by Moody's are regarded as having extremely poor
prospectus 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, which may be expensive and
the results of which are uncertain. 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.

FLOATING RATE LOAN RISK

Floating rate loans and other debt securities are also subject to the risk of
price declines and to increases in prevailing interest rates. The values of
securities with floating interest rates generally are less sensitive to interest
rate changes but may decline in value if their interest rates do not rise as
much, or as quickly, as prevailing interest rates. Further, in the case of some
instruments, if the underlying reference interest rate does not move by at least
a prescribed increment, no adjustment will occur in the floating rate
instrument's interest rate. This means that, when prevailing interest rates
increase, a corresponding increase in the instrument's interest rate may not
result and the instrument may decline in value. Unlike fixed rate securities,
floating rate securities generally will not increase in value if interest rates
decline. Changes in interest rates also will affect the amount of interest
income the Fund earns on its floating rate investments. Unlike fixed rate
securities, when prevailing interest rates decrease, the interest rate payable
on floating rate investments will decrease. 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 floating rate
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 floating rate loans.

Floating rate 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

- 51 -

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 an obligation 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 an
obligation. To the extent that an obligation 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. Loans that are obligations
of a holding company are subject to the risk that, in a bankruptcy of a
subsidiary operating company, creditors of the subsidiary may recover from the
subsidiary's assets before the lenders of the holding company would receive any
amount on account of the holding company's interest in the subsidiary. Some
floating rate loans are subject to the risk that a court, pursuant to fraudulent
conveyance or other similar laws, could subordinate floating rate loans to
presently existing or future indebtedness of the borrower or take other action
detrimental to the holders of floating rate loans including, in certain
circumstances, invalidating floating rate 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. With respect to the Fund's investments in non-U.S. floating rate
investments, the Fund's access to collateral may be limited by non-U.S.
bankruptcy or other insolvency laws, which laws may be less developed and more
cumbersome than U.S. bankruptcy laws.

Many loans in which the Fund will invest may not be rated by a rating agency,
and most or all 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 floating rate loans will generally be less extensive than
that available for issuers of registered or exchange listed securities. In
evaluating the creditworthiness of borrowers, the Adviser will consider, and may
rely in part, on analyses performed by others. The Adviser does not view ratings
as the determinative factor in its investment decisions and relies more upon its
credit analysis abilities than upon ratings. Borrowers may have outstanding debt
obligations that are rated below investment grade by a rating agency. A high
percentage of floating rate loans held by the Fund may be rated below investment
grade by independent rating agencies. In the event floating rate loans are not
rated, they are likely to be of below investment grade quality. Because floating
rate loans are senior to subordinated creditors and stockholders in a borrower's
capital structure and are often secured by specific collateral, the Adviser
believes, based on its experience, that floating rate 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 Adviser's prior experience or
that the floating rate loans will achieve any specific loan recovery rate.

No active trading market may exist for many floating rate loans, and some
floating rate loans may be subject to restrictions on resale. The Fund is not
limited in the percentage of its assets that may be invested in floating rate
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 floating rate loan and cause a material
decline in the Fund's net asset value.

- 52 -

EVENT-LINKED BOND RISK

Event-linked bonds are debt obligations for which the return of principal and
the payment of interest are contingent on the non-occurrence of a pre-defined
"trigger" event, such as a hurricane or an earthquake of a specific magnitude.
For some event-linked bonds, the trigger event or magnitude of losses may be
based on company-wide losses, index- portfolio losses, industry indexes or
readings of scientific instruments rather than specified actual losses. Event-
linked bonds may be issued by government agencies, insurance companies,
reinsurers, special purpose corporations or other on-shore or off-shore
entities. If a trigger event, as defined within the terms of an event-linked
bond, involves losses or other metrics exceeding a specific magnitude in the
geographic region and time period specified therein, the Fund may lose a portion
or all of its accrued interest and/or principal invested in such event-linked
bond. The Fund is entitled to receive principal and interest payments so long as
no trigger event occurs of the description and magnitude specified by the
instrument. Because event-linked bond issuers currently are structured so as to
be bankruptcy remote SPVs, it is unlikely that the Fund could lose its entire
investment in an event-linked bond if the applicable trigger event never occurs.
However, there can be no assurance that event-linked bonds in which the Fund may
invest in the future will be structured in a similar manner or that a court
would uphold the intended bankruptcy remote characterization of the structure.
If an event-linked bond that is issued in the future is structured in a
different manner, if may be possible that the Fund would lose its entire
investment in an event-linked bond even though the applicable trigger event
never occurs.

Often event-linked bonds provide for extensions of maturity that are mandatory,
or optional at the discretion of the issuer, in order to process and audit loss
claims in those cases when a trigger event has, or possibly has, occurred. The
typical duration of mandatory and optional extension of maturity for event-
linked bonds currently is between three to six months, but maturity may be
extended for a period of up to two years. In rare circumstances, the extension
may exceed two years. Upon the occurrence or possible occurrence of a trigger
event, and until the completion of the processing and auditing of applicable
loss claims, the Fund's investment in such event-linked bond may be fair valued,
which may be at a price higher or lower than actual market quotations prior to
the trigger event and may affect the Fund's net asset value per share. See "Net
asset value." Market quotes may not be readily available during the completion
of the processing and auditing of applicable loss claims, which may require the
fund to fair value such securities. In addition to the specified trigger events,
event-linked bonds may also expose the Fund to certain unanticipated risks,
including but not limited to issuer (credit) default, adverse regulatory or
jurisdictional interpretations and adverse tax consequences. Event-linked bonds
are subject to the risk that the model used to calculate the probability of a
trigger event was not accurate and underestimated the likelihood of a trigger
event. This may result in more frequent and greater than expected loss of
principal and/or interest, which would adversely impact the Fund's total
returns. Further, to the extent there are events that involve losses or other
metrics, as applicable, that are at, or near, the threshold for a trigger event,
there may be some delay in the return of principal and/or interest until it is
determined whether a trigger event has occurred. Finally, to the extent there is
a dispute concerning the definition of the trigger event relative to the
specific manifestation of a catastrophe, there may be losses or delays in the
payment of principal and/or interest on the event-linked bond. Event-linked
bonds are a relatively new type of financial instrument. As such, there is no
significant trading history of these securities, and there can be no assurance
that a liquid market in these instruments will develop. Lack of a liquid market
may impose the risk of higher transactions costs and the possibility that the
Fund may be forced to liquidate positions when it would not be advantageous to
do so. See "Risk factors - Liquidity risk" below.

- 53 -

of registered or exchange listed securities. Event-linked bonds may be subject
to the risks of adverse regulatory or jurisdictional determinations. There can
be no assurance that future regulatory determinations will not adversely affect
the overall market for event-linked bonds. In evaluating the rating of the bond
and the creditworthiness of the issuer, 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.

LIQUIDITY RISK

Some global high yield debt securities, floating rate loans, event-linked bonds
and other debt obligations are not readily marketable and may be subject to
restrictions on resale. Floating rate loans and event-linked bonds generally are
not listed on any national securities exchange or automated quotation system and
no active trading market may exist. Where a secondary market exists, such market
for some floating rate loans and event-linked bonds may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods.
The Fund's investments in illiquid securities 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 global high yield debt securities, floating rate loans and
event-linked bonds are valued by an independent pricing service that uses market
quotations of investors and traders in these securities. In other cases, these
investments are valued at their fair value in accordance with procedures
approved by the Board of Trustees.

ISSUER RISK

REINVESTMENT RISK

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 on preferred shares issued by the Fund or interests rate on
borrowings by the Fund would likely increase, which would tend to further reduce
returns to common shareholders.

SPECIAL RISKS RELATED TO PREFERRED SECURITIES

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

- 54 -

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.

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

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, more volatile and may
be subject to a heightened level of inflation and default risk
relative to U.S. issuers. In a changing market, the Adviser or
Subadviser, as applicable, 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.

- 55 -

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 United States. The markets for securities in
certain emerging market countries 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 United
States. 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 United States. Non-U.S. economies may have less favorable
rates of growth of gross domestic product, rates of inflation, currency
valuation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Many countries have experienced 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
market 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

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

- 56 -

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.

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 or sponsor event-linked bond
instruments, the availability of these types of instruments for investment may
be adversely affected. In addition, such legislation could depress the market
value of these instruments.

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 Adviser's or 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 Adviser 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 Adviser's ability to predict correctly
changes in interest rate relationships or other factors.

Under an interest rate swap 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
payments from the counterparty on a swap or cap, which in turn would depend on
the general state of short-term interest rates at that point in time, a default
by a counterparty could negatively impact the Fund's overall performance. In
addition, at the time an interest rate swap or cap transaction

- 57 -

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 preference 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 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;

- 58 -

- 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.

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.

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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, event-linked bonds,
floating rate loans and global high yield debt 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 the Fund's investments than on higher rated fixed income
securities.

ANTI-TAKE OVER PROVISIONS RISK

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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 other 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 with
respect to all investments of the Fund other than event-linked bonds. The
Adviser is an indirect subsidiary of UniCredito. The Adviser is part of a global
asset management group providing investment management and financial services to
mutual funds and other clients. As of March 31, 2007, assets under management by
the Adviser and its affiliates were approximately $310 billion worldwide,
including over $81 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 is responsible for managing the Fund's overall investment program,
supervising the Subadviser's investments in event-linked bonds on behalf of the
Fund, supervising the Fund's overall compliance program and providing for the
general management of the business affairs of the Fund.

The Adviser has engaged Montpelier Capital Advisors, Ltd. to act as the Fund's
investment subadviser with respect to the Fund's investments in event-linked
bonds. The address of the Subadviser is 94 Pitts Bay Road, Pembroke, Bermuda
HM08. The Subadviser, under the supervision of the Adviser, is responsible for
the day-to-day management of the Fund's portfolio of investments in event-linked
bonds. 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 the Fund's Board of Trustees. The Subadviser
also assists the Adviser in the evaluation of the relative value of investments
in event-linked bonds, compared to other sectors of the fixed income securities
markets. Although the Subadviser is newly organized and has not previously
served as an investment adviser or subadviser to a registered investment
company, the Subadviser's management team has substantial experience evaluating
and monitoring event-linked instruments at its parent company, Montpelier Re
Holdings, Ltd., a leading provider of global property and casualty reinsurance
and insurance products through its wholly-owned subsidiary, Montpelier
Reinsurance Ltd.

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 0.85% of the Fund's
average daily managed assets. "Managed assets" means the total assets of the
Fund, including any form of investment leverage, minus all accrued expenses
incurred in the normal course of operations, but not excluding any liabilities
or obligations attributable to investment leverage obtained through (i)
indebtedness of any type (including, without limitation, borrowing through a
credit facility or the issuance of debt securities), (ii) the issuance of
preferred stock or other similar preference securities, (iii) the reinvestment
of collateral received for securities loaned in accordance with the Fund's
investment objectives and policies and/or (iv) any other means. The liquidation
preference on any preferred shares is not a liability. Because the fee

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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, registrar or
any other agent 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, a portion of the 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 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 American 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 floating rate loan in which the Fund invests.

A discussion regarding the factors that the Board of Trustees considered in
approving the Advisory Agreement will be available in the upcoming annual report
to shareholders for the period ending April 30, 2008.

SUBADVISORY AGREEMENT

Under the terms of the subadvisory agreement (the "Subadvisory Agreement")
between the Adviser and the Subadviser, the Subadviser will act as a sub-
investment adviser with respect to that portion of the Fund's portfolio invested
in event-linked bonds ("Sub-Advised Assets"). In such capacity, the Subadviser
shall, with respect to Sub-Advised Assets, and subject to the supervision of the
Adviser and the Fund's Board, among other things (a) regularly provide the Fund
with investment research,

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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 Sub-Advised Assets; (c) keep the Fund and the Adviser
informed of developments materially affecting the Fund's Sub-Advised Assets,
including market valuations and pricing information on Fund holdings to the
Adviser and/or the Fund's pricing agent as necessary to make any fair value
determinations; (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 United States Internal Revenue Code of 1986,
as amended (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 subadvised assets 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 0.80% the
Fund's average daily Sub-Advised Assets; provided, however, that such fee shall
in no event be less than 0.15% of 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 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, LLC as the sub-
administrator to the Fund to perform certain of the Adviser's administration and
accounts obligations to the Fund. Under the administration agreements, the Fund
will pay the Adviser a monthly fee equal to 0.07% of the Fund'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 Fund, is responsible for paying
the fees of Princeton Administrators, LLC. Princeton Administrators, LLC is
affiliated with Merrill Lynch & Co., Inc., 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 at an annual rate of 0.0175% of
the Fund's average daily managed assets.

PORTFOLIO MANAGERS

Day-to-day management of the Fund's portfolio is the responsibility of Charles
Melchreit, Andrew Feltus and Jonathan Sharkey. The portfolio managers are
supported by the Adviser's fixed income team. Members of this team manage other
Pioneer funds investing primarily in fixed income securities. The portfolio
managers and the team also may draw upon the research and investment management
expertise of the global research team, which provides fundamental research on
companies and includes members from Pioneer's affiliate, Pioneer Investment
Management Limited.

Mr. Melchreit is primarily responsible for the overall asset allocation
decision-making process for the Fund and for overseeing Montpelier Capital
Advisors, Ltd.'s investments in event-linked bonds. Mr. Melchreit, a vice
president, joined Pioneer in 2006. From 2003 to 2004, Mr. Melchreit was a
managing director at Cigna Investment Management. Prior thereto, he was a senior
vice president and portfolio manager at Aeltus Investment Management. Mr.
Melchreit received an MS degree in Statistics from Yale University in 2005.

- 63 -

Mr. Feltus is primarily responsible for the Fund's investments in global high
yield debt securities. Mr. Feltus, a vice president, joined Pioneer in 1994 and
has been an investment professional for more than 10 years.

Mr. Sharkey is primarily responsible for the Fund's investments in floating rate
loans. Mr. Sharkey, a vice president, joined Pioneer in August 2006. From March
2004 to August 2006, Mr. Sharkey was employed by Putnam Investments as a
corporate bond and leveraged loan analyst. Prior to that, he was a principal and
leveraged loan analyst at Cypress Tree Investments.

Management of the Fund's investments in event-linked bonds is the responsibility
of a team of managers and analysts from Montpelier Capital Advisors, Ltd. led by
Chris Harris and David Sinnott. Mr. Harris, an executive vice president, joined
the Subadviser in 2007. He joined Montpelier Re Holdings, Ltd. in 2002 as Chief
Actuary and currently serves as Chief Underwriting and Risk Officer. Mr.
Sinnott, an executive vice president, joined the Subadviser in 2007. He joined
Montpelier Re Holdings, Ltd. in 2002 as Chief Reinsurance Officer.

The Statement of Additional Information provides additional information about
the portfolio managers' compensation, other accounts managed by the portfolio
managers and the portfolio managers' ownership of securities in the Fund.

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 60 to 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 to its shareholders. 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

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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 American Stock Transfer & Trust
Company, 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 American Stock Exchange or elsewhere. If, on the payment

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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 American 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."

- 66 -

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 acquire shares with a cash value
greater than the value of the cash distribution they would otherwise 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 the cash distribution they would otherwise
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
American Stock Transfer & Trust Company, P.O. Box 922, Wall Street Station, New
York, NY 10269-0560.

- 67 -

CLOSED-END FUND STRUCTURE

The Fund is a newly organized, 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 American 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

- 68 -

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 acquiring, holding and disposing of common shares 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 does not qualify as a regulated investment
company, it will 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 to a further tax at the shareholder level when such income is distributed.

- 69 -

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.

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 U.S. 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, 2010.

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.

The treatment of event-linked bonds for U.S. federal income tax purposes is
uncertain and will depend on the particular features of each such bond. The Fund
expects that it will generally treat the event-linked bonds in which it invests
as equity of the issuer for U.S. federal income tax purposes, whether that
treatment is mandated by the terms of the applicable bond indentures or
otherwise, although this determination will necessarily be made on an investment
by investment basis. It is possible that the IRS will provide future guidance
with respect to the treatment of instruments like the event-linked bonds or
challenge the treatment adopted by the Fund for one or more of its event-linked
bond investments. A change in the treatment of the Fund's event-linked bond
investments that is required as a result of such guidance or an IRS challenge
could affect the timing, character and

- 70 -

amount of the Fund's income from the event-linked bonds. This, in turn, could
affect whether the Fund has satisfied the distribution requirements necessary to
qualify as a regulated investment company and to avoid a Fund-level tax.

An event-linked bond that is treated as equity may be subject to special U.S.
federal income tax rules applicable to equity investments in a passive foreign
investment company (a "PFIC") or a controlled foreign corporation (a "CFC").
Generally, a foreign corporation is treated as a PFIC if it receives at least
75% of its annual gross income from passive sources (such as interest,
dividends, certain rents and royalties, or capital gains) or it holds at least
50% of its assets in investments producing such passive income. In cases in
which the Fund treats an event-linked bond as an equity interest in a PFIC, the
Fund generally expects to make a "mark to market" election, which would require
the Fund to recognized income or (subject to certain limitations) loss annually
based on the difference between the fair market value of the event-linked bond
at the end of the year and the Fund's adjusted basis in the event-linked bond.
Because the mark to market election can result in recognition of income without
the concurrent receipt of cash, the Fund may have to sell portfolio securities,
thereby possibly resulting in the recognition of additional income or gain to
satisfy the distribution requirements necessary to qualify as a regulated
investment company and to avoid a Fund-level tax. If the Fund were not able to
meet such distribution requirements, the Fund would run the risk of losing its
qualification as a regulated investment company.

If the Fund does not make a mark to market election with respect to an event-
linked bond that is treated as an equity interest in a PFIC, or an alternative
election (if available) that could also require the Fund to recognize income
without the concurrent receipt of cash, the Fund would be subject to U.S.
federal income tax on payments on the bond to the extent they constitute "excess
distributions" from the PFIC and on gain from the sale or retirement of the
bond, even if all such income or gain is timely distributed by the Fund to its
shareholders. Any such income or gain would be allocated pro rata over the
Fund's entire holding period for the bond, with the portion of the income or
gain allocated to any prior taxable year being subject to tax at the highest
marginal corporate income tax rate in effect for such prior taxable year. In
addition, an interest charge would be imposed on the Fund with respect to taxes
deemed to be deferred. The Fund would not be able to pass through to its
shareholders any credit or deduction for such taxes or the interest charge.

If U.S. shareholders (including the Fund) collectively are treated as owning
more than 25% of the equity of an issuer of an event-linked bond, the issuer may
be treated as a CFC. In such event, if the Fund were considered to own a 10% or
greater equity interest in the CFC as a result of its ownership of the issuer's
event-linked bonds, the Fund would generally be required to include in income
annually its pro rata share of certain or all of the CFC's earnings and profits,
whether or not those earnings and profits are distributed as payments on the
event-linked bonds or otherwise. As a result, the Fund could be subject to the
distribution requirements discussed above with respect to such income without
the concurrent receipt of cash.

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 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

- 71 -

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
American 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 and
the Monday edition of The Wall Street Journal.

The Fund uses an independent pricing service to value most event-linked bonds
and floating rate 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 event-linked bonds and
floating rate loans at fair value pursuant to procedures adopted by the Board of
Trustees. An event-linked bond or floating rate 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 event-linked bonds and floating rate 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 event-linked bonds and floating rate
loans. In determining the fair value of an event-linked bond or floating rate
loan, the Fund will consider relevant factors, data, and information, such as:
(i) the characteristics of and fundamental analytical data relating to the
security, including the cost, size, current interest rate, period until next
interest rate reset, maturity and base lending rate, the terms and conditions of
the "trigger event" or floating rate loan, and any related agreements, and
particularly with respect to floating rate loans, the position of the floating
rate loan in the borrower's debt structure; (ii) with

- 72 -

respect to floating rate loans, 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 insurer of an event-linked
bond or underlying borrower of a floating rate loan, as the case may be, based
on an evaluation of its financial condition, financial statements and
information about the insurer or borrower's business, cash flows, capital
structure and future prospects; (iv) information relating to the market for the
event-linked bond or floating rate loan, including price quotations for and
trading in the floating rate loan, the market environment and investor attitudes
and interests in similar event-linked bonds and floating rate loans; (v) the
experience, reputation, stability and financial condition of the agent and any
intermediate participants in the floating rate loan; and (vi) general economic
and market conditions affecting the fair value of the event-linked bond or
floating rate loan.

With respect to securities other than event-linked bonds and floating rate
loans, 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 event-linked bonds and floating rate securities
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. Immediately
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.

- 73 -

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."

Pursuant to Section 2 of Article VIII of the Declaration of Trust, the Trustees
shall have the power, as frequently as they may determine, to cause each
shareholder, or each shareholder of a particular series, to pay directly, in
advance or arrears, for charges of the Fund's custodian, transfer, shareholder
servicing or similar agent, an amount fixed from time to time by the Trustee, by
setting off such charges due from such shareholder from declared but unpaid
dividends owed such shareholder and/or by reducing the number of shares in the
account of such shareholder by that number of full and/or fractional shares
which represents the outstanding amount of such charges due from such
shareholder. These types of fees and expenses related to any preferred shares
issued by the Fund may be charged against the holders of the Fund's common
shares.

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.

- 74 -

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.

- 75 -

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 American 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

- 76 -

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.

- 77 -

UNDERWRITING

The underwriters named below (the "Underwriters"), acting through UBS Securities
LLC, 299 Park Avenue, New York, New York and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, 4 World Financial Center, New York, New York, as their
representatives (together with the lead managers, the "Representatives"), have
severally agreed, subject to the terms and conditions of the underwriting
agreement (the "Underwriting Agreement") with the Fund, the Adviser and the
Subadviser, to purchase from the Fund the number of common shares set forth
opposite their respective names. The Underwriters are committed to purchase and
pay for all of such common shares (other than those covered by the over-
allotment option described below) if any are purchased.

NUMBER OF
UNDERWRITERS COMMON SHARES

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

UBS Securities LLC............................................. 3,775,000
Merrill Lynch, Pierce Fenner & Smith Incorporated.............. 1,000,000
RBC Capital Markets............................................ 500,000
Janney Montgomery Scott LLC.................................... 500,000
Robert W. Baird & Co. Incorporated............................. 100,000
Ferris, Baker Watts Incorporated............................... 100,000
Morgan Keegan & Company, Inc................................... 500,000
Deutsche Bank Securities Inc................................... 100,000
BB&T Capital Markets, a division of Scott & Stringfellow, Inc.. 100,000
Gilford Securities Incorporated................................ 50,000
Commonwealth Securities & Investments Inc...................... 50,000
Stanford Group Company......................................... 50,000
Wedbush Morgan Securities Inc.................................. 50,000
Summit Brokerage Services, Inc................................. 50,000
M. L. Stern & Co., LLC......................................... 50,000
Sanders Morris Harris Inc...................................... 50,000
Stone & Youngberg LLC.......................................... 50,000
Sterne, Agee & Leach, Inc...................................... 25,000
LaSalle St. Securities, LLC.................................... 25,000
Bernard Herold & Co., Inc...................................... 25,000
Mesirow Financial, Inc......................................... 25,000
Jesup & Lamont Securities Corp................................. 25,000
McGinn, Smith & Co., Inc....................................... 25,000
Crowell, Weedon & Co........................................... 25,000
Wayne Hummer Investments L.L.C................................. 25,000
Nutmeg Securities, Ltd. ....................................... 25,000
=========
Total........................................................ 7,300,000

The Fund has granted to the Underwriters an option, exercisable for 45 days from
the date of this Prospectus, to purchase up to an additional 1,095,000 common
shares to cover over-allotments, if any, at the initial offering price. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments incurred in the sale of the common shares offered hereby. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment, subject to certain conditions, to purchase an additional
number of common shares proportionate to such Underwriter's initial commitment.

The Fund has agreed to pay a commission to the Underwriters in the amount of up
to $1.125 per common share (4.50% of the public offering price per common
share). The Representatives have advised the Fund that the Underwriters may pay
up to $0.75 per common share from such

- 78 -

commission to selected dealers who sell the common shares and that such dealers
may reallow a concession of up to $0.10 per common share to certain other
dealers who sell common shares. Investors must pay for any common shares
purchased on or before May 30, 2007.

Prior to this offering, there has been no public or private market for the
common shares or any other securities of the Fund. Consequently, the offering
price for the common shares was determined by negotiation among the Fund, the
Adviser and the Representatives. There can be no assurance, however, that the
price at which the common shares sell after this offering will not be lower than
the price at which they are sold by the Underwriters or that an active trading
market in the common shares will develop and continue after this offering. The
minimum investment requirement is 100 common shares ($2,500).

The Fund, the Adviser and the Subadviser have agreed jointly and severally to
indemnify the Underwriters for or to contribute to the losses arising out of
certain liabilities, including liabilities under the 1933 Act, such as liability
for any misstatement of a material fact in the Prospectus or an omission to
state in the Prospectus any material fact necessary to make the statements made,
in light of the circumstances under which they were made, not misleading.

The Fund has agreed not to offer, sell or register with the Securities and
Exchange Commission any equity securities of the Fund, other than issuances of
common shares pursuant to the Fund's automatic dividend reinvestment plan and
issuances of preferred shares, each as contemplated in this Prospectus, for a
period of 180 days after the date of the Underwriting Agreement without the
prior written consent of the Representatives.

In connection with this offering, certain of the Underwriters or selected
dealers may distribute Prospectuses electronically.

In connection with this offering, the Underwriters may purchase and sell common
shares in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the common shares and syndicate short positions involve
the sale by the Underwriters of a greater number of common shares than they are
required to purchase from the Fund in this offering. The Underwriters also may
impose a penalty bid whereby selling concessions allowed to syndicate members or
other broker-dealers in respect of the common shares sold in this offering for
their account may be reclaimed by the syndicate if such common shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
common shares, which may be higher than the price that might otherwise prevail
in the open market; and these activities, if commenced, may be discontinued at
any time without notice. These transactions may be effected on the American
Stock Exchange or otherwise.

The Fund anticipates that the Representatives and certain other Underwriters may
from time to time act as brokers and dealers in connection with the execution of
its portfolio transactions after they have ceased to be Underwriters and,
subject to certain restrictions, may act as such brokers while they are
Underwriters. Pioneer Funds Distributor, Inc. ("PFD"), an affiliate of the
Adviser, may at its own expense provide marketing materials to and discuss the
Fund with dealers and may compensate its employees in connection with these
activities, and, as a result, may be deemed to be an underwriter of the Fund.
PFD is not otherwise a party to the Underwriting Agreement and is not receiving
any compensation from the Fund or the other Underwriters in connection with the
offering of the Fund's common shares.

- 79 -

ADDITIONAL COMPENSATION TO CERTAIN UNDERWRITERS

The Adviser (and not the Fund) has agreed to pay from its own assets additional
compensation to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") in an amount equal to 1.25% of the total price to the public of the
Fund's common shares sold by Merrill Lynch in connection with this offering
(including any shares sold pursuant to the over-allotment option). Merrill Lynch
has agreed to provide advice relating to the structure and design and the
organization of the Fund as well as services related to the sale and
distribution of the Fund's common shares. These additional compensation payments
to Merrill Lynch will not exceed 0.15% of the total price to the public of the
Fund's common shares sold in this offering.

The sum total of the additional compensation fee, the shareholder servicing
payments to UBS Securities LLC, plus the underwriters' counsel fees, shall not
exceed 4.5% of the aggregate initial offering price of the Fund's common shares
offered by this Prospectus. The sum total of all compensation to the
Underwriters in connection with this public offering of common shares, including
sales load, 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 and payments for shareholder servicing by
the Adviser will cease.

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.

As described below under "Administrator, custodian, transfer agent, registrar,
dividend disbursing agent and shareholder servicing agent," UBS Securities LLC
will provide shareholder services to the Fund pursuant to a shareholder
servicing agreement with the Adviser.

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

Pioneer Investment Management, Inc. will serve as the Fund's administrator.
Pioneer Investment Management, Inc. has appointed Princeton Administrators, LLC
as a sub-administrator to the Fund. Princeton Administrators, LLC is an
affiliate of Merrill Lynch, one of the underwriters of this offering. Princeton
Administrators, LLC will provide certain administrative and clerical services,
including calculating the Fund's net asset value, calculating and monitoring the
Fund's expenses, maintaining certain records, and coordinating certain
regulatory filings, for a fee equal to 0.07% of the Fund'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 Fund, is responsible for paying this
fee to Princeton Administrators, LLC.

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. American Stock Transfer & Trust Company will serve as the sub-
transfer agent, sub-registrar and sub-dividend disbursing agent.

UBS Securities LLC will serve as the Fund's shareholder servicing agent. The
Adviser (and not the Fund) has agreed to pay from its own assets to UBS
Securities LLC a shareholder servicing fee at an annual rate of 0.10% of the
average daily managed assets of the Fund pursuant to a shareholder servicing
agreement between the Adviser and UBS Securities LLC (the "Shareholder Servicing
Agreement"). The sum of the payments payable to UBS Securities LLC under the
Shareholder Servicing Agreement will not exceed 4.346% of the aggregate initial
offering price of the common shares offered hereby. Pursuant to the Shareholder
Servicing Agreement, UBS Securities LLC will:

- 80 -

(i) at the request of and as specified by the Adviser, undertake to make
available public information pertaining to the Fund on an ongoing basis and to
communicate to investors and prospective investors the Fund's features and
benefits (including arranging periodic seminars or conference calls, responding
to questions from current or prospective shareholders and specific shareholder
contact where appropriate); (ii) at the request of and as specified by the
Adviser, make available to investors and prospective investors market price, net
asset value, yield and other information regarding the Fund (provided that
services shall not include customary market research information provided by UBS
Securities LLC or its registered broker-dealer affiliates in the ordinary course
of their business), if reasonably obtainable, for the purpose of maintaining the
visibility of the Fund in the investor community; (iii) at the request of the
Adviser, provide certain economic research and statistical information and
reports, if reasonably obtainable, to the Adviser or the Fund, and consult with
representatives of the Adviser and/or Trustees of the Fund in connection
therewith, which information and reports shall include (a) statistical and
financial market information with respect to the Fund's market performance and
(b) comparative information regarding the Fund and other closed-end management
investment companies with respect to (1) the net asset value of their respective
shares, (2) the respective market performance of the Fund and such other
companies and (3) other relevant performance indicators; and (iv) at the request
of the Adviser, provide information to and consult with the Adviser and/or the
Board of Trustees of the Fund with respect to applicable strategies designed to
address market value discounts, which may include share repurchases, tender
offers, modifications to dividend policies or capital structure, repositioning
or restructuring of the Fund, conversion of the Fund to an open-end investment
company, liquidation or merger; including providing information concerning the
use and impact of the above strategic alternatives by other market participants;
provided, however, that under the terms of the Shareholder Servicing Agreement,
UBS Securities LLC is not obligated to furnish any advice or make any
recommendations regarding the purchase or sale of portfolio securities, or to
render any opinions, valuations or recommendations of any kind or to perform any
such similar services in connection with providing the services described in
(i)-(iv) above. Under the terms of the Shareholder Servicing Agreement, UBS
Securities LLC is relieved from liability to the Adviser or the Fund for any act
or omission in the course of its performance under the Shareholder Servicing
Agreement in the absence of its gross negligence or willful misconduct. The
Shareholder Servicing Agreement will remain in effect so long as the Advisory
Agreement remains in effect between the Trust and the Adviser or any successor
in interest or affiliate of the Adviser, as and to the extent that such Advisory
Agreement is renewed periodically in accordance with the 1940 Act.

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 as
to certain matters of Delaware law on the opinion of Wilmer Cutler Pickering
Hale and Dorr LLP.

- 81 -

TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION

PAGE
----------------------------------------------------------------------------

Use of Proceeds....................................................... 2
Investment Objectives and Policies.................................... 2
Investment Restrictions............................................... 30
Management of the Fund................................................ 32
Portfolio Transactions................................................ 51
Repurchase of Common Shares........................................... 52
Federal Income Tax Matters............................................ 54
Independent Registered Public Accounting Firm......................... 60
Additional Information................................................ 60
Financial Statements and Report of Independent Registered Public
Accounting Firm..................................................... 61
Appendix A -- Description of Ratings.................................. A-1
Appendix B -- Proxy Voting Policies and Procedures.................... B-1

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.pioneerinvestments.com.

- 82 -

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PIONEER DIVERSIFIED HIGH INCOME TRUST

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

20411-00-0507

PIONEER DIVERSIFIED HIGH INCOME TRUST

STATEMENT OF ADDITIONAL INFORMATION

Pioneer Diversified High Income Trust (the "fund") is a newly organized,
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 May 24, 2007 (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

Page
----

USE OF PROCEEDS.......................................................... 2
INVESTMENT OBJECTIVES AND POLICIES....................................... 2
INVESTMENT RESTRICTIONS.................................................. 30
MANAGEMENT OF THE FUND................................................... 32
PORTFOLIO TRANSACTIONS................................................... 51
REPURCHASE OF COMMON SHARES.............................................. 52
FEDERAL INCOME TAX MATTERS............................................... 54
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM............................ 60
ADDITIONAL INFORMATION................................................... 60
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.......................................................... 61
APPENDIX A--DESCRIPTION OF RATINGS....................................... A-1
APPENDIX B--PROXY VOTING POLICIES........................................ B-1

This statement of additional information is dated May 24, 2007

FUND HISTORY

The fund is a diversified, closed-end management investment company organized as
a Delaware statutory trust on January 30, 2007.

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.

EVENT-LINKED BONDS

The fund's investments in event-linked bonds may be linked to a broad range of
insurance risks, which can be broken down into three major categories: natural
risks, weather risks and non-natural events. Investments in event-linked bonds
linked to natural risks represent the largest portion of the fund's event-linked
bond investments. The events covered are natural catastrophes, such as
hurricanes and earthquakes. Investments in event-linked bonds linked to weather
risks provide insurance to companies whose sales depend on the weather and
provide a hedge on the impact of weather-related risks. For example, a weather
event-linked bond could provide coverage based on the average temperature in a
region over a given period. Investments in event-linked bonds linked to
non-natural risks could cover a much broader array of insurable risks, such as
aerospace and shipping catastrophes.

The fund may invest in other types of event-linked bonds where the trigger event
or magnitude of losses may be based on company-wide losses, index-based losses
or a combination of triggers.

Event-linked bonds are typically rated by at least one nationally recognized
rating agency, primarily Standard & Poor's Ratings Group ("Standard & Poors"),
Fitch Ratings, Ltd. ("Fitch"), and/or A.M. Best Company, Inc. ("A.M. Best").
Although each rating agency utilizes its own general guidelines and methodology
to evaluate the risks of an event-linked bond, the average rating in the current
market for event-linked bonds is "BB" by Standard & Poors (or the equivalent
rating for another rating agency). However, there are event-linked bonds rated
higher or lower than "BB." Montpelier Capital Advisors,

Ltd., the fund's investment subadviser ("Montpelier" or "Subadviser"),
anticipates that the fund's investments in event-linked bonds generally will be
rated B, BB or BBB at the time of purchase, although the fund may invest in
event-linked bonds rated higher or lower than these ratings, as well as
event-linked bonds that are unrated. The rating for an event-linked bond
primarily reflects the rating agency's calculated probability that a pre-defined
trigger event will occur, rather than the bond's credit risk. This rating also
assesses the model used to calculate the probability of the trigger event. There
currently are three primary independent catastrophe-modeling firms (EQECAT,
Inc., AIR Worldwide Corp and Risk Management Solutions, Inc.), which utilize
different methodologies to evaluate the probability of various types of
pre-defined trigger events. For event-linked bonds with a "BB" rating, the
average expected loss probability is approximately 1% (i.e., loss occurrence
once every 100 years).

FLOATING RATE LOANS

A floating rate loan is typically originated, negotiated and structured by a
U.S. or foreign commercial bank, insurance company, finance company or other
financial institution for a group of investors. The financial institution
typically acts as an agent for the investors, administering and enforcing the
loan on their behalf. In addition, an institution, typically but not always the
agent, holds any collateral on behalf of the investors.

The interest rates are adjusted based on a base rate plus a premium or spread
over the base rate. The base rate usually is the London Interbank Offer 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.

Floating rate loans include loans to corporations and institutionally traded
floating rate debt obligations issued by an asset-backed pool, and interests
therein. In addition to term loans, loans may include revolving credit
facilities, prefunded letter of credit term loans, delayed draw term loans and
receivables purchase facilities. The fund may invest in loans in different ways.
The fund may: (i) make a direct investment in a loan by participating as one of
the lenders; (ii) purchase a participation interest in a loan; or (iii) purchase
an assignment of a loan.

DIRECT INVESTMENT IN LOANS. It can be advantageous to the fund to make a direct
investment in a loan as one of the lenders. When a new issue is purchased, such
an investment is typically made at par. This means that the fund receives a
return at the full interest rate for the loan. Secondary purchases of loans may
be made at par, at a premium from par or at a discount from par. When the fund
invests in an assignment of, or a participation interest in, a loan, the fund
may pay a fee or forgo a portion of the interest payment. Consequently, the
fund's return on such an investment may be lower than it would have been if the
fund had made a direct investment in the underlying corporate loan. The fund may
be able, however, to invest in corporate loans only through assignments or
participation interests at certain times when reduced direct investment
opportunities in corporate loans may exist.

ASSIGNMENTS. An assignment represents a portion of a loan previously
attributable to a different lender. The purchaser of an assignment typically
succeeds to all the rights and obligations under the loan agreement of the
assigning investor and becomes an investor under the loan agreement with the
same rights and obligations as the assigning 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 investor.

PARTICIPATION INTERESTS. Participation interests are interests issued by a
lender or other financial institution, which represent a fractional interest in
a corporate loan. The fund may acquire participation interests from the
financial institution or from another investor. The fund typically will have a
contractual relationship only with the financial institution that issued the
participation interest. 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 financial institution and only upon receipt by such entity of such payments
from the borrower. In connection with purchasing a participation interest, 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 investors through set-off against the borrower and the fund may not
directly benefit from the collateral supporting the loan in which it has
purchased the participation interest. As a result, the fund may assume the
credit risk of both the borrower and the financial institution issuing the
participation interest. In the event of the insolvency of the financial
institution issuing a participation interest, the fund may be treated as a
general creditor of such entity.

OTHER INFORMATION ABOUT FLOATING RATE LOANS. Loans typically have a senior
position in a borrower's capital structure. The capital structure of a borrower
may include 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 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 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 loan. Although a 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 loan, even if that issuer pledges
the capital stock of its subsidiaries to secure the obligations under the 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 loan
issued by the holding company.

In order to borrow money pursuant to a loan, a borrower will frequently, for the
term of the 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 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 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 loan.

The fund may invest in loans that are second in lien priority rather than first.
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 would therefore result in a loss
of investment to the fund.

In the process of buying, selling and holding 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 loan it may receive a facility fee
and when it sells a 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 loan.
In certain circumstances, the fund may receive a prepayment penalty fee upon the
prepayment of a loan by a borrower. Other fees received by the fund may include
covenant waiver fees and covenant modification fees.

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
loan. 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 a typical 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 loan. Furthermore, unless the fund has direct recourse against
the borrower, the fund will rely on the agent and the other investors to use
appropriate credit remedies against the borrower.

For some loans, such as revolving credit facility loans ("revolvers"), an
investor may have certain obligations pursuant to the loan agreement that 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.
Delayed draw term loans are similar to revolvers, except that once drawn upon by
the borrower during the commitment period, they remain permanently drawn and
become term loans. A prefunded L/C term loan is a facility created by the
borrower in conjunction with an agent, with the loan backed by letters of
credit. Each participant in a prefunded L/C term loan fully funds its commitment
amount to the agent for the facility.

The fund may acquire interests in 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.
Bridge loans often are unrated. The fund may also may invest in 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.

From time to time, Pioneer Investment Management, Inc., the fund's investment
adviser ("Pioneer"), and its affiliates may borrow money from various banks in
connection with their business activities. Such banks may also sell interests in
loans to or acquire them from the fund or may be intermediate participants with
respect to loans in which the fund owns interests. Such banks may also act as
agents for loans held by the fund.

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 would 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,
which amount realized may be substantially less than the amount owed on the DIP
financing.

INVERSE FLOATING RATE SECURITIES

The interest on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values.

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.

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. Pioneer 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.

For purposes of the fund's credit quality policies, if a security receives
different ratings from nationally recognized statistical rating organizations,
the fund will use the rating chosen by the portfolio manager as most
representative of the security's credit quality. If a rating organization
changes the quality rating assigned to one or more of the fund's portfolio
securities, Pioneer will consider what actions, if any, are appropriate
including selling the security or purchasing additional securities of the
appropriate credit quality as soon as it is prudent to do so.

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.

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.

PREFERRED SHARES

The fund may invest in preferred shares of beneficial interest of trust
instruments. Preferred shares 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.

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.

SHORT-TERM INVESTMENTS

For temporary defensive or cash management purposes, the fund may invest in all
types of short-term investments including, but not limited to, corporate
commercial paper and other short-term commercial obligations issued by domestic
companies; obligations (including certificates of deposit, time deposits, demand
deposits and bankers' acceptances) of banks located in the U.S.; obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities; and repurchase agreements. Although these investments
generally are rated investment grade or are determined by Pioneer to be of
equivalent credit quality, the fund also may invest in these investments if they
are rated below investment grade in accordance with its investment objectives,
policies and restrictions.

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 U.S., Small Business Administration, Government
National Mortgage

Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks ("FHLBs"),
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage
Association ("FNMA"), Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, 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 FHLBs; (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 (Separate Trading of Registered Interest and Principal
of Securities) and CUBES (Coupons Under Book-Entry Safekeeping), 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.

DEBT OBLIGATIONS OF NON-U.S. GOVERNMENTS

The fund may invest in debt obligations of non-U.S. governments. An investment
in debt obligations of non-U.S. governments and their political subdivisions
(sovereign debt) involve 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 a 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.

availability of sufficient foreign 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.

EURODOLLAR INSTRUMENTS AND SAMURAI AND YANKEE BONDS The fund may invest in
Eurodollar instruments and Samurai and Yankee bonds. Eurodollar instruments are
bonds of corporate and government issuers that pay interest and principal in
U.S. dollars but are issued in markets outside the United States, primarily in
Europe. Samurai bonds are yen-denominated bonds sold in Japan by non-Japanese
issuers. Yankee bonds are U.S. dollar-denominated bonds typically issued in the
U.S. by non-U.S. governments and their agencies and non-U.S. banks and
corporations. The fund may also invest in Eurodollar Certificates of Deposit
("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee Certificates of Deposit
("Yankee CDs"). ECDs are U.S. dollar-denominated certificates of deposit issued
by non-U.S. branches of domestic banks; ETDs are U.S. dollar-denominated
deposits in a non-U.S. branch of a U.S. bank or in a non-U.S. bank; and Yankee
CDs are U.S. dollar-denominated certificates of deposit issued by a U.S. branch
of a non-U.S. bank and held in the U.S. These investments involve risks that are
different from investments in securities issued by U.S. issuers, including
potential unfavorable political and economic developments, non-U.S. withholding
or other taxes, seizure of non-U.S. deposits, currency controls, interest
limitations or other governmental restrictions which might affect payment of
principal or interest.

RISKS OF NON-U.S. INVESTMENTS

Investing in securities of non-U.S. issuers involves considerations and risks
not typically associated with investing in the securities of issuers in the U.S.
These risks are heightened with respect to investments in countries with
emerging markets and economies. The risks of investing in securities of non-U.S.
issuers generally, or in issuers with significant exposure to non-U.S. markets
may be related, among other things, to (i) differences in size, liquidity and
volatility of, and the degree and manner of regulation of, the securities
markets of certain non-U.S. markets compared to the securities markets in the
U.S.; (ii) economic, political and social factors; and (iii) foreign exchange
matters, such as restrictions on the repatriation of capital, fluctuations in
exchange rates between the U.S. dollar and the currencies in which the fund's
portfolio securities are quoted or denominated, exchange control regulations and
costs associated with currency exchange. The political and economic structures
in certain countries, particularly emerging markets, are expected to undergo
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of more developed
countries.

INVESTMENTS IN EMERGING MARKETS. The fund may invest in securities of issuers in
countries with emerging economies or securities markets. Emerging economies or
securities markets will generally include, but not be limited to, countries
included in the MSCI Emerging Markets Index. The fund will generally focus on
emerging markets that do not impose unusual trading requirements which tend to
restrict the flow of investments. In addition, the fund may invest in unquoted
securities, including securities of emerging market issuers.

NON-U.S. SECURITIES MARKETS AND REGULATIONS. 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. The less liquid a
market, the more difficult it may be for the fund to accurately price its
portfolio securities or to dispose of such securities at the times determined by
Pioneer to be appropriate. The risks associated with reduced liquidity may be
particularly acute in situations in which the fund's operations require cash,
such as in order to meet redemptions and to pay its expenses.

ECONOMIC, POLITICAL AND SOCIAL FACTORS. Certain countries, including emerging
markets, may be subject to a greater degree of economic, political and social
instability than is the case in the U.S. and Western European countries. Such
instability may result from, among other things: (i) authoritarian governments
or military involvement in political and economic decision making; (ii) popular
unrest associated with demands for improved economic, political and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection and conflict. Such
economic, political and social instability could significantly disrupt the
financial markets in such countries and the ability of the issuers in such
countries to repay their obligations. Investing in emerging market countries
also involves the risk of expropriation, nationalization, confiscation of assets
and property or the imposition of restrictions on foreign investments and on
repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation in any emerging country, the fund could
lose its entire investment in that country.

Certain emerging market countries restrict or control foreign investment in
their securities markets to varying degrees. These restrictions may limit the
fund's investment in those markets and may increase the expenses of the fund. In
addition, the repatriation of both investment income and capital from certain
markets in the region is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the fund's operation.

Economies in individual countries may differ favorably or unfavorably from the
U.S. economy in such respects as 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 affect the values of the
fund's investments in such countries. In the past, the economies, securities and
currency markets of many emerging markets have experienced significant
disruption and declines. There can be no assurance that these economic and
market disruptions might not occur again.

Economies in emerging market countries generally are dependent heavily upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been, and may
continue to be, affected adversely by economic conditions in the countries with
which they trade.

CURRENCY RISKS. The value of the securities quoted or denominated in foreign
currencies may be adversely affected by fluctuations in the relative currency
exchange rates and by exchange control

regulations. The fund's investment performance may be negatively affected by a
devaluation of a currency in which the fund's investments are 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.

CUSTODIAL SERVICES AND RELATED INVESTMENT COSTS. Custodial services and other
costs relating to investment in international securities markets generally are
more expensive than in the U.S. Such markets have settlement and clearance
procedures that differ from those in the U.S. In certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the fund to make intended securities purchases due to settlement
problems could cause the fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to the fund due to a subsequent decline in value of the
portfolio security or could result in possible liability to the fund. In
addition, security settlement and clearance procedures in some emerging
countries may not fully protect the fund against loss or theft of its assets.

WITHHOLDING AND OTHER TAXES. The fund will be subject to taxes, including
withholding taxes, on income (possibly including, in some cases, capital gains)
that are or may be imposed by certain non-U.S. countries with respect to the
fund's investments in such countries. These taxes will reduce the return
achieved by the fund. Treaties between the U.S. and such countries may not be
available to reduce the otherwise applicable tax rates.

INVESTMENTS IN DEPOSITARY RECEIPTS

The fund may hold securities of non-U.S. issuers in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") and other similar instruments. Generally, ADRs in
registered form are designed for use in U.S. securities markets, and EDRs and
GDRs and other similar global instruments in bearer form are designed for use in
non-U.S. securities markets.

ADRs are denominated in U.S. dollars and represent an interest in the right to
receive securities of non-U.S. issuers deposited in a U.S. bank or correspondent
bank. ADRs do not eliminate all the risk inherent in investing in the securities
of non-U.S. issuers. However, by investing in ADRs rather than directly in
equity securities of non-U.S. issuers, the fund will avoid currency risks during
the settlement period for either purchases or sales. EDRs and GDRs are not
necessarily denominated in the same currency as the underlying securities which
they represent.

For purposes of the fund's investment policies, investments in ADRs, EDRs, GDRs
and similar instruments will be deemed to be investments in the underlying
equity securities of non-U.S. issuers. The fund may acquire depositary receipts
from banks that do not have a contractual relationship with the issuer of the
security underlying the depositary receipt to issue and secure such depositary
receipt. To the extent the fund invests in such unsponsored depositary receipts
there may be an increased possibility that the fund may not become aware of
events affecting the underlying security and thus the value of the related
depositary receipt. In addition, certain benefits (e.g., rights offerings) which
may be associated with the security underlying the depositary receipt may not
inure to the benefit of the holder of such depositary receipt.

MORTGAGE-BACKED SECURITIES

The fund may invest in mortgage pass-through certificates and multiple-class
pass-through securities, such as real estate mortgage investment conduits
("REMIC") pass-through certificates, collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities ("SMBS"), and other types of
mortgage-backed securities that may be available in the future. A
mortgage-backed security is an obligation of the issuer backed by a mortgage or
pool of mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as CMOs, make payments of both principal and
interest at a variety of intervals; others make semiannual interest payments at
a predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties. Mortgage-backed
securities often have stated maturities of up to thirty years when they are
issued, depending upon the length of the mortgages underlying the securities. In
practice, however, unscheduled or early payments of principal and interest on
the underlying mortgages may make the securities' effective maturity shorter
than this, and the prevailing interest rates may be higher or lower than the
current yield of the fund's portfolio at the time the fund receives the payments
for reinvestment. Mortgage-backed securities may have less potential for capital
appreciation than comparable fixed income securities, due to the likelihood of
increased prepayments of mortgages as interest rates decline. If the fund buys
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal by mortgagors (which may be made at any time without penalty) may
result in some loss of the fund's principal investment to the extent of the
premium paid.

The value of mortgage-backed securities may also change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities markets as a whole. Non-governmental
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
governmental issues.

GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. governmental or private lenders and guaranteed by
the U.S. government or one of its agencies or instrumentalities, including but
not limited to GNMA, FNMA and FHLMC. GNMA certificates are guaranteed by the
full faith and credit of the U.S. government for timely payment of principal and
interest on the certificates. FNMA certificates are guaranteed by FNMA, a
federally chartered and privately owned corporation, for full and timely payment
of principal and interest on the certificates. FHLMC certificates are guaranteed
by FHLMC, a corporate instrumentality of the U.S. government, for timely payment
of interest and the ultimate collection of all principal of the related mortgage
loans.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Because
there are no direct or indirect government or agency guarantees of payments in
pools created by such non-governmental issuers, they generally offer a higher
rate of interest than government and government-related pools. Timely payment of
interest and principal of these pools may be supported by insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. There can be no assurance
that the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements.

Mortgage-related securities without insurance or guarantees may be purchased if
Pioneer determines that the securities meet the fund's quality standards.
Mortgage-related securities issued by certain private organizations may not be
readily marketable.

MULTIPLE-CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS
("CMOS"). CMOs and REMIC pass-through or participation certificates may be
issued by, among others, U.S. government agencies and instrumentalities as well
as private issuers. REMICs are CMO vehicles that qualify for special tax
treatment under the Code and invest in mortgages principally secured by
interests in real property and other investments permitted by the Code. CMOs and
REMIC certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMO or REMIC
certificate, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis.

Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates but also
may be collateralized by other mortgage assets such as whole loans or private
mortgage pass-through securities. Debt service on CMOs is provided from payments
of principal and interest on collateral of mortgaged assets and any reinvestment
income thereon.

STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). SMBS are multiple-class
mortgage-backed securities that are created when a U.S. government agency or a
financial institution separates the interest and principal components of a
mortgage-backed security and sells them as individual securities. The fund
invests in SMBS that are usually structured with two classes that receive
different proportions of interest and principal distributions on a pool of
mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. The holder of the "principal-only"
security ("PO") receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only" security
("IO") receives interest payments from the same underlying security. The prices
of SMBS may be particularly affected by changes in interest rates. As interest
rates fall, prepayment rates tend to increase, which tends to reduce prices of
IOs and increase prices of POs. Rising interest rates can have the opposite
effect. Although the market for these securities is increasingly liquid, Pioneer
may determine that certain SMBS issued by the U.S. government, its agencies or
instrumentalities are not readily marketable. The yields and market risk of
interest-only and principal-only SMBS, respectively, may be more volatile than
those of other fixed income securities.

The fund also may invest in planned amortization class ("PAC") and target
amortization class ("TAC") CMO bonds which involve less exposure to prepayment,
extension and interest rate risks than other mortgage-backed securities,
provided that prepayment rates remain within expected prepayment ranges or
"collars." To the extent that the prepayment rates remain within these
prepayment ranges, the residual or support tranches of PAC and TAC CMOs assume
the extra prepayment, extension and interest rate risks associated with the
underlying mortgage assets.

RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Investing in
mortgage-backed securities involves certain risks, including the failure of a
counterparty to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. However, due to adverse tax
consequences under current tax laws, the fund does not intend to acquire
"residual" interests in REMICs. Further, the yield characteristics of
mortgage-backed securities differ from those of traditional fixed income
securities. The major differences typically include more frequent interest and
principal payments (usually monthly), the adjustability of interest rates of the

underlying instrument, and the possibility that prepayments of principal may be
made substantially earlier than their final distribution dates.

Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, the fund may fail to recoup fully its
investment in mortgage-backed securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When the fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may obtain a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, mortgage-backed securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. government securities as a means of "locking
in" interest rates.

ASSET-BACKED SECURITIES

The fund may invest in asset-backed securities, which are securities that
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool or pools of similar
assets (e.g., trade receivables). The credit quality of these securities depends
primarily upon the quality of the underlying assets and the level of credit
support and/or enhancement provided.

The underlying assets (e.g., loans) are subject to prepayments which shorten the
securities' weighted average maturity and may lower their return. If the credit
support or enhancement is exhausted, losses or delays in payment may result if
the required payments of principal and interest are not made. The value of these
securities also may change because of changes in the market's perception of the
creditworthiness of the servicing agent for the pool, the originator of the
pool, or the financial institution or trust providing the credit support or
enhancement. Typically, there is no perfected security interest in the
collateral that relates to the financial assets that support asset-backed
securities.

COLLATERALIZED DEBT OBLIGATIONS

The fund may invest in collateralized debt obligations ("CDOs"), which includes
collateralized bond obligations ("CBOs"), collateralized loan obligations
("CLOs") and other similarly structured securities. A CBO is a trust backed by a
pool of fixed income securities. A CLO is a trust typically collateralized by a
pool of loans, which may include, among others, domestic and foreign senior
secured loans, senior unsecured loans, and subordinate corporate loans,
including loans that may be rated below investment grade or equivalent unrated
loans. CDOs may charge management fees and administrative expenses.

The CBO trust is typically split into two or more portions, called tranches,
varying in credit quality and yield. The riskiest portion is the "equity"
tranche which bears the bulk of defaults from the bonds or loans in the trust
and serves to protect the other, more senior tranches from default in all but
the most severe circumstances. Since it is partially protected from defaults, a
senior tranche from a CBO trust or CLO trust typically have higher ratings and
lower yields than their underlying securities, and can be rated investment
grade. Despite the protection from the equity tranche, CBO or CLO tranches can
experience substantial losses due to actual defaults, increased sensitivity to
defaults due to collateral default and disappearance of protecting tranches,
market anticipation of defaults, as well as aversion to CBO or CLO securities as
a class.

The risks of an investment in a CDO depend largely on the type of the collateral
securities and the class of the CDO in which the fund invests. Normally, CBOs,
CLOs and other CDOs are privately offered and sold, and thus, are not registered
under the securities laws. As a result, investments in CDOs may be

characterized by the fund as illiquid securities, however an active dealer
market may exist for CDOs allowing a CDO to qualify for Rule 144A transactions.
In addition to the normal risks associated with fixed income securities (e.g.,
interest rate risk and default risk), CDOs carry additional risks including, but
are not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the
quality of the collateral may decline in value or default; (iii) the fund may
invest in CDOs that are subordinate to other classes; and (iv) the complex
structure of the security may not be fully understood at the time of investment
and may produce disputes with the issuer or unexpected investment results.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The fund may purchase securities, including U.S. government securities, on a
when-issued basis or may purchase or sell securities for delayed delivery. In
such transactions, delivery of the securities occurs beyond the normal
settlement period, but no payment or delivery is made by the fund prior to the
actual delivery or payment by the other party to the transaction. The fund will
not earn income on these securities until delivered. The purchase of securities
on a when-issued or delayed delivery basis involves the risk that the value of
the securities purchased will decline prior to the settlement date. The sale of
securities for delayed delivery involves the risk that the prices available in
the market on the delivery date may be greater than those obtained in the sale
transaction. The fund's obligations with respect to when-issued and delayed
delivery transactions will be fully collateralized by segregating liquid assets
with a value equal to the fund's obligations. See "Asset Segregation."

INVESTMENTS IN EQUITY SECURITIES

Equity securities, such as common stock, generally represent an ownership
interest in a company. While equity securities have historically generated
higher average returns than fixed income securities, equity securities have also
experienced significantly more volatility in those returns. An adverse event,
such as an unfavorable earnings report, may depress the value of a particular
equity security held by the fund. Also, the price of equity securities,
particularly common stocks, are sensitive to general movements in the stock
market. A drop in the stock market may depress the price of equity securities
held by the fund.

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.

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 policies and permissible under the Investment Company Act of
1940, as amended (the "1940 Act"). Under one provision of the 1940 Act, a fund
may not acquire the securities of another investment company 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. However, there are several provisions of the 1940
Act and rules thereunder that allow more expansive investment in investment
companies.

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 are in addition to the direct expenses of the
fund's own operations.

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, PowerShares
QQQ(TM) (QQQQs), 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 then sells 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.

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, Pioneer 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.

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 the 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 or Pioneer 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.

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. See "Annual Fee, Expense and
Other Information" for the fund's annual portfolio turnover rate.

STRUCTURED SECURITIES

The fund may invest in structured securities. The value of the principal and/or
interest on such securities may be determined by reference to changes in the
value of specific currencies, interest rates, commodities, indices or other
financial indicators (the "Reference") or the relative change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
Reference. The terms of the structured securities may provide in certain
circumstances that no principal is due at maturity and, therefore may result in
a loss of the fund's investment. Changes in the interest rate or principal
payable at maturity may be a multiple of the changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed income securities.

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.

FOREIGN CURRENCY TRANSACTIONS

The fund may engage in foreign currency transactions. These transactions may be
conducted at the prevailing spot rate for purchasing or selling currency in the
foreign exchange market. The fund also has authority to enter into forward
foreign currency exchange contracts involving currencies of the different
countries in which the fund invests as a hedge against possible variations in
the foreign exchange rates between these currencies and the U.S. dollar. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.

Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of the fund, accrued
in connection with the purchase and sale of its portfolio securities quoted in
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in such
foreign currencies. There is no guarantee that the fund will be engaged in
hedging activities when adverse exchange rate movements occur. The fund will not
attempt to hedge all of its foreign portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by Pioneer.

Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also limit the opportunity
for gain if the value of the hedged currency should rise. Moreover, it may not
be possible for the fund to hedge against a devaluation that is so generally
anticipated that the fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.

The fund may also engage in cross-hedging by using forward contracts in one
currency to hedge against fluctuations in the value of securities denominated in
a different currency, if Pioneer determines that there is a pattern of
correlation between the two currencies. Cross-hedging may also include entering
into a forward transaction involving two foreign currencies, using one foreign
currency as a proxy for the U.S. dollar to hedge against variations in the other
foreign currency, if Pioneer determines that there is a pattern of correlation
between the proxy currency and the U.S. dollar.

The cost to the fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the size of the contract, the length of
the contract period, differences in interest rates between

the two currencies and the market conditions then prevailing. Since transactions
in foreign currency and forward contracts are usually conducted on a principal
basis, no fees or commissions are involved. The fund may close out a forward
position in a currency by selling the forward contract or by entering into an
offsetting forward contract.

The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of the fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which the fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of the fund's foreign
assets.

While the fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. While
the fund may benefit from such transactions, unanticipated changes in currency
prices may result in a poorer overall performance for the fund than if it had
not engaged in any such transactions. Moreover, there may be imperfect
correlation between the fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by the
fund. Such imperfect correlation may cause the fund to sustain losses which will
prevent the fund from achieving a complete hedge or expose the fund to risk of
foreign exchange loss.

Over-the-counter markets for trading foreign forward currency contracts offer
less protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive the fund of unrealized profits or force the fund to cover its
commitments for purchase or resale, if any, at the current market price.

If the fund enters into a forward contract to purchase foreign currency, the
custodian or Pioneer will segregate liquid assets. See "Asset Segregation."

OPTIONS ON FOREIGN CURRENCIES

The fund may purchase and write options on foreign currencies for hedging
purposes in a manner similar to that of transactions in forward contracts. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are quoted or denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In an
attempt to protect against such decreases in the value of portfolio securities,
the fund may purchase put options on the foreign currency. If the value of the
currency declines, the fund will have the right to sell such currency for a
fixed amount of dollars which exceeds the market value of such currency. This
would result in a gain that may offset, in whole or in part, the negative effect
of currency depreciation on the value of the fund's securities quoted or
denominated in that currency.

Conversely, if a rise in the dollar value of a currency is projected for those
securities to be acquired, thereby increasing the cost of such securities, the
fund may purchase call options on such currency. If the value of such currency
increases, the purchase of such call options would enable the fund to purchase
currency for a fixed amount of dollars which is less than the market value of
such currency. Such a purchase would result in a gain that may offset, at least
partially, the effect of any currency-related increase in the price of
securities the fund intends to acquire. As in the case of other types of options

transactions, however, the benefit the fund derives from purchasing foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, if currency exchange rates do not move in the
direction or to the extent anticipated, the fund could sustain losses on
transactions in foreign currency options which would deprive it of a portion or
all of the benefits of advantageous changes in such rates.

The fund may also write options on foreign currencies for hedging purposes. For
example, if the fund anticipated a decline in the dollar value of securities
quoted or denominated in a foreign currency because of declining exchange rates,
it could, instead of purchasing a put option, write a covered call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the decrease in value of portfolio securities will be
partially offset by the amount of the premium received by the fund.

Similarly, the fund could write a put option on the relevant currency, instead
of purchasing a call option, to hedge against an anticipated increase in the
dollar cost of securities to be acquired. If exchange rates move in the manner
projected, the put option will expire unexercised and allow the fund to offset
such increased cost up to the amount of the premium. However, as in the case of
other types of options transactions, the writing of a foreign currency option
will constitute only a partial hedge up to the amount of the premium, only if
rates move in the expected direction. If unanticipated exchange rate
fluctuations occur, the option may be exercised and the fund would be required
to purchase or sell the underlying currency at a loss which may not be fully
offset by the amount of the premium. As a result of writing options on foreign
currencies, the fund also may be required to forgo all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
currency exchange rates.

A call option written on foreign currency by the fund is "covered" if the fund
owns the underlying foreign currency subject to the call, or if it has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration. A call option is also covered if the fund holds a call on
the same foreign currency for the same principal amount as the call written
where the exercise price of the call held is (a) equal to or less than the
exercise price of the call written or (b) greater than the exercise price of the
call written if the amount of the difference is maintained by the fund in cash
or liquid securities. See "Asset Segregation."

The fund may close out its position in a currency option by either selling the
option it has purchased or entering into an offsetting option. An
exchange-traded options position may be closed out only on an options exchange
which provides a secondary market for an option of the same series. Although the
fund will generally purchase or write only those options for which there appears
to be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option, or at any particular
time. For some options no secondary market on an exchange may exist. In such
event, it might not be possible to effect closing transactions in particular
options, with the result that the fund would have to exercise its options in
order to realize any profit and would incur transaction costs upon the sale of
underlying currencies pursuant to the exercise of put options. If the fund as a
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, it will not be able to sell the underlying currency (or
security quoted or denominated in that currency) until the option expires or it
delivers the underlying currency upon exercise.

The fund may also use options on currencies to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates of a different currency with a pattern of correlation. Cross
hedging may also include using a foreign currency as a proxy for the U.S.
dollar, if Pioneer determines that there is a pattern of correlation between
that currency and the U.S. dollar.

The fund may purchase and write over-the-counter options. Trading in
over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by the fund.

OPTIONS ON SECURITIES AND SECURITIES INDICES

For hedging purposes or to seek to increase total return, 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 or put option 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 securities. Put
options may also be purchased by the fund for the purpose of affirmatively
benefiting from a decline in the price of securities which 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 both options that are traded on U.S. and non-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. Until such time as the staff of the Securities and Exchange
Commission (the "SEC") changes its position, the fund will treat purchased
over-the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in U.S. government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.

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 which the fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
Pioneer. 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 Pioneer'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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

To hedge against changes in securities prices or currency exchange rates 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, foreign currencies 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") or on non-U.S. exchanges.

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. Similarly, the
fund can sell futures contracts on a specified currency to protect against a
decline in the value of such currency and a decline in the value of its
portfolio securities which are denominated in such currency. The fund can
purchase futures contracts on a foreign currency to establish the price in U.S.
dollars of a security denominated in such currency that the fund has acquired or
expects to acquire.

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 or

currency will usually be liquidated in this manner, the fund may instead make,
or take, delivery of the underlying securities or currency whenever it appears
economically advantageous to do so. A clearing corporation associated with the
exchange on which futures on securities or currency 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 and currency exchange
rate 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 or a decline in market prices or foreign currency 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. Similarly, the fund may sell futures contracts in a
foreign currency in which its portfolio securities are denominated or in one
currency to hedge against fluctuations in the value of securities denominated in
a different currency if there is an established historical pattern of
correlation between the two currencies. If, in the opinion of Pioneer, 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, Pioneer 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 or currency exchange rates then available in the applicable
market to be less favorable than prices or rates 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 which 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) which 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 or currencies, 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, securities prices or currency exchange
rates 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. It is not possible to hedge fully or
perfectly against the effect of currency fluctuations on the value of non-U.S.
securities because currency movements impact the value of different securities
in differing degrees.

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 the fund's adviser 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 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 the risks of a leveraged
transaction, since if an event of default occurs the seller must pay the buyer
the full notional value of the reference obligation.

CREDIT-LINKED NOTES

The fund may invest in credit-linked notes ("CLNs"), which are derivative
instruments. A CLN 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.

FOREIGN CURRENCY SWAPS

Foreign currency swaps involve the exchange by the lenders, including the fund,
with another party (the "counterparty") of the right to receive the currency in
which the loans are denominated for the right to receive U.S. dollars. The fund
will enter into a foreign currency swap only if the outstanding debt obligations
of the counterparty 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 fund's
adviser to be equivalent to such rating. The amounts of U.S. dollar payments to
be received by the fund and the foreign currency payments to be received by the
counterparty are fixed at the time the swap arrangement is entered into.
Accordingly, the swap protects the fund from the fluctuations in exchange rates
and locks in the right to receive payments under the loan in a predetermined
amount of U.S. dollars. If there is a default by the counterparty, the fund will
have contractual remedies pursuant to the swap agreement; however, the U.S.
dollar value of the fund's right to receive foreign currency payments under the
obligation will be subject to fluctuations in the applicable exchange rate to
the extent that a replacement swap arrangement is unavailable or the fund is
unable to recover damages from the defaulting counterparty.

CROSS CURRENCY INTEREST RATE SWAP AGREEMENTS

Cross currency interest rate swap agreements combine features of currency swap
agreements and interest rate swap agreements. The cross currency interest rate
swaps in which the fund may enter generally will involve both the exchange of
currency and the payment of interest streams with reference to one currency
based on a specified index in exchange for receiving interest streams with
reference to the other currency. Such swaps may involve initial and final
exchanges that correspond to the agreed upon transaction amount. For example,
the payment stream on a specified amount of euro based on a European market
floating rate might be exchanged for a U.S. oriented floating rate on the same
principal amount converted into U.S. dollars.

LENDING OF PORTFOLIO SECURITIES

The fund may lend portfolio securities to registered broker-dealers or other
institutional investors deemed by Pioneer 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 may
pay administrative and custodial fees in connection with loans of securities and
may pay a portion of the income or fee earned thereon to the borrower, lending
agent or other intermediary. 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. At no time would the value of the securities
loaned exceed 33 1/3% of the value of the fund's total assets.

In the future, the Fund may engage in interfund securities and cash lending
transactions, in accordance with applicable rules and regulations, or, if
applicable, exemptive orders of the SEC, as then in effect. Through interfund
lending, the Fund may lend money to, and borrow money from, other Pioneer funds
for short-term purposes. As a borrower in an interfund lending transaction, the
Fund may have to borrow from a bank at a higher interest rate if an interfund
loan is called, which may occur on short notice, or not renewed. As a lender in
an interfund lending transaction, any delay in repayment to the Fund could
result in a lost investment opportunity or additional borrowing costs.

MORTGAGE DOLLAR ROLLS

The fund may enter into mortgage "dollar rolls" in which the fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity),
but not identical securities on a specified future date. During the roll period,
the fund loses the right to receive principal and interest paid on the
securities sold. However, the fund would benefit to the extent of any difference
between the price received for the securities sold and the lower forward price
for the future purchase (often referred to as the "drop") or fee income plus the
interest earned on the cash proceeds of the securities sold until the settlement
date of the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use of
this technique will diminish the investment performance of the fund compared
with what such performance would have been without the use of mortgage dollar
rolls. All cash proceeds will be invested in instruments that are permissible
investments for the fund. The fund will hold and maintain in a segregated
account until the settlement date cash or liquid securities in an amount equal
to its forward purchase price.

For financial reporting and tax purposes, the fund treats mortgage dollar rolls
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale.

Mortgage dollar rolls involve certain risks including the following: if the
broker-dealer to whom the fund sells the security becomes insolvent, the fund's
right to purchase or repurchase the mortgage-related securities subject to the
mortgage dollar roll may be restricted and the instrument which the fund is
required to repurchase may be worth less than an instrument which the fund
originally held. Successful use of mortgage dollar rolls will depend upon
Pioneer's ability to manage its interest rate and mortgage prepayments exposure.
For these reasons, there is no assurance that mortgage dollar rolls can be
successfully employed.

MONEY MARKET INSTRUMENTS

The fund may invest in short-term money market instruments including commercial
bank obligations and commercial paper. These instruments may be denominated in
both U.S. and, to a limited extent, foreign currency. The fund's investment in
commercial bank obligations include certificates of deposit ("CDs"), time
deposits ("TDs") and bankers' acceptances. Obligations of non-U.S. branches of
U.S. banks and of non-U.S. banks may be general obligations of the parent bank
in addition to the issuing bank, or may be limited by the terms of a specific
obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of non-U.S. branches of
U.S. banks and of non-U.S. banks may subject the fund to investment risks that
are different in some respects from those of investments in obligations of
domestic issuers.

The fund's investments in commercial paper consist of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. The fund may also invest in variable amount
master demand notes (which is a type of commercial paper) which represents a
direct borrowing arrangement involving periodically fluctuating rates of
interest under a letter agreement between a commercial paper issuer and an
institutional lender, pursuant to which the lender may determine to invest
varying amounts. Transfer of such notes is usually restricted by the issuer, and
there is no secondary trading market for such notes.

INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT RESTRICTIONS. The fund has adopted certain fundamental
investment restrictions which, along with the fund's investment objective, may
not be changed without the affirmative vote of the holders of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of the fund.
Statements in italics are not part of the restriction. For this purpose, a
majority of the outstanding shares of the fund means the vote of the lesser of:

(i) 67% or more of the shares represented at a meeting, if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or

(ii) more than 50% of the outstanding shares of the fund.

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) lend portfolio securities, (ii)
enter into repurchase agreements, (iii) purchase all or a portion of an issue of
publicly distributed debt securities, loans, 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) Make any investment inconsistent with its classification as a diversified
open-end investment company under the 1940 Act. Currently, diversification means
that, with respect to 75% of its total assets, the fund may not purchase
securities of an issuer (other than the U.S. government, its agencies or
instrumentalities and securities of investment companies), if

(a) such purchase would cause more than 5% of the fund's total assets,
taken at market value, to be invested in the securities of such issuer, or

(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the fund.

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

(8) Invest 25% or more of the value of its total assets in any one industry,
except that (a) the fund will invest more than 25% of its total assets in
securities or other instruments issued or structured by companies in the
financial services group of industries, such as banks, broker-dealers and
insurance and reinsurance companies, and (b) this limitation does not apply to
the purchase of obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.

For purposes of investment restriction (4) above, in accordance with the current
requirements under the 1940 Act, at no time would the value of the securities
loaned, the value of repurchase agreement, and the value of all other
investments made under this restriction in the aggregate exceed 33 1/3 of the
value of the fund's total assets.

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. Under current law, the fund may not purchase securities on margin.
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."

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. 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 objectives. 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. Trustees who are interested persons of
the fund within the meaning of the 1940 Act 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 (except Mr. Kingsbury and Mr. West)
serves as a Trustee of each of the 82 U.S. registered investment portfolios for
which Pioneer serves as investment adviser (the "Pioneer Funds"). Each of Mr.
Kingsbury and Mr. West serves as Trustee of 33 of the 82 Pioneer Funds. The
address for all Interested Trustees and all officers of the fund is 60 State
Street, Boston, Massachusetts 02109.

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

INTERESTED TRUSTEES:

John F. Cogan, Chairman of the Trustee since Deputy Chairman and a Director Director of ICI Mutual
Jr. (80)* Board, Trustee 2007. Serves of Pioneer Global Asset Insurance Company
and President until a Management S.p.A. ("PGAM");
successor Non-Executive Chairman and a
trustee is Director of Pioneer Investment
elected or Management USA Inc. ("PIM-USA");
earlier Chairman and a Director of
retirement or Pioneer; Chairman and Director
removal. of Pioneer Institutional Asset
Management, Inc. (since 2006);
Director of Pioneer Alternative
Investment Management Limited
(Dublin); President and a
Director of Pioneer Alternative
Investment Management (Bermuda)
Limited and affiliated funds;
Director of PIOGLOBAL Real
Estate Investment Fund (Russia)
(until June 2006); Director of
Nano-C, Inc. (since 2003);
Director of Cole Management Inc.
(since 2004); Director of
Fiduciary Counseling, Inc.;
President and Director of
Pioneer Funds Distributor, Inc.
("PFD") (until May 2006);
President of all of the Pioneer
Funds; and Of Counsel, Wilmer
Cutler Pickering Hale and Dorr
LLP (counsel to PIM-USA and the
Pioneer Funds)

Daniel K. Trustee and Trustee since Director, CEO and President of
Kingsbury * (48) Executive Vice 2007. Serves Pioneer Investment Management
President until a USA Inc.; Pioneer Investment
successor Management, Inc. and Pioneer
trustee is Institutional Asset Management,
elected or Inc. (since March 2007);
earlier Executive Vice President of all
retirement or of the Pioneer Funds (since
removal. March 2007); Director of Pioneer
Global Asset Management S.p.A.
(since March 2007); Head of New
Markets Division, Pioneer Global
Asset Management S.p.A.
(2000-2007)

INDEPENDENT TRUSTEES:

David R. Bock (63) Trustee Trustee since Executive Vice President and Director of The Enterprise
3050 K Street NW, 2007. Serves Chief Financial Officer, I-trax, Social Investment Company
Washington, DC 20007 until a Inc. (publicly traded health (privately-held affordable
successor care services company) (2004 - housing finance company);
trustee is present); Partner, Federal City and Director of New York
elected or Capital Advisors (boutique Mortgage Trust (publicly
earlier merchant bank)(1997 to 2004); traded mortgage REIT)
retirement or and Executive Vice President and
removal. Chief Financial Officer,
Pedestal Inc. (internet-based
mortgage trading company)
(2000-2002)

Mary K. Bush (58) Trustee Trustee since President, Bush International, Director of Brady
3509 Woodbine Street 1997. Serves LLC (international financial Corporation (industrial
Chevy Chase, MD 20815 until a advisory firm) identification and
successor specialty coated material
trustee is products manufacturer);
elected or Director of Briggs &
earlier Stratton Co. (engine
retirement or manufacturer); Director of
removal. UAL Corporation (airline
holding company); and
Director of Mantech
International Corporation
(national security,
defense, and intelligence
technology firm)

Margaret B.W. Graham Trustee Trustee since Founding Director, None
(59) 2007. Serves Vice-President and Corporate
1001 Sherbrooke Street until a Secretary, The Winthrop Group,
West, Montreal, successor Inc. (consulting firm); and
Quebec, Canada trustee is Desautels Faculty of Management,
H3A1G5 elected or McGill University
earlier
retirement or
removal.

Thomas J. Perna (56) Trustee Trustee since Private investor (2004 - Director of Quadriserv Inc.
89 Robbins Avenue, 2007. Serves present); and Senior Executive (technology products for
Berkeley Heights, NJ until a Vice President, The Bank of New securities lending
07922 successor York (financial and securities industry)
trustee is services) (1986 - 2004)
elected or
earlier
retirement or
removal.

Marguerite A. Piret Trustee Trustee since President and Chief Executive Director of New America
(58) 2007. Serves Officer, Newbury, Piret & High Income Fund, Inc.
200 State Street, 12th until a Company, Inc. (investment (closed-end investment
Floor, Boston, MA 02109 successor banking firm) company)
trustee is
elected or
earlier
retirement or
removal.

Stephen K. West (78) Trustee Trustee since Senior Counsel, Sullivan & Director, The Swiss
125 Broad Street, New 2007. Serves Cromwell (law firm) Helvetia Fund, Inc.
York, NY 10004 until a (closed-end investment
successor company)
trustee is
elected or
earlier
retirement or
removal.

John Winthrop (70) Trustee Trustee since President, John Winthrop & Co., None
One North Adgers 2007. Serves Inc. (private investment firm)
Wharf, Charleston, SC until a
29401 successor
trustee is
elected or
earlier
retirement or
removal.

FUND OFFICERS:

Dorothy E. Secretary Since 2007. Secretary of PIM-USA; Senior None
Bourassa (59) Serves at the Vice President- Legal of
discretion of Pioneer; Secretary/Clerk of most
the Board of PIM-USA's subsidiaries; and
Secretary of all of the Pioneer
Funds since September 2003
(Assistant Secretary from
November 2000 to September 2003)

Christopher J. Assistant Since 2007. Vice President and Senior None
Kelley (42) Secretary Serves at the Counsel of Pioneer since July
discretion of 2002; Vice President and Senior
the Board 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), and Assistant
Secretary of all of the Pioneer
Funds since September 2003

Christopher P. Assistant Since 2007. Partner, Wilmer Cutler Pickering None
Harvey (45) Secretary Serves at the Hale and Dorr LLP; and Assistant
discretion of Secretary of all of the Pioneer
the Board Funds since July 2006

Vincent Nave (61) Treasurer Since 2007. Vice President-Fund Accounting, None
Serves at the Administration and
discretion of Controllership Services of
the Board Pioneer; and Treasurer of all of
the Pioneer Funds

Mark E. Bradley Assistant Since 2007. Deputy Treasurer of Pioneer None
(47) Treasurer Serves at the since 2004; Treasurer and Senior
discretion of Vice President, CDC IXIS Asset
the Board Management Services from 2002 to
2003; and Assistant Treasurer of
all of the Pioneer Funds since
November 2004

Luis I. Presutti Assistant Since 2007. Assistant Vice President-Fund None
(41) Treasurer Serves at the Accounting, Administration and
discretion of Controllership Services of
the Board Pioneer; and Assistant Treasurer
of all of the Pioneer Funds

Gary Sullivan (48) Assistant Since 2007. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of Controllership Services of
the Board Pioneer; and Assistant Treasurer
of all of the Pioneer Funds
since May 2002

Katherine Kim Assistant Since 2007. Fund Administration Manager - None
Sullivan (33) Treasurer Serves at the Fund Accounting, Administration
discretion of and Controllership Services
the Board 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 Controllership Services
(Fund Accounting Manager from
August 1999 to May 2002); and
Assistant Treasurer of all of
the Pioneer Funds since
September 2003

Teri W. Anderholm Chief Compliance Since 2007. Chief Compliance Officer of None
(47) Officer Serves at the Pioneer since December 2006 and
discretion of of all the Pioneer Funds since
the Board January 2007; Vice President and
Compliance Officer, MFS
Investment Management (August
2005 to December 2006);
Consultant, Fidelity Investments
(February 2005 to July 2005):
Independent Consultant (July
1997 to February 2005

* Mr. Cogan and Mr. Kingsbury are Interested Trustees because each is an
officer or director of the fund's investment adviser and certain of its
affiliates.

The outstanding capital stock of Pioneer is indirectly wholly owned by
UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest banking
groups in Italy. Pioneer, the fund's investment adviser, provides investment
management and financial services to mutual funds, institutional and other
clients.

The fund's Board of Trustees consists of nine members and is divided into three
classes:

Class I: Margaret B.W. Graham, Daniel K. Kingsbury and John Winthrop ("Class I
Trustees")
Class II: Mary K. Bush, Thomas J. Perna and Marguerite Piret ("Class II
Trustees")
Class III: David R. Bock, John F. Cogan, Jr., and Stephen K. West ("Class III
Trustees")

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 term of the Class I Trustees shall
expire at the first annual shareholder meeting following this public offering,
the term of the Class II Trustees expire at the second annual shareholder
meeting, and the terms of the Class III Trustees shall expire at the third
annual shareholder 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

David R. Bock, Margaret B. W. Graham, Marguerite A. Piret (Chair) and Stephen K.
West

INDEPENDENT TRUSTEES

David R. Bock, Mary K. Bush, Margaret B.W. Graham (Chair), Thomas J. Perna,
Marguerite A. Piret, Stephen K. West and John Winthrop

NOMINATING

Mary K. Bush, Marguerite A. Piret and John Winthrop (Chair)

VALUATION

David R. Bock, Margaret B. W. Graham, Marguerite A. Piret (Chair) and Stephen K.
West

POLICY ADMINISTRATION

Mary K. Bush (Chair), Thomas J. Perna and John Winthrop

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 registered public
accounting firm and the full Board of Trustees of the fund;

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

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

- review and approve insurance coverage and allocations of premiums between
the management and the fund and among the Pioneer Funds;

- review and approve expenses under the administration agreement between
Pioneer and the fund and allocations of such expenses among the Pioneer
Funds; and

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

The Independent Trustees Committee reviews the fund's management contract 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 Agreement and 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
Agreement and 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. The Independent Trustees
review and set their compensation annually, taking into consideration the
committee and other responsibilities assigned to specific Trustees. The table
under "Annual Fees, Expense and Other Information-Compensation of Officers and
Trustees" sets forth the compensation paid to each of the Trustees. The
compensation paid to the Trustees is then allocated among the funds as follows:

- each fund with assets less than $250 million pays each Independent Trustees
an annual fee of $1,000.

- the remaining compensation of the Independent Trustees is allocated to each
fund with assets greater than $250 million based on the fund's net assets.

- the Interested Trustees receive an annual fee of $500 from each fund,
except in the case of funds with net assets of $50 million or less, which
pay each Interested Trustee an annual fee of $200. Pioneer reimburses the
funds for the fees paid to the Interested Trustees.

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, 2006.

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

INTERESTED TRUSTEES:
John F. Cogan, Jr.*** $ 500.00 $0.00 $0.00 $ 35,300.00
Daniel K. Kingsbury***+ $ 500.00 $0.00 $0.00 N/A

INDEPENDENT TRUSTEES:
David R. Bock $2,000.00 $0.00 $0.00 $149,500.00
Mary K. Bush $2,000.00 $0.00 $0.00 $148,250.00
Margaret B.W. Graham $2,000.00 $0.00 $0.00 $155,750.00
Thomas J. Perna $2,000.00 $0.00 $0.00 $126,053.12
Marguerite A. Piret $2,000.00 $0.00 $0.00 $178,250.00
Stephen K. West $2,000.00 $0.00 $0.00 $ 54,506.57
John Winthrop $2,000.00 $0.00 $0.00 $140,500.00

* Estimated for the fiscal year ending April 30, 2008.

** For the calendar year ended December 31, 2006. There are 82 U.S. registered
investment portfolios in the Pioneer Family of Funds.

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

+ Mr. Kingsbury became a Trustee of the fund and certain other Pioneer Funds
on March 6, 2007.

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, 2006. 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, 2006. 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
SECURITIES IN ALL
DOLLAR RANGE REGISTERED
OF EQUITY INVESTMENT
SECURITIES COMPANIES IN
NAME OF TRUSTEE IN THE FUND THE PIONEER FUNDS
--------------- ------------ -----------------

INTERESTED TRUSTEES:
John F. Cogan, Jr. None Over $100,000
Daniel K. Kingsbury None Over $100,000

INDEPENDENT TRUSTEES:
David R. Bock None Over $100,000

Mary K. Bush None Over $100,000
Margaret B.W. Graham None Over $100,000
Thomas J. Perna None Over $100,000
Marguerite A. Piret None Over $100,000
Stephen K. West None Over $100,000
John Winthrop None Over $100,000

OTHER INFORMATION

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

- the immediate family members of any person are 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 Italiano 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, 2006, none of the Independent Trustees, nor any of their
immediate family members, beneficially owned any securities issued by Pioneer,
PFD or any other entity in a control relationship to Pioneer or PFD. During the
calendar years 2005 and 2006, none of the Independent Trustees, nor any of their
immediate family members, had any direct or indirect interest (the value of
which exceeded $120,000), whether by contract, arrangement or otherwise, in
Pioneer, PFD, or any other entity in a control relationship to Pioneer or PFD.
During the calendar years 2005 and 2006, none of the Independent Trustees, nor
any of their immediate family members, had an interest in a transaction or a
series of transactions in which the aggregate amount involved exceeded $120,000
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

- PFD

- an officer of Pioneer or PFD

- any affiliate of Pioneer or PFD

- an officer of any such affiliate

During the calendar years 2005 and 2006, none of the Independent Trustees, nor
any of their immediate family members, had any relationship (the value of which
exceeded $120,000) with any fund related party, including, but not limited to,
relationships arising out of (i) the payment 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 fund and the other Pioneer Funds
was approximately $173,353 and $287,452 in each of 2005 and 2006.

During the calendar years 2005 and 2006, none of the Independent Trustees, nor
any of their immediate family members, served as a member of a board of
directors on which an officer of any of the following entities also serves as a
director:

- Pioneer

- PFD

- UniCredito Italiano

- any other entity in a control relationship with Pioneer or PFD

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 2005 and 2006, 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

- PFD

- any affiliated person of the fund, Pioneer or PFD

- any entity in a control relationship to the fund, Pioneer or PFD

CODE OF ETHICS. The fund's Board of Trustees approved a code of ethics under
Rule 17j-1 under the 1940 Act that covers the fund, Pioneer and certain of
Pioneer's affiliates. The code of ethics establishes procedures for personal
investing and restricts certain transactions. Employees subject to the code of
ethics may invest in securities for their personal investment accounts,
including securities that may be purchased or held by the fund.

INVESTMENT ADVISER AND SUBADVISER

INVESTMENT ADVISER. The fund has contracted with Pioneer to act as its
investment adviser. Pioneer is an indirect, wholly owned subsidiary of
UniCredito Italiano. 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 March 31, 2006, assets under management were approximately
$310 billion worldwide, including over $81 billion in assets under management by
Pioneer. Certain Trustees or officers of the trust are also directors and/or
officers of certain of UniCredito Italiano's subsidiaries (see management
biographies above). Pioneer has entered into an agreement with its affiliate,
Pioneer Investment Management Limited ("PIML"), pursuant to which PIML provides
certain services and personnel to Pioneer.

As the fund's investment adviser, Pioneer is responsible for managing the fund's
overall investment program, supervising the Subadviser's investments in
event-linked bonds on behalf of the fund, supervising the fund's overall
compliance program and providing for the general management of the business
affairs of the fund. Pioneer and the Subadviser provide the fund with investment
research, advice and supervision and furnish an investment program for the fund
consistent with the fund's investment objectives and policies, subject to the
supervision of the fund's Trustees. Pioneer and the Subadviser determine what
portfolio securities will be purchased or sold, arrange for the placing of
orders for the purchase or sale of portfolio securities, select brokers or
dealers to place those orders, maintains books and records with respect to the
fund's securities transactions, and report to the Trustees on the fund's
investments and performance.

SUBADVISER. Pioneer has engaged Montpelier Capital Advisors, Ltd. to act as the
fund's investment subadviser with respect to the fund's investments in
event-linked bonds. The Subadviser, under the supervision of Pioneer, is
responsible for the day-to-day management of the fund's portfolio of investments
in event-linked bonds. The Subadviser also advises Pioneer as to the relative
value of investments in event-linked bonds, compared to other sectors of the
fixed income securities markets.

ADMINISTRATOR. The fund has entered into an administration agreement with the
Pioneer, pursuant to which Pioneer will provide certain administrative and
accounting services to the fund. Pioneer has appointed Princeton Administrators,
LLC as the sub-administrator to the fund to perform certain of Pioneer's
administration and accounts obligations to the fund. Under the administration
agreements, the fund will pay Pioneer a monthly fee equal to 0.07% of the fund's
average daily managed assets up to $500 million and 0.03% for average daily
managed assets in excess of $500 million. Pioneer and not the fund, is
responsible for paying the fees of Princeton Administrators, LLC.

Pursuant to a separate agreement, the fund may compensate the Pioneer for
providing certain legal and accounting services at the annual rate of 0.0175% of
the fund's average daily managed assets.

TRANSFER AGENT. 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 American Stock
Transfer & Trust Company to provide sub-transfer agent, sub-registrar and
sub-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 American Stock & Transfer Company,
the fund has made its common shares eligible for inclusion in the direct
registration system ("DRS") administered by The Depository Trust Company
("DTC"), wherein American Stock & Transfer Company will process transfers of
common shares utilizing DTC's Profile Modification System.

CUSTODIAN. Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, is the custodian of the fund's assets. The custodian's responsibilities
include safekeeping and controlling the fund's cash and securities, handling the
receipt and delivery of securities, and collecting interest and dividends on the
fund's investments.

MANAGEMENT CONTRACT. Under the management contract, 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 0.85% of the fund's average daily managed
assets. "Managed assets" means the total assets of the fund, including any form
of investment leverage, minus all accrued expenses incurred in the normal course
of operations, but not excluding any liabilities or obligations attributable to
investment leverage obtained

through (i) indebtedness of any type (including, without limitation, borrowing
through a credit facility or the issuance of debt securities), (ii) the issuance
of preferred stock or other similar preference securities, (iii) the
reinvestment of collateral received for securities loaned in accordance with the
fund's investment objectives and policies and/or (iv) any other means. The
liquidation preference on any preferred shares is not a liability. 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 the management contract, Pioneer 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 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, registrar or
any other agent 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, a portion of the 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 Board of 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
American 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
floating rate loan in which the fund invests.

The Trustees' approval of and the terms, continuance and termination of the
management contract are governed by the 1940 Act and the Investment Advisers Act
of 1940, as applicable. Pursuant to the management contract, Pioneer will not be
liable for any error of judgment or mistake of law or for any loss sustained by
reason of the adoption of any investment policy or the purchase, sale or
retention of any securities on the recommendation of Pioneer. Pioneer, however,
is not protected against liability by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under the management contract.

SUBADVISORY CONTRACT. Montpelier Capital Advisors, Ltd. serves as the fund's
investment subadviser. Under the terms of the subadvisory agreement (the
"Subadvisory Agreement") between the Pioneer and the Subadviser, the Subadviser
will act as a sub-investment adviser with respect to that portion of the fund's
portfolio invested in event-linked bonds ("Sub-Advised Assets"). In such
capacity, the Subadviser shall, with respect to Sub-Advised Assets, and subject
to the supervision of Pioneer and the fund's Board, 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 Pioneer, manage the investment and reinvestment of the fund's
Sub-Advised Assets; (c) keep the fund and Pioneer informed of developments
materially affecting the fund's Sub-Advised Assets, including market valuations
and pricing information on fund holdings to Pioneer and/or the fund's pricing
agent as necessary to make any fair value determinations; (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
United States Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company; (e) comply with any policies,
guidelines, procedures and instructions as Pioneer 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 Pioneer; (g) maintain
separate books and detailed records of all matters pertaining to the portion of
the Sub-Advised Assets 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 Pioneer.

Under the terms of the Subadvisory Agreement, for its services the Subadviser is
entitled to a subadvisory fee from Pioneer at an annual rate of 0.80% the fund's
average daily Sub-Advised Assets; provided, however, that such fee shall in no
event be less than 0.15% of 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.

POTENTIAL CONFLICTS OF INTEREST. The fund's investment adviser is Pioneer, which
also serves as investment adviser to other Pioneer mutual funds and other
accounts with investment objectives identical or similar to those of the fund.
Securities frequently meet the investment objectives of the fund, the other
Pioneer mutual 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 which 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 Pioneer
mutual funds or a private account managed by Pioneer 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 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 the other Pioneer mutual funds
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.

PERSONAL SECURITIES TRANSACTIONS. The fund, Pioneer and PFD have adopted a code
of ethics under Rule 17j-1 under the 1940 Act which is applicable to officers,
trustees/directors and designated employees of Pioneer and 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.

PORTFOLIO MANAGEMENT

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGERS

OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS. The table below indicates, for
each portfolio manager of the fund, information about the accounts other than
the fund over which the portfolio manager has day-to-day investment
responsibility. All information on the number of accounts and total assets in
the table is as of March 31, 2007. For purposes of the table, "Other Pooled
Investment Vehicles" may include investment partnerships, undertakings for
collective investments in transferable securities ("UCITS") and other non-U.S.
investment funds and group trusts, and "Other Accounts" may include separate
accounts for institutions or individuals, insurance company general or separate
accounts, pension funds and other similar institutional accounts but generally
do not include the portfolio manager's personal investment accounts or those
which the manager may be deemed to own beneficially under the code of ethics.
Certain funds and other accounts managed by the portfolio manager may have
substantially similar investment strategies.

NUMBER OF ACCOUNTS
MANAGED FOR WHICH ASSETS MANAGED FOR
NAME OF PORTFOLIO NUMBER OF TOTAL ADVISORY FEE IS WHICH ADVISORY FEE IS
MANAGER TYPE OF ACCOUNT ACCOUNTS MANAGED ASSETS MANAGED PERFORMANCE-BASED PERFORMANCE-BASED
----------------- -------------------- ---------------- -------------- ------------------ ---------------------

Andrew Feltus Other Registered
Investment Companies 7 $7,924,185,000 N/A N/A
Other Pooled
Investment Vehicles 5 $ 741,806,000 N/A N/A
Other Accounts 2 $ 291,009,000 N/A N/A

Charles Melchreit Other Registered
Investment Companies 3 $ 522,452,000 N/A N/A
Other Pooled
Investment Vehicles 1 $ 273,852,000 N/A N/A
Other Accounts 0 $ 0 N/A N/A

Jonathan Sharkey Other Registered
Investment Companies 1 $ 48,854,000 N/A N/A
Other Pooled
Investment Vehicles 0 $ 0 N/A N/A
Other Accounts 0 $ 0 N/A N/A

Chris Harris Other Registered
Investment Companies None N/A N/A N/A
Other Pooled
Investment Vehicles None N/A N/A N/A
Other Accounts 1 $ 49,765,289 None None

David Sinnott Other Registered
Investment Companies None N/A N/A N/A
Other Pooled
Investment Vehicles None N/A N/A N/A
Other Accounts 1 $ 49,765,289 None None

POTENTIAL CONFLICTS OF INTEREST. When a portfolio manager is responsible for the
management of more than one account, the potential arises for the portfolio
manager to favor one account over another. The principal types of potential
conflicts of interest that may arise are discussed below. For the reasons
outlined below, Pioneer does not believe that any material conflicts are likely
to arise out of a portfolio manager's responsibility for the management of the
fund as well as one or more other accounts. Although Pioneer has adopted
procedures that it believes are reasonably designed to detect and prevent
violations of the federal securities laws and to mitigate the potential for
conflicts of interest to affect its portfolio management decisions, there can be
no assurance that all conflicts will be identified or that all procedures

will be effective in mitigating the potential for such risks. Generally, the
risks of such conflicts of interests are increased to the extent that a
portfolio manager has a financial incentive to favor one account over another.
Pioneer has structured its compensation arrangements in a manner that is
intended to limit such potential for conflicts of interests. See "Compensation
of Portfolio Managers" below.

- A portfolio manager could favor one account over another in allocating
new investment opportunities that have limited supply, such as initial
public offerings and private placements. If, for example, an initial
public offering that was expected to appreciate in value significantly
shortly after the offering was allocated to a single account, that
account may be expected to have better investment performance than
other accounts that did not receive an allocation of the initial
public offering. Generally, investments for which there is limited
availability are allocated based upon a range of factors including
available cash and consistency with the accounts' investment
objectives and policies. This allocation methodology necessarily
involves some subjective elements but is intended over time to treat
each client in an equitable and fair manner. Generally, the investment
opportunity is allocated among participating accounts on a pro rata
basis. Although Pioneer believes that its practices are reasonably
designed to treat each client in an equitable and fair manner, there
may be instances where a fund may not participate, or may participate
to a lesser degree than other clients, in the allocation of an
investment opportunity.

- A portfolio manager could favor one account over another in the order
in which trades for the accounts are placed. If a portfolio manager
determines to purchase a security for more than one account in an
aggregate amount that may influence the market price of the security,
accounts that purchased or sold the security first may receive a more
favorable price than accounts that made subsequent transactions. The
less liquid the market for the security or the greater the percentage
that the proposed aggregate purchases or sales represent of average
daily trading volume, the greater the potential for accounts that make
subsequent purchases or sales to receive a less favorable price. When
a portfolio manager intends to trade the same security on the same day
for more than one account, the trades typically are "bunched," which
means that the trades for the individual accounts are aggregated and
each account receives the same price. There are some types of accounts
as to which bunching may not be possible for contractual reasons (such
as directed brokerage arrangements). Circumstances may also arise
where the trader believes that bunching the orders may not result in
the best possible price. Where those accounts or circumstances are
involved, Pioneer will place the order in a manner intended to result
in as favorable a price as possible for such client.

- A portfolio manager could favor an account if the portfolio manager's
compensation is tied to the performance of that account to a greater
degree than other accounts managed by the portfolio manager. If, for
example, the portfolio manager receives a bonus based upon the
performance of certain accounts relative to a benchmark while other
accounts are disregarded for this purpose, the portfolio manager will
have a financial incentive to seek to have the accounts that determine
the portfolio manager's bonus achieve the best possible performance to
the possible detriment of other accounts. Similarly, if Pioneer
receives a performance-based advisory fee, the portfolio manager may
favor that account, whether or not the performance of that account
directly determines the portfolio manager's compensation.

- A portfolio manager could favor an account if the portfolio manager
has a beneficial interest in the account, in order to benefit a large
client or to compensate a client that had poor returns. For example,
if the portfolio manager held an interest in an investment partnership
that was one of the accounts managed by the portfolio manager, the
portfolio manager would have an economic incentive to favor the
account in which the portfolio manager held an interest.

- If the different accounts have materially and potentially conflicting
investment objectives or strategies, a conflict of interest could
arise. For example, if a portfolio manager purchases a security for
one account and sells the same security for another account, such
trading pattern may disadvantage either the account that is long or
short. In making portfolio manager assignments, Pioneer seeks to avoid
such potentially conflicting situations. However, where a portfolio
manager is responsible for accounts with differing investment
objectives and policies, it is possible that the portfolio manager
will conclude that it is in the best interest of one account to sell a
portfolio security while another account continues to hold or increase
the holding in such security.

POTENTIAL CONFLICTS OF INTEREST FOR SUBADVISER. A potential conflict of interest
could arise in the event that Montpelier Re Ltd., the subadviser's parent
company, has an interest in investing in an event-linked bond that is also a
suitable investment for the fund. The subadviser seeks to avoid this potential
conflict by communicating any such potential conflict of interest in advance to
Pioneer. In all cases, the subadviser will provide Pioneer with information
relating to Montpelier Re Ltd.'s or any affiliate's interest (in buying, selling
or issuing) a specific event-linked bond, prior to consummating any transaction
on behalf of its affiliates. In addition, the subadviser will provide Pioneer
with a report listing all event linked bond transactions and sales on at least a
quarterly basis.

COMPENSATION OF PORTFOLIO MANAGERS. Pioneer has adopted a system of compensation
for portfolio managers that seeks to align the financial interests of the
portfolio managers with those of shareholders of the accounts (including Pioneer
funds) the portfolio managers manage, as well as with the financial performance
of Pioneer. The compensation program for all Pioneer portfolio managers includes
a base salary (determined by the rank and tenure of the employee) and an annual
bonus program, as well as customary benefits that are offered generally to all
full-time employees. Base compensation is fixed and normally reevaluated on an
annual basis. Pioneer seeks to set base compensation at market rates, taking
into account the experience and responsibilities of the portfolio manager. The
bonus plan is intended to provide a competitive level of annual bonus
compensation that is tied to the portfolio manager achieving superior investment
performance and align the interests of the investment professional with those of
shareholders, as well as with the financial performance of Pioneer. Any bonus
under the plan is completely discretionary, with a maximum annual bonus that may
be in excess of base salary. The annual bonus is based upon a combination of the
following factors:

- Quantitative Investment Performance. The quantitative investment
performance calculation is based on pre-tax investment performance of
all of the accounts managed by the portfolio manager (which includes
the fund and any other accounts managed by the portfolio manager) over
a one-year period (20% weighting) and four-year period (80%
weighting), measured for periods ending on December 31. The accounts,
which include the fund, are ranked against a group of mutual funds
with similar investment objectives and investment focus (60%) and a
broad-based securities market index measuring the performance of the
same type of securities in which the accounts invest (40%), which, in
the case of the fund, is the Merrill Lynch Global High Yield and
Emerging Markets Plus Index and the Credit Suisse Leveraged Loan
Index. As a result of these two benchmarks, the performance of the
portfolio manager for compensation purposes is measured against the
criteria that are relevant to the portfolio manager's competitive
universe.

- Qualitative Performance. The qualitative performance component with
respect to all of the accounts managed by the portfolio manager
includes objectives such as effectiveness in the areas of teamwork,
leadership, communications and marketing, that are mutually
established and evaluated by each portfolio manager and management.

- Pioneer Results and Business Line Results. Pioneer's financial
performance, as well as the investment performance of its investment
management group, affect a portfolio manager's actual bonus by a
leverage factor of plus or minus (+/-) a predetermined percentage.

The quantitative and qualitative performance components comprise 80% and 20%,
respectively, of the

overall bonus calculation (on a pre-adjustment basis). A portion of the annual
bonus is deferred for a specified period and may be invested in one or more
Pioneer funds.

Certain portfolio managers may participate in other programs designed to reward
and retain key contributors. Senior executives or other key employees may be
granted performance units based on the stock price performance of UniCredito
Italiano and the financial performance of Pioneer Global Asset Management
S.p.A., which are affiliates of Pioneer. Portfolio managers also may participate
in a deferred compensation program, whereby deferred amounts are invested in one
or more Pioneer funds.

COMPENSATION OF THE SUBADVISER'S PORTFOLIO MANAGERS.

The subadviser's compensation program consists of three components: (i) base
salary and benefits, (ii) annual cash bonus, and (iii) long-term equity
incentive awards. The principal benefit plans and arrangements that are offered
include housing allowances, a deferred compensation plan, retirement benefits,
medical and dental insurance and travel. The combination of components for each
portfolio manager is set by a committee. The subadviser's compensation
arrangements with its portfolio managers are determined on the basis of the
portfolio manager's overall services to the subadviser and its affiliates and
not on the basis of a specific fund or other accounts, if any, managed by the
portfolio manager.

BASE SALARY AND BENEFITS. Each portfolio manager's base salary and benefits are
set by a committee in consultation with the Chief Executive Officer by reference
to the nature and demands of the past, the knowledge, skill and experience of
the individual and the state of the market for recruitment into comparable
positions. The subadviser seeks to set base compensation at market rates based
on industry surveys.

ANNUAL CASH BONUS. The subadviser pays annual cash bonuses in order to reward
short-term performance. Each year, the committee reviews and adopts an annual
cash bonus plan on behalf of the subadviser and its affiliates. Under the annual
bonus plan, the maximum bonus opportunity, expressed as a percentage of salary,
and related performance criteria are set in advance for each by the committee.
The final value of the bonus is derived from a sliding scale operating around a
central percentage target return on allocated capital.

LONG-TERM INCENTIVE AWARDS. At the discretion of the committee, incentive
awards, the value of which is based on and paid in the parent company's common
shares, may be made to all eligible plan participants. Generally, the awards are
granted annually in advance of the commencement of a three-year performance
period. Incentive awards that may be granted consist of share appreciation
rights, performance shares and restricted share units. Each type of award gives
a plan participant the right to receive a payment in cash, common shares or a
combination of both, including dividend equivalents in the case of restricted
share units, at the discretion of the committee.

SHARE OWNERSHIP BY PORTFOLIO MANAGERS. The following table indicates as of April
30, 2006 the value, within the indicated range, of shares beneficially owned by
the portfolio managers of the fund.

NAME OF PORTFOLIO MANAGER BENEFICIAL OWNERSHIP OF THE FUND*
------------------------- ---------------------------------

Andrew Feltus A
Charles Melchreit A
Jonathan Sharkey A

Chris Harris A
David Sinnott A

* Key to Dollar Ranges

A. None
B. $1 - $10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. $100,001 - $500,000
F. $500,001 - $1,000,000
G. Over $1,000,000

The fund is newly organized and had not commenced operations as of April 30,
2006.

PORTFOLIO TRANSACTIONS

All orders for the purchase or sale of portfolio securities are placed on behalf
of the fund by Pioneer and/or the Subadviser pursuant to authority contained in
the fund's management contract and the subadvisory contract. 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. Pioneer and the Subadviser normally seek to deal
directly with the primary market makers unless, in its opinion, better prices
are available elsewhere. Pioneer and the Subadviser seek 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, Pioneer and the Subadviser consider
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. Transactions in
non-U.S. equity securities are executed by broker-dealers in non-U.S. countries
in which commission rates may not be negotiable (as such rates are in the U.S.).

Pioneer and the Subadviser may select broker-dealers that provide brokerage
and/or research services to the fund and/or other investment companies or other
accounts managed by Pioneer or the Subadviser over which it or its affiliates
exercise investment discretion. In addition, consistent with Section 28(e) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), if Pioneer
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). Pioneer maintains a
listing of broker-dealers who provide such services on a regular basis. However,

because many transactions on behalf of the fund and other investment companies
or accounts managed by Pioneer 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. Pioneer
believes that no exact dollar value can be calculated for such services.

The research received from broker-dealers may be useful to Pioneer or the
Subadviser in rendering investment management services to the fund as well as
other investment companies or other accounts managed by Pioneer or the
Subadviser, 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 Pioneer and
the Subadviser in carrying out its obligations to the fund. The receipt of such
research has not reduced Pioneer's or the Subadviser's normal independent
research activities; however, it enables Pioneer and the Subadviser to avoid the
additional expenses which might otherwise be incurred if it were to attempt to
develop comparable information through its own staff.

The fund may participate in third-party brokerage and/or expense offset
arrangements to reduce the fund's total operating expenses. Pursuant to
third-party brokerage arrangements, the fund may incur lower expenses by
directing brokerage to third-party broker-dealers which have agreed to use part
of their commission to pay the fund's fees to service providers unaffiliated
with Pioneer or the Subadviser, or other expenses. Since the commissions paid to
the third party brokers reflect a commission cost that the fund would generally
expect to incur on its brokerage transactions but not necessarily the lowest
possible commission, this arrangement is intended to reduce the fund's operating
expenses without increasing the cost of its brokerage commissions. Since use of
such directed brokerage is subject to the requirement to achieve best execution
in connection with the fund's brokerage transactions, there can be no assurance
that such arrangements will be utilized. Pursuant to expense offset
arrangements, the fund may incur lower transfer agency expenses due to interest
earned on cash held with the transfer agent.

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 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 American 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 American
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 and capital gains distributed to
shareholders. In order to qualify as a regulated investment company under
Subchapter M of the Code, the fund must, (i) 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 and net income derived from an
interest in a qualified publicly traded partnership (as defined in Section
851(h) of the Code) (the "90% income test") and (ii) diversify its holdings so
that, at the end of each quarter of each taxable year: (a) at least 50% of the
value of the fund's total assets is represented by (1) cash and cash items, U.S.
government securities, securities of other regulated investment companies, and
(2) other securities, with such other securities limited, in respect to any one
issuer, to an amount not greater than 5% of the value of the fund's total assets
and to not more than 10% of the outstanding voting securities of such issuer and
(b) not more than 25% of the value of the fund's total assets is invested in (1)
the securities (other than U.S. government securities and securities of other
regulated investment companies) of any one issuer, (2) the securities (other
than securities of other regulated investment companies) of two or more issuers
that the fund controls and that are engaged in the same, similar, or related
trades or businesses, or (3) the securities of one or more qualified publicly
traded partnerships.

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 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 does not qualify as a regulated
investment company, it will 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, 2010.

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.

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.

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.

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.

The treatment of event-linked bonds for U.S. federal income tax purposes is
uncertain and will depend on the particular features of each such bond. The fund
expects that it will generally treat the event-linked bonds in which it invests
as equity of the issuer for U.S. federal income tax purposes, whether that
treatment is mandated by the terms of the applicable bond indentures or
otherwise, although this determination will necessarily be made on an investment
by investment basis. It is possible that the IRS will provide future guidance
with respect to the treatment of instruments like the event-linked bonds or
challenge the treatment adopted by the fund for one or more of its event-linked
bond investments. A change in the treatment of the fund's event-linked bond
investments that is required as a result of such guidance or an IRS challenge
could affect the timing, character and amount of the fund's income from the
event-linked bonds. This, in turn, could affect whether the fund has satisfied
the distribution requirements necessary to qualify as a regulated investment
company and to avoid a fund-level tax.

An event-linked bond that is treated as equity may be subject to special U.S.
federal income tax rules applicable to equity investments in a passive foreign
investment company (a "PFIC") or a controlled foreign corporation (a "CFC").
Generally, a foreign corporation is treated as a PFIC if it receives at least
75% of its annual gross income from passive sources (such as interest,
dividends, certain rents and royalties, or capital gains) or it holds at least
50% of its assets in investments producing such passive income. In cases in
which the fund treats an event-linked bond as an equity interest in a PFIC, the
fund generally expects to make a "mark to market" election, which would require
the fund to recognize income or (subject to certain limitations) loss annually
based on the difference between the fair market value of the event-linked bond
at the end of the year and the fund's adjusted basis in the event-linked bond.
Because the mark to market election can result in recognition of income without
the concurrent receipt of cash, the fund may have to sell portfolio securities,
thereby possibly resulting in the recognition of additional income or gain, to
satisfy the distribution requirements necessary to qualify as a regulated
investment company and to avoid a fund-level tax. If the fund were not able to
meet such distribution requirements, the fund would run the risk of losing its
qualification as a regulated investment company.

If the fund does not make a mark to market election with respect to an
event-linked bond that is treated as an equity interest in a PFIC, or an
alternative election (if available) that could also require the fund to
recognize income without the concurrent receipt of cash, the fund would be
subject to U.S. federal income tax on payments on the bond to the extent they
constitute "excess distributions" from the PFIC and on gain from the sale or
retirement of the bond, even if all such income or gain is timely distributed by
the fund to its shareholders. Any such income or gain would be allocated pro
rata over the fund's entire holding period for the bond, with the portion of the
income or gain allocated to any prior taxable

year being subject to tax at the highest marginal corporate income tax rate in
effect for such prior taxable year. In addition, an interest charge would be
imposed on the fund with respect to taxes deemed to be deferred. The fund would
not be able to pass through to its shareholders any credit or deduction for such
taxes or the interest charge.

If U.S. shareholders (including the fund) collectively are treated as owning
more than 25% of the equity of an issuer of an event-linked bond, the issuer may
be treated as a CFC. In such event, if the fund were considered to own a 10% or
greater equity interest in the CFC as a result of its ownership of the issuer's
event-linked bonds, the fund would generally be required to include in income
annually its pro rata share of certain or all of the CFC's earnings and profits,
whether or not those earnings and profits are distributed as payments on the
event-linked bonds or otherwise. As a result, the fund could be subject to the
distribution requirements discussed above with respect to such income without
the concurrent receipt of cash.

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 (other than certain
dividends derived from short-term capital gains and qualified interest income of
the fund for taxable years of the fund commencing after December 31, 2004 and
prior to January 1, 2008, provided that the fund chooses to make a specific
designation relating to such dividends) 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. Shareholders should
consult their own tax advisers on these matters and on state, local, foreign and
other applicable tax laws.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The statements of assets and liabilities and operations of the fund as of April
13, 2007 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 DIVERSIFIED HIGH INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
APRIL 13, 2007

ASSETS:
Cash ................................................... $ 100,000
Receivable from Investment Adviser ..................... 51,000
Deferred offering costs ................................ 1,000,000
----------
Total assets ........................................... $1,151,000
==========
LIABILITIES:
Accrued organizational
Expenses ............................................... $ 51,000
Accrued offering costs ................................. 1,000,000
----------
Total liabilities ...................................... $1,051,000
----------
Net Assets (4,188, common shares issued and outstanding;
unlimited shares authorized) ........................ $ 100,000
----------
Net asset value per share .............................. $ 23.88
----------

STATEMENT OF OPERATIONS
TWO DAYS ENDED April 13, 2007

Investment income ...................................... $ --
--------
Organizational expenses ................................ 51,000
Less: Reimbursement from Investment Adviser ............ (51,000)
--------
Net Expenses ........................................... --
Net Investment income .................................. $ --

NOTES

1. ORGANIZATION

Pioneer Diversified High Income Trust (the "Trust") is a diversified, closed-end
management investment company organized under the Investment Company Act of 1940
on January 30, 2007, which has had no operations other than the sale and
issuance of 4,188 shares at an aggregate purchase price of $100,000 to 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) exceeds $0.05
per common share. "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
$1,000,000, up to $0.05 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 0.85% 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. 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 Code or any other nonrecurring or
non-operating expense) to 0.90% of the Trust's average daily managed assets in
year 1, 0.95% of the Trust's average daily managed assets in year 2, and 1.00%
of the Trust's average daily managed assets in year 3. 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.

Pioneer Investment Management Shareholder Services, Inc. ("PIMSS"), a wholly
owned indirect subsidiary of UniCredito Italiano S.p.A., and an affiliate of the
Adviser, has contracted with the Trust to provide transfer agent and shareholder
services to the Trust. PIMSS has retained American Stock Transfer & Trust
Company ("AST") to provide sub-transfer agent, registrar, shareholder servicing
agent and dividend dispersing agent services for the Trust. PIMSS, and not the
Trust, is responsible for paying the costs of AST's services.

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, LLC
("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 potential
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 Board of Trustees and Shareowners of
Pioneer Diversified High Income Trust:

We have audited the accompanying statement of assets and liabilities of Pioneer
Diversified High Income Trust (the "Trust"), as of April 13, 2007, and the
related statement of operations for the period from April 12, 2007 (date of
capitalization) to April 13, 2007. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with the 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. We were not engaged to perform an
audit of the Trust's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Trust's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
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 present fairly, in
all material respects, the financial position of Pioneer Diversified High Income
Trust at April 13, 2007, and the results of its operations for the period from
April 12, 2007 (date of capitalization) to April 13, 2007, in conformity with
U.S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts
April 19, 2007

APPENDIX A - DESCRIPTION OF SHORT-TERM DEBT, CORPORATE BOND AND PREFERRED STOCK
RATINGS(1)

MOODY'S INVESTORS SERVICE, INC. ("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

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(1) The ratings indicated herein are believed to be the most recent ratings
available at the date of this statement of additional information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated
do not necessarily represent ratings which will be given to these
securities on the date of the fund's fiscal year-end.

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
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.

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.

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.

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

APPENDIX B - PROXY VOTING POLICIES

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

VERSION DATED JULY, 2004

OVERVIEW

Pioneer Investment Management, Inc. ("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 place its client's interests ahead of its own and must
cast proxy votes in a manner consistent with the best interest of its clients.
Pioneer will vote all proxies presented in a timely manner.

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. Pioneer's Proxy Voting Policies
summarize Pioneer's position on a number of issues solicited by companies held
by Pioneer's clients. 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 Proxy
Voting Oversight Group determines that the circumstances justify a different
approach.

Pioneer does not delegate the authority to vote proxies relating to its clients
to any of its affiliates, which include other subsidiaries of UniCredito.

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. Pioneer
reserves the right to attend a meeting in person and may do so when it
determines that the company or the matters to be voted on at the meeting are
strategically important to its clients.

PROXY COORDINATOR

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 or, to the extent applicable, investment
sub-advisers. 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

A conflict of interest occurs when Pioneer's interests interfere, or appear to
interfere with the interests of Pioneer's clients. 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 (a "UniCredito Affiliate");

- An issuer of a security for which Pioneer acts as a sponsor, advisor,
manager, custodian, distributor, underwriter, broker, or other similar
capacity (including those securities specifically declared by PGAM to
present a conflict of interest for Pioneer);

- An issuer of a security for which UniCredito has informed Pioneer that
a UniCredito Affiliate 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.

- Pioneer will abstain from voting with respect to companies directly or
indirectly owned by UniCredito Italiano Group, unless otherwise
directed by a client. In addition, Pioneer will inform PGAM Global
Compliance and the PGAM Independent Directors before exercising such
rights.

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

In conjunction with industry standards 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. However, Pioneer will reserve the
right to recall lent securities so that they may be voted according to the
Pioneer's instructions. If a 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;

- 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 ten (10) 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 through 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 Head of Investment Operations will chair
the Proxy Voting Oversight Group.

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.

AMENDMENTS

Pioneer may not amend its Proxy Voting Policies And Procedures without the prior
approval of the Proxy Voting Oversight Group and its corporate parent, Pioneer
Global Asset Management S.p.A

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, 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 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.

- 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, except where the rotation is statutorily
required or where rotation would demonstrably strengthen financial
disclosure.

- 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.

- 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:

- 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.

We will vote on a case-by case basis on these issues:

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

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 failed to act on a takeover offer where the
majority of shareholders have tendered their shares.

- Directors who appear to lack independence or are associated with very
poor corporate performance.

We will vote on a case-by case basis on these issues:

- Re-election of 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).

- 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.

- Directors who have ignored a shareholder proposal that has been
approved by shareholders for two consecutive years.

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.

- 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, except in the case of closed-end mutual funds.

- 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.

- 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.

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.

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

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.

- We generally support proposals asking companies to adopt rigorous
vesting provisions for stock option plans such as those that vest
incrementally over, at least, a three- or four-year period with a pro
rata portion of the shares becoming exercisable on an annual basis
following grant date.

- We generally support proposals asking companies to disclose their
window period policies for stock transactions. Window period policies
ensure that employees do not exercise options based on insider
information contemporaneous with quarterly earnings releases and other
material corporate announcements.

- We generally support proposals asking companies to adopt stock holding
periods for their 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:

- Pensions for non-employee directors. We believe these retirement plans
reduce director objectivity.

- Elimination of stock option plans.

We will vote on a case-by case basis on these issues:

- Limits on executive and director pay.

- Stock in lieu of cash compensation for directors.

CORPORATE GOVERNANCE

Pioneer will vote for:

- Confidential Voting.

- Equal access provisions, which allow shareholders to contribute their
opinion to proxy materials.

- Proposals requiring directors to disclose their ownership of shares in
the company.

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.

- 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 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.

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.

- Classified boards of closed-end mutual funds, but will typically
support such proposals.

SOCIAL ISSUES

Pioneer will abstain on stockholder proposals calling for greater disclosure of
corporate activities with regard to social issues. "Social Issues" may generally
be described as shareholder proposals for a company to:

- Conduct studies regarding certain issues of public concern and
interest;

- Study the feasibility of the company taking certain actions with
regard to such issues; or

- Take specific action, including ceasing certain behavior and adopting
company standards and principles, in relation to issues of public
concern and interest.

We believe these issues are important and should receive management attention.

Pioneer will vote against proposals calling for substantial changes in the
company's business or activities. We will also normally vote against proposals
with regard to contributions, believing that management should control the
routine disbursement of funds.