
[Federal Register: November 27, 2009 (Volume 74, Number 227)]
[Notices]               
[Page 62360-62363]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27no09-107]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28998; File No. 812-13636]

 
Pioneer Floating Rate Trust and Pioneer High Income Trust; Notice 
of Application

November 20, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (``Act'') for an exemption from sections 
18(a)(1)(A) and 18(a)(1)(B) of the Act.

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

Applicants: Pioneer Floating Rate Trust and Pioneer High Income Trust 
(each, an ``Applicant'' and collectively, ``Applicants'').

Summary of Application: Applicants request an order (``Order'') 
granting an exemption from sections 18(a)(1)(A) and 18(a)(1)(B) of the 
Act for a period from the date of the Order until October 31, 2010. The 
Order would permit each Applicant to issue or incur debt that would be 
used to redeem all or a portion of the auction market preferred shares 
(``AMPS'') that it issued prior to February 1, 2008 and that are 
outstanding at the time of such issuance or incurrence of debt (``post-
Order debt''), and to refinance such post-Order debt, subject to the 
200% asset coverage requirement ordinarily applicable to a senior 
security that is stock. The Order also would permit each Applicant to 
declare dividends or any other distributions on, or purchase, capital 
stock during the term of the Order, provided that any such post-Order 
debt has asset coverage of at least 200% after deducting the amount of 
such transaction.

Filing Dates: The application was filed on February 27, 2009, and 
amended on August 25, 2009 and November 19, 2009.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on December 14, 2009, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants: Dorothy E. Bourassa, Esq., 
Pioneer Investment Management, Inc., 60 State Street, Boston, MA 02109-
1820.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873, or Marilyn Mann, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Each Applicant is organized as a Delaware statutory trust and is 
registered under the Act as a non-diversified closed-end management 
investment company. Each Applicant is advised by Pioneer Investment 
Management, Inc. and has issued and outstanding a class of common 
shares and a class of one or more series of AMPS.
    2. Applicants state that they issued their AMPS for purposes of 
investment leverage to augment the amount of investment capital 
available for use in the pursuit of their investment objectives. 
Applicants state that, through the use of leverage, they seek to 
enhance the investment return available to the holders of their common 
shares by earning a rate of portfolio return (which includes the return 
obtained from securities that are purchased from the proceeds of AMPS 
offerings) that exceeds the dividend rate that each Applicant pays to 
the AMPS holders. Applicants represent that the AMPS

[[Page 62361]]

holders are entitled to receive a stated liquidation preference amount 
of $25,000 per share (plus any accumulated but unpaid dividends) in any 
liquidation, dissolution, or winding up of the relevant Applicant 
before any distribution or payment to holders of the Applicant's common 
shares. They state that dividends declared and payable on their AMPS 
have a similar priority over dividends declared and payable on their 
common shares. In addition, Applicants state that their AMPS are 
``perpetual'' securities and that Applicants are not required to redeem 
them so long as certain asset coverage tests are met. Further, 
Applicants state that their AMPS are redeemable at each Applicant's 
option.
    3. Applicants state that prior to February 2008, dividend rates on 
the AMPS for each dividend period were set at the market clearing rate 
determined through an auction process that brought together bidders, 
who sought to buy AMPS, and AMPS holders, who sought to sell AMPS. 
Applicants represent that each Applicant's Statement of Preferences 
setting forth the terms and conditions of the AMPS (the ``Statement of 
Preferences'') provides that if an auction fails to clear (because of 
an imbalance of sell orders over bids), the dividend payment rate over 
the next dividend period is set at a specified maximum applicable rate 
(the ``Maximum Rate'') determined by reference to a short-term market 
interest rate (such as LIBOR or a commercial paper rate). Applicants 
state that an unsuccessful auction is not a default; the relevant 
Applicant continues to pay dividends to all AMPS holders, but at the 
specified Maximum Rate rather than a market clearing rate. Applicants 
represent that they experienced no unsuccessful auctions prior to 
February 2008.
    4. Applicants state that if investors did not purchase all of the 
AMPS tendered for sale at an auction prior to the failure of the 
auction market, dealers historically would enter into the auction and 
purchase any excess shares to prevent the auction from failing. 
Applicants represent that this auction mechanism had generally provided 
readily available liquidity to holders of AMPS for more than twenty 
years. Applicants state that they understand that many investors may 
have invested short-term cash balances in AMPS believing they were safe 
short-term investments and, in many cases, the equivalent of cash. 
Applicants state that in February 2008, the financial institutions that 
historically provided ``back stop'' liquidity to AMPS auctions stopped 
participating in them and the auctions began to fail. Applicants 
further state that, beginning in February 2008, Applicants experienced 
auction failures due to an imbalance between buy and sell orders. 
Applicants believe that there is no established secondary market that 
would provide holders of the Applicants' AMPS with the liquidation 
preference of $25,000 per share. Applicants state that neither of the 
Applicants would be able to replace its AMPS entirely with new debt 
without the Order providing temporary relief from the 300% asset 
coverage test. As a result, Applicants state that there is currently no 
reliable mechanism for holders of their AMPS to obtain liquidity, and 
believe that the current lack of liquidity is causing distress and 
creating severe hardship for holders of their AMPS.
    5. Applicants seek relief for a temporary period from the date on 
which the Order is granted until October 31, 2010 (``Exemption 
Period''). The proposed replacement of AMPS with debt would provide 
liquidity for holders of the AMPS, while Applicants continue their 
diligent efforts to obtain a more permanent form of financing, such as 
a new type of senior security that is equity.\1\ Applicants submit that 
the gradual reduction of leverage through the use of proceeds of any 
common share issuances or the development of an alternative form of 
preferred stock might take several months, if at all, after the Order 
has been issued. Applicants state that it is uncertain when, or if, the 
securities and capital markets will return to conditions that would 
enable the Applicants to achieve compliance with the asset coverage 
requirements that would apply in the absence of the Order. Given the 
uncertainty and the current and continuing unsettled state of the 
securities and capital markets, applicants believe that the Exemption 
Period is reasonable and appropriate. Each Applicant's incurrence of 
debt to redeem its AMPS would be subject to approval by the Applicant's 
board of trustees (``Board'').
---------------------------------------------------------------------------

    \1\ See, e.g., Eaton Vance Management, SEC No-Action Letter 
(June 13, 2008) (permitting the issuance of ``liquidity protected 
preferred shares'' to supplement or replace Eaton Vance funds' 
auction rate preferred stock).
---------------------------------------------------------------------------

Applicants' Legal Analysis

    1. Section 18(a)(1)(A) of the Act provides that it is unlawful for 
any registered closed-end investment company to issue any class of 
senior security representing indebtedness, or to sell such security of 
which it is the issuer, unless the class of senior security will have 
an asset coverage of at least 300% immediately after issuance or sale. 
Section 18(a)(2)(A) of the Act provides that it is unlawful for any 
registered closed-end investment company to issue any class of senior 
security that is a stock, or to sell any such security of which it is 
the issuer, unless the class of senior security will have an asset 
coverage of at least 200% immediately after such issuance or sale.\2\
---------------------------------------------------------------------------

    \2\ Section 18(h) of the Act defines asset coverage of a class 
of senior security representing an indebtedness of an issuer as the 
ratio which the value of the total assets of the issuer, less all 
liabilities and indebtedness not represented by senior securities, 
bears to the aggregate amount of senior securities representing 
indebtedness of the issuer. The section defines asset coverage of 
the preferred stock of an issuer as the ratio which the value of the 
total assets of the issuer, less all liabilities and indebtedness 
not represented by senior securities, bears to the aggregate amount 
of senior securities representing indebtedness of the issuer plus 
the aggregate amount the class of senior security would be entitled 
to on involuntary liquidation.
---------------------------------------------------------------------------

    2. Section 18(a)(1)(B) prohibits a registered closed-end investment 
company from declaring a dividend or any other distribution on, or 
purchasing, its own capital stock unless its outstanding indebtedness 
will have an asset coverage of at least 300% immediately after 
deducting the amount of such dividend, distribution or purchase 
price.\3\ Section 18(a)(2)(B) prohibits a registered closed-end 
investment company from declaring a dividend or other distribution on, 
or purchasing, its own common stock unless its outstanding preferred 
stock will have an asset coverage of at least 200% immediately after 
deducting the amount of such dividend, distribution or purchase price.
---------------------------------------------------------------------------

    \3\ An exception is made for the declaration of a dividend on a 
class of preferred stock if the senior security representing 
indebtedness has an asset coverage of at least 200% at the time of 
declaration after deduction of the amount of such dividend. See 
section 18(a)(1)(B) of the Act. Further, section 18(g) of the Act 
provides, among other things, that ``senior security,'' for purposes 
of section 18(a)(1)(B), does not include any promissory note or 
other evidence of indebtedness issued in consideration of any loan, 
extension or renewal thereof, made by a bank or other person and 
privately arranged, and not intended to be publicly distributed.
---------------------------------------------------------------------------

    3. Section 6(c) of the Act provides, in relevant part, that the 
Commission, by order upon application, may conditionally or 
unconditionally exempt any person, security, or transaction from any 
provision of the Act if and to the extent necessary or appropriate in 
the public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the Act.
    4. Applicants request that the Commission issue an Order under

[[Page 62362]]

section 6(c) of the Act to exempt each Applicant from the 300% asset 
coverage requirements set forth in sections 18(a)(1)(A) and (B) of the 
Act. Specifically, Applicants seek relief to permit each Applicant, for 
the Exemption Period, to issue or incur post-Order debt for the purpose 
of redeeming all or a portion of its AMPS that were issued prior to 
February 1, 2008 and that are outstanding at the time of such issuance 
or incurrence, as well as any refinancing of such debt until the 
expiration of the Exemption Period, subject to asset coverage of 200% 
ordinarily applicable to a senior security that is stock, rather than 
the asset coverage of 300% ordinarily applicable to a senior security 
constituting indebtedness. Applicants also seek relief to permit each 
Applicant to declare dividends or any other distributions on, or 
purchase, capital stock during the Exemption Period, provided that any 
such post-Order debt has asset coverage of at least 200% after 
deducting the amount of such transaction. Applicants state that, except 
as permitted under the Order, the Applicants would meet all of the 
asset coverage requirements of section 18(a) of the Act. In addition, 
Applicants state that within the Exemption Period each Applicant that 
borrows in reliance on the Order will either pay down or refinance the 
post-Order debt so that the Applicant would, upon expiration of the 
Exemption Period and thereafter, have asset coverage of at least 300% 
for each class of senior security representing indebtedness to the 
extent required by the Act.
    5. Applicants state that section 18 reflects congressional concerns 
regarding preferential treatment for certain classes of shareholders, 
complex capital structures, and the use of excessive leverage. 
Applicants submit that another concern was that senior securities gave 
the misleading impression of safety from risk. Applicants believe that 
the request for temporary relief is necessary, appropriate and in the 
public interest and that such relief is consistent with the protection 
of investors and the purposes intended by the policy and provisions of 
the Act.
    6. Applicants note that the illiquidity of AMPS is a unique, 
exigent situation that is posing severe hardships on AMPS holders. 
Applicants represent that the proposed replacement of their AMPS with 
debt would provide liquidity for the Applicants' AMPS holders while the 
Applicants continue their efforts to obtain a more permanent form of 
financing (such as through the issuance of preferred equity-based 
instruments) that fully complies with the asset coverage requirements 
of section 18.\4\
---------------------------------------------------------------------------

    \4\ See supra note 1.
---------------------------------------------------------------------------

    7. Applicants represent that the Order would help avoid the 
potential harm to common shareholders that could result if the 
Applicants were to deleverage their portfolios in the current difficult 
market environment \5\ or that could result if a reduction in 
investment return reduced the market price of common shares. Applicants 
also state that the Order would permit Applicants to continue to 
provide their common shareholders with the enhanced returns that 
leverage may provide.
---------------------------------------------------------------------------

    \5\ Applicants state that each Applicant invests a portion of 
its assets in either senior securities loans or preferred 
securities. Applicants believe that it is difficult to sell such 
securities in the current market because the liquidity of that 
market has been reduced in substantial part as a result of the 
market makers' own impaired capital positions. Applicants thus 
believe that it would be disadvantageous to sell these portfolio 
securities in the current market.
---------------------------------------------------------------------------

    8. Applicants believe that the interests of both classes of the 
Applicants' current investors would be well served by the requested 
order--the AMPS holders because they would achieve the liquidity that 
the market currently cannot provide (as well as full recovery of the 
liquidation value of their shares), and the common shareholders because 
the adverse consequences of forced deleveraging would be avoided and 
each Applicant's investment return would be enhanced to the extent that 
the cost of the new form of leverage is lower than the cost of 
continuing to pay the Maximum Rate on their outstanding AMPS.
    9. Applicants represent that the proposed borrowing would be 
obtained from banks, insurance companies or qualified institutional 
buyers (as defined in rule 144A(a)(1) under the Securities Act of 1933) 
who would be capable of assessing the risk associated with the 
transaction. Applicants also state that, to the extent the Act's asset 
coverage requirements were aimed at limiting leverage because of its 
potential to magnify losses as well as gains, they believe that the 
proposal would not unduly increase the speculative nature of the 
Applicants' common shares because the relief is temporary and the 
Applicants would be no more highly leveraged if they replace the 
existing AMPS with borrowing.\6\ Applicants also state that the 
proposed liquidity solution would not make Applicants' capital 
structure more complex, opaque, or hard to understand or result in 
pyramiding or inequitable distribution of control.
---------------------------------------------------------------------------

    \6\ Applicants acknowledge that managing any portfolio that 
relies on borrowing for leverage entails the risk that, when the 
borrowing matures and must be repaid or refinanced, an economically 
attractive form of replacement leverage may not be available in the 
capital markets. For that reason, any portfolio that relies on 
borrowing for leverage is subject to the risk that it may have to 
deleverage, which could be disadvantageous to the portfolio's common 
shareholders.
---------------------------------------------------------------------------

    10. Applicants state that the current state of the credit markets, 
which has affected their AMPS, is an historic event of unusual 
severity, which requires a creative and flexible response on the part 
of both the public and private sectors. Applicants believe that these 
issues have created an urgent need for limited, quick, thoughtful and 
responsive solutions. Applicants believe that the request meets the 
standards for exemption under section 6(c) of the Act.

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief shall be subject to the following conditions:
    1. Each Applicant that borrows subject to 200% asset coverage under 
the Order will do so only if such Applicant's Board, including a 
majority of the trustees who are not ``interested persons'' as defined 
in section 2(a)(19) of the Act (``Independent Trustees''), shall have 
determined that such borrowing is in the best interests of such 
Applicant, its common shareholders, and its AMPS shareholders. Each 
Applicant shall make and preserve for a period of not less than six 
years from the date of such determination, the first two years in an 
easily accessible place, minutes specifically describing the 
deliberations by the Board and the information and documents supporting 
those deliberations, the factors considered by the Board in connection 
with such determination, and the basis of such determination.
    2. Upon expiration of the Exemption Period, each Applicant will 
have asset coverage of at least 300% for each class of senior security 
representing indebtedness.
    3. The Board of an Applicant that has borrowed in reliance on the 
Order shall receive and review, no less frequently than quarterly 
during the Exemption Period, detailed progress reports prepared by 
management (or other parties selected by the Independent Trustees) 
regarding and assessing the efforts that the Applicant has undertaken, 
and the progress that the Applicant has made, towards achieving 
compliance with the appropriate asset coverage requirements under 
section 18 by the expiration of the Exemption Period. The Board, 
including a majority of the Independent Trustees, will make such 
adjustments as it deems necessary or appropriate to ensure that the

[[Page 62363]]

Applicant comes into compliance with section 18 of the Act within a 
reasonable period of time, not to exceed the expiration of the 
Exemption Period. Each Applicant will make and preserve minutes 
describing these reports and the Board's review, including copies of 
such reports and all other information provided to or relied upon by 
the Board, for a period of not less than six years, the first two years 
in an easily accessible place.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-28352 Filed 11-25-09; 8:45 am]

BILLING CODE 8011-01-P
