As filed with the Securities and Exchange Commission on November 3, 1999
File No. 333-_____
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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___ ___
/___/ Pre-Effective Amendment No. ___ Post-Effective Amendment No. /___/
(Check appropriate box or boxes)
________________________________________________________________________________
Exact Name of Registrant
as Specified in Charter: Area Code and Telephone Number:
Pioneer High Yield Fund (617) 742-7825
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Address of Principal Executive Offices: (Number, Street, City, State, ZIP Code)
60 State Street, Boston, Massachusetts 02109
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Name and Address of Agent for Service:
Joseph P. Barri, Hale and Dorr LLP
60 State Street, Boston, Massachusetts 02109
(Number and Street) (City) (State) (ZIP Code)
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It is proposed that this registration statement will become effective on
December 3, 1999 pursuant to Rule 488 under the Securities Act of 1933.
________________________________________________________________________________
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THIRD AVENUE HIGH YIELD FUND
767 THIRD AVENUE
NEW YORK, NEW YORK 10017-2023
1-800-443-1021
NOTICE OF MEETING OF SHAREHOLDERS
SCHEDULED FOR FEBRUARY 23, 2000
THIS IS THE FORMAL AGENDA FOR YOUR FUND'S SHAREHOLDER MEETING. IT TELLS YOU WHAT
MATTERS WILL BE VOTED ON AND THE TIME AND PLACE OF THE MEETING, IN CASE YOU WANT
TO ATTEND IN PERSON.
To the shareholders of Third Avenue High Yield Fund:
A meeting of shareholders of your fund will be held at the offices of EQSF
Advisers, Inc., 767 Third Avenue, New York, New York on Wednesday, February 23,
2000, at 2:00 p.m., New York time, to consider the following:
1. A proposal to approve an Agreement and Plan of Reorganization between
your fund and Pioneer High Yield Fund. Under this Agreement, your fund
will transfer all of its assets to Pioneer High Yield Fund in exchange
for shares of Pioneer High Yield Fund. Shares of Pioneer High Yield
Fund having a value on the reorganization date equal to the value of
your shares of your fund will be distributed in exchange for your
shares of your fund. Pioneer High Yield Fund will also assume your
fund's liabilities that are included in the calculation of your fund's
net assets at the closing. YOUR BOARD OF TRUSTEES RECOMMENDS THAT YOU
VOTE FOR THIS PROPOSAL.
2. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on November 24, 1999 are
entitled to vote at the meeting and any related follow-up meetings.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN THE
ENCLOSED PROXY CARD.
By order of the board of trustees,
Ian M. Kirschner, Secretary
New York, New York
December 18, 1999
7089-00-1099
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PROXY STATEMENT
OF THIRD AVENUE HIGH YIELD FUND
PROSPECTUS
FOR CLASS A SHARES
OF PIONEER HIGH YIELD FUND
This proxy statement and prospectus contains the information you should know
before voting on the proposed reorganization of your fund into Pioneer High
Yield Fund. Please read it carefully and retain it for future reference.
HOW THE REORGANIZATION WILL WORK:
o Your fund will transfer all of its assets to Pioneer High Yield Fund.
Pioneer High Yield Fund will assume your fund's liabilities that are
included in the calculation of your fund's net assets at the closing.
o Pioneer High Yield Fund will issue Class A shares to your fund in an
amount equal to the value of your fund's shares. Shares of Pioneer High
Yield Fund having a value on the reorganization date equal to the value
of your shares of your fund will be distributed in exchange for your
shares of your fund.
o The reorganization is intended to be tax free for federal income tax
purposes.
o Your fund will be liquidated and terminated, and you will become a
shareholder of Pioneer High Yield Fund.
AN INVESTMENT IN PIONEER HIGH YIELD FUND IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
NO GOVERNMENT SECURITIES COMMISSION OR AGENCY HAS APPROVED PIONEER HIGH YIELD
FUND'S SHARES AS AN INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIME.
<PAGE>
WHY YOUR FUND'S TRUSTEES ARE RECOMMENDING THE REORGANIZATION:
The trustees of your fund believe that reorganizing your fund into Pioneer High
Yield Fund is in the best interest of your fund. In August 1999, the fund's
portfolio manager became a dual employee of Pioneer Investment Management, Inc.
(Pioneer) and your fund's adviser, EQSF Advisers, Inc. She also has informed
Pioneer that she will become an employee solely of Pioneer whether or not the
reorganization occurs. Among other things, the reorganization will provide the
shareholders of your fund with continuity of management, and it is also expected
to result in a lower overall expense ratio, after giving effect to voluntary
expense limitations. Therefore, the trustees recommend you vote FOR the
reorganization.
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INVESTMENT OBJECTIVES
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THIRD AVENUE HIGH YIELD FUND PIONEER HIGH YIELD FUND
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<S> <C>
To maximize total return through a combination of Maximize total return through a combination of income
income and capital appreciation. and capital appreciation.
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MORE INFORMATION IS AVAILABLE
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WHAT WHERE
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<S> <C>
Your fund's annual and semiannual reports to Your fund makes this information available to you free
shareholders. of charge (please call 1-800-443-1021 or
1-212-888-5222, or write to the fund at 767 Third
Most recent prospectus of your fund, dated February 28, Avenue, New York, New York 10017-2023). This
1999 (as supplemented August 13 and June 28, 1999). information is also on file with the Securities and
Exchange Commission (SEC) and available for a fee by
Statement of additional information dated December 18, calling 1-800-SEC-0330.
1999. It contains additional information about your fund
and Pioneer High Yield Fund. The statement of additional
information is incorporated by reference into
this proxy statement and prospectus.
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To ask questions about this proxy statement and Call your fund's toll-free telephone number:
prospectus: 1-800-443-1021 or write to your fund at 767 Third
Avenue, New York, New York, 10017-2023.
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The date of this proxy statement and prospectus is December 18, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
Introduction.................................................................. 1
Summary of Proxy Statement/Prospectus......................................... 1
Risk/Return Summary........................................................... 6
Proposal to Approve Agreement and Plan of Reorganization......................13
Capitalization................................................................16
Boards' Evaluation and Recommendation.........................................17
Voting Rights and Required Vote...............................................17
Additional Information about the Funds........................................18
Material Provisions of Management Agreements..................................25
Pioneer High Yield Fund's Rule 12b-1 Distribution Plan........................27
Trustees and Executive Officers of Pioneer High Yield Fund....................28
Financial Highlights..........................................................32
Information Concerning the Meeting............................................33
Ownership of Shares of the Funds..............................................34
Experts.......................................................................34
Available Information.........................................................35
Exhibit A: Agreement and Plan of Reorganization..............................36
Exhibit B: Excerpts from Third Avenue High Yield Fund's
April 30, 1999 Semi-Annual Report and October 31, 1998 Annual Report..........48
<PAGE>
INTRODUCTION
This proxy statement and prospectus is being used by the board of trustees of
your fund to solicit proxies to be voted at a meeting of shareholders of your
fund. This meeting will be held at the offices of EQSF Advisers, Inc., 767 Third
Avenue, New York, New York on Wednesday, February 23, 2000, at 2:00 p.m., New
York time. The purpose of the meeting is to consider a proposal to approve an
Agreement and Plan of Reorganization providing for the reorganization of your
fund into Pioneer High Yield Fund, a newly created mutual fund that is not yet
operational. This proxy statement and prospectus is being mailed to your fund's
shareholders on or about December 18, 1999.
WHO IS ELIGIBLE TO VOTE?
Shareholders of record on November 24, 1999 are entitled to attend and to vote
at the meeting or any adjourned meeting. Each share is entitled to one vote.
Shares represented by properly executed proxies, unless revoked before or at the
meeting, will be voted according to shareholders' instructions. If you sign a
proxy, but do not fill in a vote, your shares will be voted to approve the
Agreement and Plan of Reorganization. If any other business comes before the
meeting, your shares will be voted at the discretion of the persons named as
proxies.
SUMMARY OF PROXY STATEMENT/PROSPECTUS
The following is a summary of more complete information appearing later in this
proxy statement. You should carefully read the entire proxy statement and its
exhibits because they contain details that are not in the summary.
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COMPARISON OF THIRD AVENUE HIGH YIELD FUND WITH PIONEER HIGH YIELD FUND
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BUSINESS AND INVESTMENTS
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THIRD AVENUE HIGH YIELD FUND PIONEER HIGH YIELD FUND
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<S> <C> <C>
NET ASSETS AS OF OCTOBER $7,560,905.14 million None. Pioneer High Yield Fund is newly
31, 1999: organized and does not currently expect to
commence investment operations before the
reorganization occurs.
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INVESTMENT To maximize total return through a To maximize total return through a combination
OBJECTIVE: combination of income and capital of income and capital appreciation.
appreciation.
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1
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PRIMARY Your fund invests at least 65% of Pioneer High Yield Fund invests at least 65%
INVESTMENTS: its total assets in bonds and of its total assets (at the time of purchase)
preferred stocks of companies whose in below investment grade (high yield) debt
securities are rated below securities and preferred stocks.
investment grade (and comparable
unrated securities) at the time of The fund also invests in bonds and preferred
the fund's investment. stocks that are convertible into the equity
securities of the issuer.
The fund also invests in bonds and
preferred stocks that are The fund's investments may have all types of
convertible into the equity interest rate and dividend payment and reset
securities of the issuer. terms, including fixed rate, adjustable rate,
zero coupon, contingent, deferred, payment in
kind and auction rate features.
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QUALITY OF INVESTMENTS: The fund primarily invests in The fund primarily invests in securities rated
securities rated below investment BB or lower by Standard & Poor's Ratings Group
grade (and comparable unrated or the equivalent rating by a nationally
securities) at the time of the recognized securities rating organization or,
fund's investment. Securities are if unrated, determined to be of equivalent
rated below investment grade if they credit quality by Pioneer.
are rated below Baa3 by Moody's
Investors Service, Inc. and below
BBB- by Standard & Poor's Ratings
Group. Such securities are commonly
referred to as "junk bonds".
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MATURITY: Neither fund has a maturity policy.
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INVESTMENT CONCENTRATION: Neither fund concentrates its assets in any industry.
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OPTIONS AND FUTURES Your fund has expressed no policy on Pioneer High Yield Fund may use options and
CONTRACTS: the use of options and futures. futures.
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2
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INVESTMENT ADVISERS AND Margaret D. Patel has served as the Day-to-day management of the fund's portfolio
PORTFOLIO MANAGERS: portfolio manager of your fund since will be the responsibility of Margaret D.
its inception. From 1995 to 1997, Patel. Ms. Patel is a vice president of
Ms. Patel was a portfolio manager of Pioneer. She joined Pioneer in August 1999 and
several mutual funds at Northstar has been an investment professional since
Investment Management Corp. Ms. 1972. Prior to joining Pioneer, she was a
Patel was a portfolio manager of portfolio manager at EQSF Advisers, Inc. from
several mutual funds at Boston 1998 and a portfolio manager of several mutual
Security Counsellors, Inc. from 1988 funds at Northstar Investment Management Corp.
to 1995. from 1995 to 1996. Ms. Patel was a portfolio
manager of several mutual funds at Boston
It is expected that Ms. Patel will Security Counsellors, Inc. from 1988 to 1995.
remain an employee of EQSF Advisers,
Inc. until the closing of the Ms. Patel is supported by a team of fixed
reorganization or, in the event that income portfolio managers and analysts
the reorganization is not expected supervised by Sherman B. Russ and Kenneth J.
to occur, such earlier date as Taubes. Mr. Russ and Mr. Taubes are jointly
determined by Ms. Patel or EQSF responsible for overseeing Pioneer's U.S. and
Advisers, Inc. global fixed income team. Ms. Patel, Mr.
Russ, Mr. Taubes and the fixed income team
operate under the supervision of Theresa A.
Hamacher. Ms. Hamacher joined Pioneer in 1997
and has been an investment professional since
1984; most recently as chief investment
officer at another investment adviser.
Ms. Patel has informed Pioneer that she will
become an employee solely of Pioneer whether
or not the reorganization occurs.
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BUSINESS: Your fund is a non-diversified Pioneer High Yield Fund is a non- diversified
series of an open-end investment open-end investment company organized as a
company organized as a Delaware Delaware business trust.
business trust.
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3
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SALES CHARGES
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THIRD AVENUE HIGH YIELD FUND PIONEER HIGH YIELD FUND
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<S> <C> <C>
SALES CHARGES: your fund's shares are offered without Pioneer High Yield Fund offers four classes of
front-end or deferred sales charges. Your shares. You will receive Class A shares in the
fund does not have a Rule 12b-1 plan. reorganization but will not pay a sales charge
in connection with the transaction. Assets
attributable to Pioneer accounts (other than
omnibus accounts) established in connection
with the reorganization will not be considered
in determining the Rule 12b-1 fee on Class A
shares, but will be allocated their respective
portion of the overall Rule 12b-1 fees incurred
by the fund. Sales charges will not be imposed
on future purchases of Class A shares for
accounts opened in connection with the
reorganization.
Class A shares are subject to an initial sales
charge of up to 4.5% of the offering price and
an annual Rule 12b-1 fee of 0.25% of the average
daily net assets attributable to Class A shares.
Class B shares are subject to a contingent
deferred sales charge of up to 4% and an annual
Rule 12b-1 fee of 1% of the average daily net
assets attributable to Class B shares. Class
B shares convert to Class A shares after eight
years.
Class C shares are subject to a contingent
deferred sales charge of 1% if redeemed within
a year and an annual Rule 12b-1 fee of 1% of the
average daily net assets attributable to Class
C shares.
Class Y shares are subject to a minimum purchase
of $5 million and are offered without front-end
or deferred sales charges and are not subject to a
Rule 12b-1 fee.
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REDEMPTION FEE: Your fund charges a redemption fee of 1% on Pioneer High Yield Fund does not impose a
redemptions of shares held less than one Redemption fee.
year.
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4
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EXCHANGE FEE: Your fund charges an exchange fee of 1% on You may exchange shares of Pioneer High Yield
exchanges of shares held less than one year. Fund without charge. You may make up to four
exchanges of $25,000 or more per account per
calendar year out of the fund. For purposes of
this exchange limit, Pioneer may aggregate
transactions and/or accounts that appear to be
under common ownership or control.
The exchange limitation does not apply to
automatic exchange transactions or to exchanges
made by participants in employer-sponsored
retirement plans qualified under Section 401 of
the Internal Revenue Code. The exchange
limitation also may not apply to transactions
made through an omnibus account for fund shares.
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BUYING, SELLING For more information on buying, selling and For more information, see "Buying, exchanging
AND EXCHANGING exchanging shares of your fund, see its and selling Pioneer High Yield Fund shares"
SHARES: current prospectus. below.
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REORGANIZATION
o The reorganization is scheduled to occur after the close of business on
February 29, 2000, but may occur as of any later date on or before April
15, 2000 or otherwise agreed to by the funds. Upon consummation of the
reorganization, your fund will transfer all of its assets to Pioneer High
Yield Fund in exchange for shares of Pioneer High Yield Fund. Pioneer High
Yield Fund will also assume your fund's liabilities that are included in
the calculation of your fund's net assets at the closing. The net asset
values of both funds will be computed as of the close of the New York Stock
Exchange (normally 4:00 p.m. Eastern time) on the reorganization date.
o Pioneer High Yield Fund will issue to your fund Class A shares of Pioneer
High Yield Fund in an amount equal to the aggregate net asset value of your
fund's shares. Shares of Pioneer High Yield Fund having a value on the
reorganization date equal to the value of your shares of your fund will be
distributed to you in exchange for shares of your fund. As a result, all
shareholders of your fund will become Class A shareholders of Pioneer High
Yield Fund.
o After the reorganization is complete, your fund will be liquidated and
terminated.
o The reorganization is intended to be tax free for federal income tax
purposes.
Other Consequences of the Reorganization. The funds pay monthly management
fees, and Pioneer High Yield Fund pays Rule 12b-1 distribution fees, equal to
the following annual percentages of average daily net assets:
5
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MANAGEMENT FEE BREAKPOINTS THIRD AVENUE HIGH PIONEER HIGH YIELD PIONEER HIGH YIELD
(FUND'S NET ASSETS) YIELD FUND FUND MANAGEMENT FEE FUND COMBINED
MANAGEMENT FEE MANAGEMENT FEE AND
CLASS A RULE 12B-1 FEE
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<S> <C> <C> <C>
FIRST $500 MILLION 0.70% 0.95%
0.90%
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OVER $500 MILLION UP TO $1 BILLION 0.65% 0.90%
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OVER $1 BILLION 0.60% 0.85%
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</TABLE>
At all asset levels, the annual management fee rate payable by Pioneer High
Yield Fund (without giving effect to expense limitations) is lower than the rate
paid by your fund. Pioneer High Yield Fund also has breakpoints in its
management fee which may reduce the effective management fee rate as Pioneer
High Yield Fund's assets grow. The benefit of the reduced management fee may,
however, depending upon Pioneer High Yield Fund's net assets, be more than
offset by the Class A Rule 12b-1 fee of 0.25% of average daily net assets.
The expenses of Class A shares of Pioneer High Yield Fund include an annual
Rule 12b-1 fee equal to 0.25% of average daily net assets attributable to Class
A shares. A Rule 12b-1 fee will not be assessed with respect to assets held in a
Pioneer account established in connection with the reorganization (other than
assets held in an omnibus account with a financial intermediary). However, since
Rule 12b-1 fees are not assessed at a shareholder account level, the effect will
be a reduction in the Rule 12b-1 fee paid by all Class A shareholders and not a
waiver of the Rule 12b-1 fee for shareholders participating in the
reorganization. Because the majority of your fund's assets are held in omnibus
accounts with financial intermediaries, this exclusion will not materially
reduce the amount of 12b-1 fees incurred.
The advisers to both funds currently waive all or a portion of their
management fees or reimburse the respective funds to limit total annual
operating expenses. Your fund currently limits expenses to 1.90% of average
daily net assets. Pioneer High Yield Fund currently limits expenses to 0.75% on
Class A shares of the fund. Consequently, as long as Pioneer High Yield Fund's
expense limitation remains in effect, Pioneer High Yield Fund's expenses will be
substantially lower than the historic expenses of your fund. Pioneer's fee
waiver and expense reimbursement agreement is voluntarily and temporary and may
be revised or terminated at any time.
Pioneer High Yield Fund anticipates that its class a expense ratio will be
1.50% for the fiscal year ending October 31, 2000 (0.75% after giving effect to
the expense limitation). This ratio is lower than your fund's gross expense
ratio of 3.99% (1.90% after giving effect to the expense limitation) for the
period ending October 31, 1998.
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVES
THIRD AVENUE HIGH YIELD FUND. To maximize total return through a combination of
income and capital appreciation.
PIONEER HIGH YIELD FUND. Maximize total return through a combination of income
and capital appreciation.
6
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PRINCIPAL INVESTMENT STRATEGIES
THIRD AVENUE HIGH YIELD FUND. Third Avenue High Yield Fund invests at least 65%
of its total assets in bonds and preferred stocks of companies whose securities
are rated below investment grade (and comparable unrated securities) at the time
of the fund's investment. Securities are rated below investment grade if they
are rated below Baa3 by Moody's Investors Service, Inc. and below BBB- by
Standard & Poor's Ratings Group. Such securities are commonly referred to as
"junk bonds." The fund will acquire securities of companies whose capital
structures, in the opinion of the adviser, have a market value priced below
their takeover values. The fund will also invest in bonds and preferred stocks
that are convertible into the equity of the issuer. Convertible securities have
general characteristics similar to both fixed income and equity securities and
provide the possibility of capital appreciation should the underlying common
stock increase in value. The fund can invest in securities with any maturity the
fund's adviser believes is appropriate.
PIONEER HIGH YIELD FUND. Normally, the fund invests at least 65% of its total
assets (at the time of purchase) in below investment grade (high yield) debt
securities and preferred stocks. A debt security is below investment grade if it
is rated BB or lower by Standard & Poor's Ratings Group or the equivalent rating
by a nationally recognized securities rating organization or, if unrated,
determined to be of equivalent credit quality by Pioneer. These high yield
securities may be convertible into the equity securities of the issuer. Debt
securities rated below investment grade are commonly referred to as "junk bonds"
and are considered speculative. Below investment grade debt securities involve
greater risk of loss, are subject to greater price volatility and are less
liquid, especially during periods of economic uncertainty or change, than higher
rated debt securities.
The fund's investments may have 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 invests in
securities with a broad range of maturities.
The fund may invest in securities of non-U.S. corporate and government
issuers, including debt and equity securities of corporate issuers and debt
securities of government issuers in emerging markets. Non-U.S. investments
include securities issued by non-U.S. governments, banks or corporations and
certain supranational organizations, such as the World Bank and the European
Union.
INVESTMENT PHILOSOPHY
THIRD AVENUE HIGH YIELD FUND. EQSF Advisers, Inc. adheres to a strict value
discipline in selecting securities. This means seeking securities whose prices
are low in relation to what the adviser believes is the true value of the
securities. The adviser believes this both lowers risk and increases
appreciation potential. The fund intends its investments in debt securities to
be, for the most part, in securities which the adviser believes will provide
above-average current yields, yields to events, or yields to maturity. The fund
identifies investment opportunities through intensive research of individual
companies and ignores general stock market conditions and other macro factors.
For these reasons, the fund may seek investments in the securities of companies
or industries that are temporarily depressed. The fund follows a "buy and hold"
strategy. The fund will generally sell an investment only when there has been a
fundamental change in the business or capital structure of the company which
significantly affects the investment's inherent value.
PIONEER HIGH YIELD FUND. Pioneer, the fund's investment adviser, uses a value
approach to select the fund's investments. Using this investment style, Pioneer
seeks securities selling at reasonable prices or substantial discounts to their
underlying values and then holds these securities for their incremental yields
or until the market values reflect their intrinsic values. Pioneer evaluates a
security's potential value based on the company's assets and prospects for
earnings growth. In making that assessment, Pioneer employs
7
<PAGE>
fundamental research and due diligence. Pioneer also considers a security's
potential to provide income. In assessing the appropriate maturity, rating and
sector weighting of the fund's portfolio, Pioneer considers a variety of factors
that are expected to influence economic activity and interest rates. These
factors include fundamental economic indicators, such as the rates of economic
growth and inflation, Federal Reserve monetary policy and the relative value of
the U.S. dollar compared to other currencies. In making these portfolio
decisions, Pioneer relies on the knowledge, experience and judgment of its own
staff who have access to a wide variety of research.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
Each fund is subject to similar risks. Even though each fund seeks to maximize
total return, you could lose money on your investment or not make as much as if
you invested elsewhere if:
o Interest rates go up, causing the value of debt securities in the fund's
portfolio to decline
o The issuer of a security owned by the fund defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded
o During periods of declining interest rates, the issuer of a security
exercises 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
o During periods of rising interest rates, the average life of certain types
of securities is 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
o The adviser's judgment about the attractiveness, relative value or
potential appreciation of a particular sector, security or investment
strategy proves to be incorrect
o A downturn in equity markets causes the price of convertible securities to
drop even when the prices of below investment grade bonds otherwise would
not go down
INVESTMENT IN HIGH YIELD SECURITIES INVOLVES SUBSTANTIAL RISK OF LOSS. These
securities are considered speculative with respect to the issuer's ability to
pay interest and principal and are susceptible to default or decline in market
value due to adverse economic and business developments. The market values for
high yield securities tend to be very volatile, and these securities are less
liquid than investment grade debt securities. For these reasons, your investment
in either fund is subject to the following specific risks:
o Increased price sensitivity to changing interest rates and deteriorating
economic environment
o Greater risk of loss due to default or declining credit quality
o Adverse company specific events are more likely to render the issuer unable
to make interest and/or principal payments
o A negative perception of the high yield market develops, depressing the
price and liquidity of high yield securities. This negative perception
could last for a significant period of time
Each fund is not diversified, which means that it can invest a higher percentage
of its assets in any one issuer than a diversified fund. Being non-diversified
may magnify the fund's losses from adverse events affecting a particular issuer.
EACH FUND'S PAST PERFORMANCE
Performance information for Pioneer High Yield Fund is not presented because the
fund has not yet commenced operations. Annual performance information for Third
Avenue High Yield Fund is not presented because the fund has not been in
operation for a full calendar year. Fund performance varies from year to year. A
fund's past performance does not necessarily indicate how it will perform in the
future. As a shareholder, you may lose or make money on your investment.
8
<PAGE>
FEES AND EXPENSES
Shareholders of both funds pay various expenses, either directly or indirectly.
The following expense table for Third Avenue High Yield Fund shows fund expenses
for the year ended October 31, 1998. Future expenses may be greater or less.
THIRD AVENUE HIGH YIELD FUND
SHAREHOLDER FEES
PAID DIRECTLY FROM YOUR INVESTMENT
Maximum sales charge (load) when you buy shares
as a percentage of offering price None
Maximum deferred sales charge (load) as a percentage
of offering price or the amount you receive when
you sell shares, whichever is less None
Redemption fee (as a percentage of amount redeemed) 1.00%1
Exchange fee (as a percentage of amount exchanged) 1.00%1
ANNUAL FUND OPERATING EXPENSES
PAID FROM THE ASSETS OF THE FUND
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
Management Fee 0.90%
Other Expenses 3.09%2
Total Annual Fund Operating Expenses 3.99%2
1 Fee is charged only on redemptions or exchanges of shares held less than
one year.
2 These expenses do not reflect reimbursements by EQSF Advisers, Inc. for all
expenses incurred by the fund in excess of 1.9% of fund assets. The fund
will repay EQSF Advisers, Inc. the amount of its reimbursement for up to
three years following the reimbursement to the extent fund expenses drop
below 1.9%. EQSF Advisers, Inc. expects to continue to reimburse the fund
for these expenses for the forseeable future. Either the fund or EQSF
Advisers, Inc. can terminate this arrangement at any time.
THIRD AVENUE HIGH YIELD FUND EXAMPLE
This example helps you compare the costs of investing in the fund with the
cost of investing in other mutual funds. It assumes that: a) you invest $10,000
in the fund for the time periods shown, b) you reinvest all dividends and
distributions, c) your investment has a 5% return each year and d) the fund's
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
<TABLE>
<CAPTION>
IF YOU SELL YOUR SHARES IF YOU DO NOT SELL YOUR SHARES
NUMBER OF YEARS YOU OWN YOUR SHARES
1 3 5 10 1 3 5 10
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Third Avenue High Yield
Fund $502 $1,215 $2,046 $4,197 $401 $1,215 $2,046 $4,197
</TABLE>
9
<PAGE>
PIONEER HIGH YIELD FUND
SHAREHOLDER FEES CLASS A
PAID DIRECTLY FROM YOUR INVESTMENT
Maximum sales charge (load) when you buy shares
as a percentage of offering price 4.5%
Maximum deferred sales charge (load) as a percentage
of offering price or the amount you receive when
you sell shares, whichever is less None1
ANNUAL FUND OPERATING EXPENSES
PAID FROM THE ASSETS OF THE FUND
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
Management Fee 0.70%2
Distribution and Service (Rule 12b-1) Fee 0.25%
Other Expenses 0.55%2
Total Annual Fund Operating Expenses 1.50%2
1 Purchases of $1 million or more and purchases by participants in
certain group plans are not subject to an initial sales charge but may
be subject to a contingent deferred sales charge.
2 Estimated based on anticipated expenses for the fund during its initial
fiscal year. Pioneer has agreed not to impose all or a portion of its
management fee and, if necessary, to limit other operating expenses of
the fund to the extent required to reduce Class A expenses to 0.75% of
the average daily net assets attributable to Class A shares. This
agreement is voluntary and temporary and may be revised or terminated
at any time. Given the expense limitation, actual fund expenses as a
percentage of average daily net assets are estimated as follows:
CLASS A
Management Fee 0.00%
Distribution and Service (12b-1) Fee 0.25%
Other Expenses 0.50%
Total Annual Fund Operating Expenses 0.75%
PIONEER HIGH YIELD FUND EXAMPLE
This example helps you compare the costs of investing in the fund with the
cost of investing in other mutual funds. It assumes that: a) you invest $10,000
in the fund for the time periods shown, b) you reinvest all dividends and
distributions, c) your investment has a 5% return each year and d) the fund's
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
<TABLE>
<CAPTION>
IF YOU SELL YOUR SHARES IF YOU DO NOT SELL YOUR SHARES
NUMBER OF YEARS YOU OWN YOUR SHARES
1 3 5 10 1 3 5 10
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pioneer High Yield Fund $596 $903 $1,232 $2,160 $596 $903 $1,232 $2,160
</TABLE>
10
<PAGE>
OTHER INVESTMENT STRATEGIES
As discussed, each fund invests primarily in below investment grade debt
securities and preferred stocks to maximize total return.
This section describes additional investments that a fund may make or strategies
that it may pursue to a lesser degree to achieve the fund's goal. Some of the
funds' secondary investment policies also entail risks. To learn more about
these investments and risks, you should obtain and read the statement of
additional information (SAI).
CONVERTIBLE SECURITIES
Each fund may invest in bonds and preferred stocks that are convertible into the
equity securities of the issuer. 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 and
consequently entail less risk than the issuer's common stock.
EQUITY SECURITIES
Consistent with its objective each fund may invest in equity securities,
including common stocks, depository receipts, warrants, rights and other equity
interests. Equity securities represent an ownership interest in an issuer, rank
junior in a company's capital structure to debt securities and consequently may
entail greater risk of loss than fixed income securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Each 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.
FOREIGN SECURITIES
Pioneer High Yield Fund may invest in securities of Canadian issuers to the same
extent as securities of U.S. issuers. The fund may invest up to 15% of its total
assets (at the time of purchase) in equity and debt securities of non-U.S.
issuers, including securities of emerging market issuers. Investing in Canadian
and 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 the
fund invests in issuers in emerging markets or concentrates such investments in
any one region. These risks may include:
o Less information about non-U.S. issuers or markets may be available due to
less rigorous disclosure and accounting standards or regulatory practices
11
<PAGE>
o Many non-U.S. markets are smaller, less liquid and more volatile. In a
changing market, Pioneer might not be able to sell the fund's portfolio
securities in amounts and at prices it considers reasonable
o Adverse effect of currency exchange rates or controls on the value of the
fund's investments
o Political, economic and social developments that adversely affect the
securities markets
o Withholding and other non-U.S. taxes may decrease the fund's return
TEMPORARY INVESTMENTS
Normally, Pioneer High Yield Fund invests substantially all of its assets to
meet its investment objective. Pioneer High Yield Fund may invest the remainder
of its assets in securities with a remaining maturity of less than one year,
cash equivalents or may hold cash. For temporary defensive purposes, Pioneer
High Yield Fund may depart from its principal investment strategies and invest
part or all of its assets in these securities. Similarly, your fund may hold all
or a portion of its assets in short-term U.S. government obligations, cash or
cash equivalents when the adviser deems a short-term defensive posture
appropriate. Pioneer High Yield Fund intends to adopt a defensive strategy only
when Pioneer believes high yield securities have extraordinary risks due to
political or economic factors.
SHORT-TERM TRADING
The funds usually do not trade for short-term profits. Each fund will sell an
investment, however, even if it has only been held for a short time, if it no
longer meets the fund's investment criteria. If a fund does a lot of trading, it
may incur additional operating expenses, which would reduce performance and
could cause shareholders to receive larger distributions of taxable income or
capital gains.
DERIVATIVES
Pioneer High Yield Fund may use futures, options, forward foreign currency
exchange contracts and other derivatives. Your fund has expressed no policy
regarding these instruments. A derivative is a security or instrument whose
value is determined by reference to the value or the change in value of one or
more securities, currencies, indices or other financial instruments. Each fund
does not use derivatives as a primary investment technique and generally limits
their use to hedging. However, a fund may use derivatives for a variety of
purposes, including:
o As a hedge against adverse changes in stock market prices, interest rates
and currency exchange rates
o As a substitute for purchasing or selling securities
o To increase the fund's return as a non-hedging strategy that may be
considered speculative
Even a small investment in derivatives can have a significant impact on a 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 person who issued the derivative
defaults on its obligation. Certain derivatives may be less liquid and more
difficult to value.
YEAR 2000
Information technology experts are concerned about computer and other electronic
systems' ability to process date-related information on and after January 1,
2000. This scenario, commonly referred to as the "Year 2000 problem," could have
an adverse impact on the funds and the provision of services to their
shareholders. Each fund has addressed and continues to monitor the Year 2000
problem with respect to its
12
<PAGE>
systems and those used by their distributors and transfer agents. Each fund
has obtained assurances from their other service providers that they are taking
appropriate Year 2000 measures and each fund is monitoring their efforts.
Although neither fund expects the Year 2000 problem to adversely impact it,
neither fund can guarantee that its, or the fund's service providers', efforts
will be successful.
PROPOSAL TO APPROVE AGREEMENT
AND PLAN OF REORGANIZATION
REORGANIZATION
o The reorganization is scheduled to occur after the close of business on
February 29, 2000 but may occur as of any later date on or before April 15,
2000 or otherwise agreed to by the funds. Upon consummation of the
reorganization, your fund will transfer all of its assets to Pioneer High
Yield Fund in exchange for shares of Pioneer High Yield Fund. Pioneer High
Yield Fund will also assume your fund's liabilities that are included in
the calculation of your fund's net assets at the closing. The net asset
values of both funds will be computed as of the close of the New York Stock
Exchange (normally 4:00 p.m. Eastern time) on the reorganization date.
o Pioneer High Yield Fund will issue to your fund Class A shares of Pioneer
High Yield Fund in an amount equal to the aggregate net asset value of your
fund's shares. Shares of Pioneer High Yield Fund having a value on the
reorganization date equal to the value of your shares of your fund will be
distributed to you in exchange for shares of your fund. As a result, all
shareholders of your fund will become Class A shareholders of Pioneer High
Yield Fund.
o After the reorganization is complete, your fund will be liquidated and
terminated.
o The reorganization is intended to be tax free for federal income tax
purposes.
DESCRIPTION OF REORGANIZATION
The shareholders of your fund are being asked to approve an Agreement and Plan
of Reorganization, a copy of which is attached as Exhibit A. The Agreement
provides for a reorganization on the terms described above.
REASONS FOR THE PROPOSED REORGANIZATION
The board of trustees of your fund believes that the proposed reorganization
will be advantageous to the shareholders of your fund for several reasons. The
board of trustees considered the following matters, among others, in approving
the proposal.
FIRST, shareholders of your fund would enjoy continuity of portfolio management.
Margaret Patel, the portfolio manager of your fund since inception, will be the
portfolio manager for Pioneer High Yield Fund. She has informed your fund that
she intends to manage Pioneer High Yield Fund in substantially the same manner
in which she manages your fund.
SECOND, it is expected that Pioneer High Yield Fund's actual expenses will be
lower than your fund's actual expenses. This is because Pioneer has temporarily
agreed to limit the expenses of Class A shares to 0.75% of average daily net
assets, while your fund currently has an expense limit of 1.90% of average daily
net assets. Consequently, shareholders of your fund are expected to pay
significantly lower expenses each month as shareholders of Pioneer High Yield
Fund than they would if the reorganization did not occur, for at least as long
as the voluntary expense limitations on the funds' expenses are continued.
13
<PAGE>
Furthermore, there is the potential that Pioneer High Yield Fund's total annual
operating expenses will continue to be lower than the total annual operating
expenses of your fund even after termination of the expense waiver. Although the
combined Rule 12b-1 and management fees for Pioneer High Yield Fund are greater
than the management fee for your fund so long as the net assets of Pioneer High
Yield are $500 million or less, they are equal to or less than your fund's
management fee at net asset levels in excess of $500 million. Moreover, to the
extent that Pioneer High Yield Fund is successful in raising more assets than
your fund would have raised, Pioneer High Yield Fund may have a lower rate of
other expenses as a percentage of net assets than your fund would have. This
difference could more than offset the higher combined Rule 12b-1 and management
fees of Pioneer High Yield Fund at net asset levels below $500 million.
THIRD, Pioneer High Yield Fund shares received in the reorganization will
provide your fund's shareholders with substantially the same investment
advantages as they currently have.
FOURTH, Pioneer offers a diverse family of mutual funds, with over 20 funds that
will be available to your fund's shareholders through exchanges.
FIFTH, EQSF Advisers, Inc. does not expect to retain the services of Ms. Patel
after the reorganization (or, in the event that the reorganization is not
expected to occur, such earlier date as determined by Ms. Patel or EQSF
Advisers, Inc.) and does not have other portfolio managers with comparable
experience in managing high yield portfolios, nor does it expect to hire another
portfolio manager with such expertise. Consequently, EQSF Advisers, Inc. has
advised your fund that if the reorganization is not completed, EQSF Advises,
Inc. expects to recommend to your fund's trustees that your fund be liquidated.
Your fund's trustees could accept or reject such a recommendation. A liquidation
would be taxable to your fund's shareholders and would not offer the potential
advantages of the reorganization. In recommending the transaction, the board
considered the fact that the reorganization is expected to be able to be
completed on a tax-free basis.
The board of trustees of Pioneer High Yield Fund considered that the
reorganization presents an opportunity for Pioneer High Yield Fund to acquire
investment assets without the obligation to pay commissions or other transaction
costs that are normally associated with the purchase of securities. The trustees
also believe that your fund's shareholders and Pioneer High Yield Fund's
shareholders will benefit from the resulting continuity of management, including
the intended use of your fund's performance record as its own. The ability of
Pioneer High Yield Fund to utilize your fund's past performance may be effective
in drawing new shareholders to Pioneer High Yield Fund. This could have the
effect of increasing the fund's asset base and lowering overall expenses for
shareholders.
The board of trustees of Pioneer High Yield Fund also considered that the
advisers to both funds will benefit from the reorganization. Because Pioneer
High Yield Fund will have a performance record, Pioneer expects to be able to
increase the size of the fund at a faster rate than would otherwise be possible.
Such an increase in size benefits Pioneer by accelerating the period at which
management of the fund is profitable. EQSF Advisers, Inc. will benefit from the
reorganization because Pioneer has agreed to make certain payments to EQSF
Advisers, Inc. if the reorganization is completed. EQSF Advisers, Inc. will be
entitled to $250,000 plus an annual fee equal to 0.549% of the average daily net
assets of Pioneer High Yield Fund during the first three years after the
reorganization.
COMPARATIVE FEES AND EXPENSE RATIOS. As discussed above, Pioneer High Yield Fund
pays a management fee rate lower than your fund's fee rate at all asset levels.
Pioneer High Yield Fund also has breakpoints in its management fee which may
reduce the effective management fee rate as Pioneer High Yield Fund's assets
grow. The benefit of the reduced management fee may, however, depending upon
Pioneer High
14
<PAGE>
Yield Fund's net assets, be more than offset by the Class A Rule 12b-1 fee
of 0.25% of average daily net assets.
In addition to a lower management fee rate, Pioneer High Yield Fund's estimated
Class A expense ratio of 1.50% is lower than your fund's gross expense ratio of
3.99% (0.75% vs. 1.90%, respectively, for net expenses with the expense
limitation).
The expenses of Class A shares of Pioneer High Yield Fund include an annual Rule
12b-1 fee equal to 0.25% of average daily net assets attributable to Class A
shares. Assets attributable to Pioneer accounts established in connection with
the reorganization, except for omnibus accounts maintained by a broker,
financial intermediary or recordkeeper, will not be considered in calculating
the fee payable under the Class A Rule 12b-1 plan. However, since Rule 12b-1
fees are not assessed at a shareholder account level, the effect will be a
reduction in the Rule 12b-1 fee paid by all Class A shareholders and not a
waiver of the Rule 12b-1 fee for shareholders participating in the
reorganization.
Your trustees do not believe, given your fund's current size and growth rate,
that in the near future your fund will grow to an asset size which would allow
your fund to realize the benefits of economies of scale. Your trustees also do
not believe that in the near future your fund will reach an asset size that will
allow your fund to significantly increase the diversification of its investment
portfolio. In addition, the adviser to your fund may not continue to subsidize a
portion of your fund's expenses indefinitely. If the adviser were to discontinue
this voluntary limitation, your fund's expense ratio would rise even higher
above Pioneer High Yield Fund's Class A expense ratio after giving effect to
Pioneer's fee waiver.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The reorganization is intended to be tax free for United States federal income
tax purposes. The consummation of the reorganization is conditioned on the
receipt by both funds of an opinion as of the closing from Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to Third Avenue High Yield Fund,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in the opinion, the reorganization will be treated as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and Pioneer High Yield Fund and Third
Avenue High Yield Fund will each be a party to such reorganization within the
meaning of Section 368(b) of the Code. Accordingly, no gain or loss will be
recognized by Pioneer High Yield Fund or Third Avenue High Yield Fund as a
result of the reorganization, and no gain or loss will be recognized by a
shareholder of Third Avenue High Yield Fund who receives solely Pioneer High
Yield Fund shares in exchange for shares of Third Avenue High Yield Fund.
The aggregate tax basis of the Pioneer High Yield Fund shares to be received by
shareholders of Third Avenue High Yield Fund will be the same as the aggregate
tax basis in the shares of Third Avenue High Yield Fund surrendered in exchange
therefor, and the holding period of the Pioneer High Yield Fund shares to be
received by shareholders of Third Avenue High Yield Fund in connection with the
reorganization will include the holding period of the shares of Third Avenue
High Yield Fund surrendered in exchange therefor, provided that the shares in
Third Avenue High Yield Fund are held as a capital asset at the closing of the
reorganization.
No tax ruling has been or will be received from the Internal Revenue Service
("IRS") in connection with the reorganization. An opinion of counsel is not
binding on the IRS or a court, and no assurance can be given that the IRS would
not assert, or a court would not sustain, a contrary position.
THE ABOVE DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS OF SHARES
OF THIRD AVENUE HIGH YIELD FUND SUBJECT TO SPECIAL TREATMENT UNDER THE CODE,
SUCH AS FOREIGN HOLDERS OR HOLDERS WHOSE SHARES
15
<PAGE>
WERE ACQUIRED PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR
OTHERWISE AS COMPENSATION. SHAREHOLDERS OF THIRD AVENUE HIGH YIELD FUND ARE
URGED TO CONSULT THEIR TAX ADVISERS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES
OF THE REORGANIZATION TO THEM, INCLUDING ANY STATE, LOCAL OR OTHER TAX
CONSEQUENCES OF THE REORGANIZATION.
ADDITIONAL TERMS OF AGREEMENT AND PLAN OF REORGANIZATION
SURRENDER OF SHARE CERTIFICATES. Shareholders of your fund whose shares are
represented by one or more share certificates need not surrender their
certificates. After the reorganization, certificates evidencing ownership of
your fund's shares will evidence ownership of Pioneer High Yield Fund shares
received in the reorganization. Shareholders must continue to follow procedures
for surrendering your fund's share certificates (or delivering the appropriate
affidavit) in order to redeem shares of Pioneer High Yield Fund after the
reorganization. Pioneer High Yield Fund will not issue share certificates in the
reorganization.
CONDITIONS TO CLOSING THE REORGANIZATION. The obligation of your fund to
consummate the reorganization is subject to the satisfaction of certain
conditions, including the performance by Pioneer High Yield Fund of all its
obligations under the Agreement and Plan of Reorganizations and the receipt of
all consents, orders and permits necessary to consummate the reorganization (see
Sections 7 and 9 of Exhibit A).
The obligation of Pioneer High Yield Fund to consummate the reorganization is
subject to the satisfaction of certain conditions, including your fund's
performance of all of its obligations under the Agreement and Plan of
Reorganization, the receipt of certain documents and financial statements from
your fund and the receipt of all consents, orders and permits necessary to
consummate the reorganization (see Sections 8 and 9 of Exhibit A).
The obligations of both funds are subject to the approval of the Agreement and
Plan of Reorganization by the necessary vote of the outstanding shares of your
fund, in accordance with the provisions of your fund's trust instrument and
by-laws.
TERMINATION OF AGREEMENT AND PLAN OF REORGANIZATION. The boards of trustees of
your fund and Pioneer High Yield Fund may agree to terminate the Agreement and
Plan of Reorganization even if the shareholders of your fund have already
approved it, at any time before the reorganization date, if that board believes
that proceeding with the reorganization would no longer be advisable.
EXPENSES OF THE REORGANIZATION. Pioneer will pay for all expenses incurred in
connection with the reorganization except that (i) your fund will pay for all
expenses incurred in connection with its liquidation and termination and (ii) if
the shareholders of your fund do not approve the reorganization, EQSF Advisers,
Inc. will pay 50% of expenses incurred in connection with the reorganization, up
to $20,000, and Pioneer will pay the remainder. The reorganization expenses are
estimated to be approximately $_______ for your fund and $_______ for Pioneer
High Yield Fund.
CAPITALIZATION
The following table sets forth the PRO FORMA combined capitalization of both
funds as if the reorganization had occurred on April 30, 1999. The table
reflects PRO FORMA exchange ratios of approximately one Class A Pioneer High
Yield Fund share being issued for each share of your fund. Because Pioneer High
Yield Fund will consist only of the Class A shares obtained through the
reorganization, the exchange ratio will most likely remain 1:1 on the closing
date.
16
<PAGE>
APRIL 30, 1999
<TABLE>
<CAPTION>
PIONEER HIGH YIELD
PIONEER HIGH YIELD CLASS A SHARES
THIRD AVENUE HIGH YIELD CLASS A SHARES PRO FORMA
<S> <C> <C> <C>
Net Assets $8,620,262 0 $8,620,262
Net Asset Value Per Share $9.41 N/A $9.41
Shares Outstanding 16,197 0 16,197
</TABLE>
It is impossible to predict how many Class A shares of Pioneer High Yield Fund
will actually be received and distributed by your fund on the reorganization
date. The table should not be relied upon to determine the number or value of
Pioneer High Yield Fund shares that will actually be received and distributed.
BOARDS' EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of your fund,
including the trustees who are not "interested persons" of your fund or the
adviser (the independent trustees), approved the reorganization. In particular,
the trustees determined that the reorganization was in the best interest of your
fund. Similarly, the board of trustees of Pioneer High Yield Fund, including the
independent trustees, approved the reorganization. They also determined that the
reorganization was in the best interest of Pioneer High Yield Fund. If the
reorganization is not approved, your trustees will consider what other actions
may be appropriate, including the possible liquidation of your fund.
THE TRUSTEES OF YOUR FUND RECOMMEND THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
THE AGREEMENT AND PLAN OF REORGANIZATION.
VOTING RIGHTS AND REQUIRED VOTE
Each share of your fund is entitled to one vote. Approval of the above proposal
requires the affirmative vote of a majority of the shares of your fund
outstanding and entitled to vote.
Shares of your fund represented in person or by proxy, including shares which
abstain or do not vote with respect to the proposal, will be counted for
purposes of determining whether there is a quorum at the meeting. Accordingly,
an abstention from voting has the same effect as a vote AGAINST the proposal.
If a broker or nominee holding shares in "street name" indicates on the proxy
card that it does not have discretionary authority to vote on the proposal,
those shares will NOT be considered present and entitled to vote on the
proposal. Thus, a "broker non-vote" has the same effect as a vote AGAINST the
proposal because shares represented by a "broker non-vote" are considered to be
outstanding shares.
If the required approval of shareholders is not obtained, your fund will
continue to engage in business as a separate mutual fund and the board of
trustees will consider what further action may be appropriate, including the
possible liquidation of your fund.
17
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS
NET ASSET VALUE
Each fund's net asset value is the value of its portfolio of securities plus any
other assets minus its operating expenses and any other liabilities. Each fund
calculates a net asset value every day the New York Stock Exchange is open when
regular trading closes (normally 4:00 p.m. Eastern time).
Each fund generally values its portfolio securities based on market prices or
quotations. When market prices are not available or are considered by the
adviser to be unreliable, the fund may use an asset's fair value. Fair value is
determined in accordance with procedures approved by the fund's trustees.
International securities markets may be open on days when the U.S. markets are
closed. For this reason, the values of any international securities owned by the
fund could change on a day when you cannot buy or sell shares of the fund.
You buy or sell shares at the net asset value per share calculated on the day of
your transaction.
THE FOLLOWING IS INFORMATION ABOUT BUYING, EXCHANGING AND SELLING SHARES OF
PIONEER HIGH YIELD FUND. FOR INFORMATION ABOUT BUYING, EXCHANGING AND SELLING
SHARES OF YOUR FUND, SEE YOUR FUND'S PROSPECTUS.
OPENING YOUR ACCOUNT
If your shares are held in your investment firm's name, the options and services
available to you may be different from those discussed in this prospectus. Ask
your investment professional for more information.
ACCOUNT OPTIONS
Use your account application to select options and privileges for your account.
You can change your selections at any time by sending a completed account
options form to the transfer agent. You may be required to obtain a signature
guarantee to make certain changes to an existing account.
Call or write to Pioneer High Yield Fund's transfer agent for account
applications, account options forms and other account information:
PIONEERING SERVICES CORPORATION
P.O. Box 9014
Boston, Massachusetts 02205-9014
Telephone 1-800-225-6292
TELEPHONE TRANSACTION PRIVILEGES
If your account is registered in your name, you can buy, exchange or sell
Pioneer High Yield Fund shares by telephone. If you do not want your account to
have telephone transaction privileges, you must indicate that choice on your
account application or by writing to the transfer agent.
When you request a telephone transaction the transfer agent will try to confirm
that the request is genuine. The transfer agent records the call, requires the
caller to provide the personal identification number for the account and sends
you a written confirmation. The fund may implement other confirmation procedures
from time to time. Different procedures may apply if you have a non-U.S. account
or if your account is registered in the name of an institution, broker-dealer or
other third party.
18
<PAGE>
GENERAL RULES ON BUYING, EXCHANGING AND SELLING YOUR PIONEER HIGH YIELD FUND
SHARES
SHARE PRICE
If you place an order with your investment firm before the New York Stock
Exchange closes and your investment firm submits the order to the distributor
prior to the distributor's close of business (usually 5:30 p.m. Eastern time),
your share price will be calculated that day. Otherwise, your price per share
will be calculated at the close of the New York Stock Exchange after the
distributor receives your order. Your investment firm is responsible for
submitting your order to the distributor.
BUYING
You may buy Pioneer High Yield Fund shares from any investment firm that has a
sales agreement with the distributor. If you do not have an investment firm,
please call 1-800-225-6292 for information on how to locate an investment
professional in your area.
You can buy Pioneer High Yield Fund shares at the offering price. Shareholders
whose Pioneer High Yield Fund accounts were established as a result of the
reorganization may purchase additional shares at net asset value. The
distributor may reject any order until it has confirmed the order in writing and
received payment. The fund reserves the right to stop offering any class of
shares.
MINIMUM INVESTMENT AMOUNTS
Your initial investment in Class A shares must be at least $1,000. Additional
investments must be at least $100 for Class A shares. You may qualify for lower
initial or subsequent investment minimums if you are opening a retirement plan
account, establishing an automatic investment plan or placing your trade through
your investment firm. The minimum investment amount does not apply for purposes
of the reorganization.
EXCHANGING
You may exchange your shares only for Class A shares of another Pioneer mutual
fund.
Your exchange request must be for at least $1,000.
SELLING
Your shares will be sold at net asset value per share next calculated after
Pioneer High Yield Fund receives your request in good order.
The fund generally will send your sale proceeds by check, bank wire or
electronic funds transfer. Normally you will be paid within seven days.
If you are selling shares from a non-retirement account or certain IRAs, you may
use any of the methods described below. If you are selling shares from a
retirement account other than an IRA, you must make your request in writing.
You may have to pay federal income taxes on a sale or an exchange.
19
<PAGE>
GOOD ORDER MEANS THAT:
o You have provided adequate instructions
o There are no outstanding claims against your account
o There are no transaction limitations on your account
o If you have any fund share certificates, you submit them and they are
signed by each record owner exactly as the shares are registered
o Your request includes a signature guarantee if you:
-- Are selling over $100,000 or exchanging over $500,000 worth of
shares
-- Changed your account registration or address within the last
30 days
-- Instruct the transfer agent to mail the check to an address
different from the one on your account
-- Want the check paid to someone other than the account owner(s)
-- Are transferring the sale proceeds to a Pioneer mutual fund account
with a different registration
20
<PAGE>
BUYING, EXCHANGING AND SELLING PIONEER HIGH YIELD FUND SHARES
<TABLE>
<CAPTION>
BUYING SHARES EXCHANGING SHARES
- ----------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
THROUGH YOUR Normally, your investment firm will send your Normally, your investment firm will send your
INVESTMENT FIRM purchase request to the fund's transfer exchange request to the fund's transfer agent.
agent. CONSULT YOUR INVESTMENT PROFESSIONAL CONSULT YOUR INVESTMENT PROFESSIONAL FOR MORE
FOR MORE INFORMATION. Your investment firm INFORMATION ABOUT EXCHANGING YOUR SHARES.
may receive a commission from the distributor
for your purchase of fund shares. The
distributor or its affiliates may pay additional
compensation, out of their own assets, to
certain investment firms or their affiliates
based on objective criteria established by the
distributor.
- ----------------- ------------------------------------------------ ------------------------------------------------
BY PHONE YOU CAN USE THE TELEPHONE PURCHASE PRIVILEGE After you establish your fund account, YOU CAN
IF you have an existing non-retirement EXCHANGE FUND SHARES BY PHONE IF:
account or certain IRAs. You can purchase
additional fund shares by phone if: o You are using the exchange to establish
a new account, provided the new
o You established your bank account of account has a registration identical to the
record at least 30 days ago original account
o Your bank information has not o The fund into which you are exchanging
changed for at least 30 days offers the same class of shares
o You are not purchasing more than o You are not exchanging more than
$25,000 worth of shares per account per day $500,000 worth of shares per account per day
o You can provide the proper account o You can provide the proper account
identification identification information
When you request a telephone purchase, the
transfer agent will electronically debit the
amount of the purchase from your bank account
of record. The transfer agent will purchase
fund shares for the amount of the debit at the
offering price determined after the transfer
agent receives your telephone purchase
instruction and good funds. It usually takes
three business days for the transfer agent to
receive notification from your bank that good
funds are available in the amount of your
investment.
- ----------------- ------------------------------------------------ ------------------------------------------------
IN WRITING, You can purchase fund shares for an existing You can exchange fund shares by MAILING OR
BY MAIL fund account by MAILING A CHECK TO THE FAXING A LETTER OF INSTRUCTION TO THE TRANSFER
OR BY FAX TRANSFER AGENT. Make your check payable to AGENT. You can exchange fund shares directly
the fund. Neither initial nor subsequent through the fund only if your account is
investments should be made by third party registered in your name. However, you may not
check. Your check must be in U.S. dollars fax an exchange request for more than
and drawn on a U.S. bank. Include in your $500,000. Include in your letter:
purchase request the fund's name, the account o The names, social security number and
number and the name or names in the account signatures of all registered owners
registration. o A signature guarantee for each registered
owner if the amount of the exchange is
more than $500,000
o The name of the fund out of which you
are exchanging and the name of the fund
into which you are exchanging
o The class of shares you are exchanging
o The dollar amount or number of shares you
are exchanging
- ----------------- ------------------------------------------------ ------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
SELLING SHARES HOW TO CONTACT PIONEER
- ------------------------------------------------ ------------------------------------------------
<S> <C>
Normally, your investment firm will send your BY PHONE
request to sell shares to the fund's transfer For information or to request a telephone
agent. CONSULT YOUR INVESTMENT PROFESSIONAL transaction between 8:00 a.m. and 9:00 p.m.
FOR MORE INFORMATION. The fund has authorized (Eastern time) by speaking with a shareholder
the distributor to act as its agent in the services representative call 1-800-225-6292
repurchase of fund shares from qualified
investment firms. The fund reserves the right To request a transaction using FactFone(SM) call
to terminate this procedure at any time. 1-800-225-4321
- ------------------------------------------------
YOU MAY SELL UP TO $100,000 PER ACCOUNT PER DAY. Telecommunications Device for the Deaf (TDD)
You may sell fund shares held in a retirement 1-800-225-1997
plan account by phone only if your account is
an IRA. You may not sell your shares by phone BY MAIL
if you have changed your address (for checks) Send your written instructions to:
or your bank information (for wires and PIONEERING SERVICES CORPORATION
transfers) in the last 30 days. P.O. Box 9014
Boston, Massachusetts 02205-9014
You may receive your sale proceeds:
o By check, provided the check is made BY FAX
payable exactly your account is registered Fax your exchange and sale requests to:
o By bank wire or by electronic funds 1-800-225-4240
transfer, provided the sale proceeds are
being sent to your bank address of record
- ------------------------------------------------ ------------------------------------------------
You can sell some or all of your fund shares by EXCHANGE PRIVILEGE
WRITING DIRECTLY TO THE FUND only if your You may exchange shares of this fund into
account is registered in your name. Include another Pioneer mutual fund, provided that,
in your request your name, your social security may not make more than four exchanges of
number, the fund's name, your fund account $25,000 or more per account per calendar year
number, the class of shares you to be sold, the out of the fund.
dollar amount or number of shares to be sold
and any other applicable requirements as The fund and the distributor reserve the right
described below. The transfer agent will send to refuse any exchange request or restrict, at
the sale proceeds to your address of record any time without notice, the number and/or
unless you provide other instructions. Your frequency of exchanges to prevent abuses of the
request must be signed by all registered owners exchange privilege. Abuses include frequent trading
and be in good order. The transfer agent will in response to short-term market fluctuations
not process your request until it is received and a pattern of trading that appears to be an
in good order. You may not sell more than attempt to "time the market." In addition, the
$100,000 per account per day by fax. fund and the distributor reserve the right to
charge a fee for exchanges or to modify, limit or
suspend the exchange privilege. The fund will
provide 60 days notice of material amendments to
or termination of the privilege.
- ------------------------------------------------ ------------------------------------------------
</TABLE>
22
<PAGE>
PIONEER HIGH YIELD FUND SHAREHOLDER ACCOUNT POLICIES
SIGNATURE GUARANTEES AND OTHER REQUIREMENTS
You are required to obtain a signature guarantee when you are:
o Requesting certain types of exchanges or sales of fund shares
o Redeeming shares for which you hold a share certificate
o Requesting certain types of changes for your existing account
You can obtain a signature guarantee from most broker-dealers, banks, credit
unions (if authorized under state law) and federal savings and loan
associations. You cannot obtain a signature guarantee from a notary public.
Fiduciaries and corporations are required to submit additional documents to sell
fund shares.
EXCHANGE LIMITATION
You may make up to four exchanges of $25,000 or more per account per calendar
year out of the fund. Except as noted, you may make any number of exchanges of
less than $25,000. The fund's exchange limitation is intended to discourage
short-term trading in fund shares. Short-term trading can increase the expenses
incurred by the fund and make portfolio management less efficient. In
determining whether the exchange redemption limit has been reached, Pioneer may
aggregate a series of exchanges (each valued at less than $25,000) and/or fund
accounts that appear to be under common ownership or control. Pioneer may view
accounts for which one person gives instructions or accounts that act on advice
provided by a single source to be under common control.
23
<PAGE>
The exchange limitation does not apply to automatic exchange transactions
or to exchanges made by participants in employer-sponsored retirement plans
qualified under Section 401 of the Internal Revenue Code. The exchange
limitation also may not apply to transactions made through an omnibus account
for fund shares.
MINIMUM ACCOUNT SIZE
The fund requires that you maintain a minimum account value of $500. If you hold
less than the minimum in your account because you have sold or exchanged some of
your shares, the fund will notify you of its intent to sell your shares and
close your account. You may avoid this by increasing the value of your account
to at least the minimum within six months of the notice from the fund.
TELEPHONE ACCESS
You may have difficulty contacting the fund by telephone during times of market
volatility or disruption in telephone service. If you are unable to reach the
fund by telephone, you should communicate with the fund in writing.
SHARE CERTIFICATES
Normally, your shares will remain on deposit with the transfer agent and
certificates will not be issued. If you are legally required to obtain a
certificate, you may request one for your Class A shares only. A fee may be
charged for this service.
FORMER THIRD AVENUE HIGH YIELD FUND SHAREHOLDERS
You may purchase shares in any Pioneer mutual fund, either directly or by
exchange, for any account established as a result of the reorganization without
a sales charge. These shares will not be subject to the Class A distribution
fee, except that Class A shares held in an omnibus account are subject to the
Class A distribution fee whether those shares issued were in connection with the
reorganization or were later purchased by direct investment or by exchange.
OTHER POLICIES
The fund may suspend transactions in shares when trading on the New York Stock
Exchange is closed or restricted, when an emergency exists that makes it
impracticable for the fund to sell or value its portfolio securities or with the
permission of the Securities and Exchange Commission.
The fund or the distributor may revise, suspend or terminate the account options
and services available to shareholders at any time.
The fund reserves the right to redeem in kind by delivering portfolio securities
to a redeeming shareholder, provided that the fund must pay redemptions in cash
if a shareholder's aggregate redemptions in a 90 day period are less than
$250,000 or 1% of the fund's net assets.
DIVIDENDS AND CAPITAL GAINS
Pioneer High Yield Fund declares a dividend from any net investment income
and short-term capital gains each business day. You begin earning dividends on
the first business day following receipt of payment for shares; your shares
continue to earn dividends up to and including the date you redeem them.
Dividends are normally paid on the last business day of the month or shortly
thereafter. Pioneer High Yield Fund distributes net long-term capital gains, if
any, in November. Pioneer High Yield Fund may also pay dividends and
24
<PAGE>
distributions at other times if necessary for the fund to avoid federal
income or excise tax. If you invest in the fund close to the time that the fund
makes a capital gains distribution, generally you will pay a higher price per
share and you will pay taxes on the amount of the capital gains distribution
whether you reinvest the distribution or receive it as cash.
Sales and exchanges may be taxable transactions to shareholders.
TAXES
For federal income tax purposes, distributions from Pioneer High Yield Fund's
net long-term capital gains are considered long-term capital gains and may be
taxable to you at different maximum rates depending upon their source and other
factors. Dividends and short-term capital gain distributions are taxable as
ordinary income. Dividends and distributions are taxable, whether you take
payment in cash or reinvest them to buy additional fund shares. You may also
have tax consequences (generally, a capital gain or loss) when you sell or
exchange fund shares. Each year the fund will mail to you information about your
dividends and distributions for, and the shares you sold in, the previous
calendar year.
You must provide your social security number or other taxpayer identification
number to the fund along with the certifications required by the Internal
Revenue Service when you open an account. If you do not or if it is otherwise
legally required to do so, the fund will withhold 31% "backup withholding" tax
from your dividends and distributions, sales proceeds and any other payments to
you.
You should ask your own tax adviser about any federal or state tax
considerations, including possible additional withholding taxes for non-U.S.
shareholders. You may also consult the fund's statement of additional
information for a more detailed discussion of federal income tax considerations
that may affect the fund and its shareholders.
MATERIAL PROVISIONS OF MANAGEMENT AGREEMENTS
THIRD AVENUE HIGH YIELD FUND
Your fund entered into a management agreement with EQSF Advisers, Inc. on
February 9, 1998 (the "existing agreement"). The existing agreement was approved
by [the fund's initial sole shareholder] on ____________, 1998. After its
initial two year term, the existing agreement would continue from year to year
if approved annually by the fund's board of trustees. The existing agreement may
be terminated at any time without penalty upon 60 days' written notice by either
party and will automatically terminate upon assignment thereof.
Pursuant to the existing agreement, your fund pays the adviser a monthly fee
equal to 0.90% annually of your fund's average daily net assets, based on the
prior month's net assets. During the fiscal year ended October 31, 1998, your
fund paid management fees to EQSF Advisers, Inc. equal to $50,472.
Under current arrangements, whenever in any fiscal year, your fund's normal
operating expenses, including the investment advisory fee, but excluding
brokerage commissions and interest and taxes, exceeds 1.9% of the first $100
million of average daily net assets of the fund, and 1.5% of assets in excess of
$100 million, EQSF Advisers, Inc. is obligated to reimburse the fund in an
amount equal to that excess. If operating expenses fall below that expense
limitation, the fund will begin repaying EQSF Advisers, Inc. for the amount
contributed on behalf of the fund. This repayment will continue for up to three
years after the end of the fiscal year in which an expense is reimbursed by the
adviser, subject to the expense limitation, until the adviser has been paid for
the entire amount contributed or such three year period expires.
25
<PAGE>
Under the existing agreement, EQSF Advisers, Inc. supervises and assists in the
management of your fund, provides investment research and research evaluation
and makes and executes recommendations for the purchase and sale of securities.
EQSF Advisers, Inc. furnishes at its expense all necessary office equipment and
personnel necessary for performance of its obligations and pays the compensation
for executive duties of officers of the fund.
All other expenses incurred in the operation of your fund and the continuous
offering of its shares, including taxes, fees and commissions, bookkeeping
expenses, fund employees, expenses of redemption of shares, charges of
administrators, custodians and transfer agents, auditing and legal expenses and
fees of outside trustees are borne by the fund.
PIONEER HIGH YIELD FUND
Pioneer High Yield Fund has contracted with Pioneer to act as its investment
adviser. Pioneer is a wholly owned subsidiary of The Pioneer Group, Inc. (PGI).
PGI is engaged in the financial services business in the U.S. and other
countries. Certain trustees or officers of Pioneer High Yield Fund are also
directors and/or officers of PGI and its subsidiaries (see management
biographies below).
As Pioneer High Yield Fund's investment adviser, Pioneer provides the fund with
investment research, advice and supervision and furnishes an investment program
for the fund consistent with the fund's investment objective and policies,
subject to the supervision of the fund's trustees. Pioneer determines what
portfolio securities will be purchased or sold, arranges for the placing of
orders for the purchase or sale of portfolio securities, selects brokers or
dealers to place those orders, maintains books and records with respect to the
fund's securities transactions, and reports to the trustees on the fund's
investments and performance.
Under the terms of its contract with Pioneer High Yield Fund, Pioneer pays all
the operating expenses, including executive salaries and the rental of office
space relating to its services for the fund, with the exception of the
following, which are 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 custodian, transfer agent, plan agent, dividend disbursing agent and
registrar appointed by the fund; (d) issue and transfer taxes chargeable to the
fund in connection with securities transactions to which the fund is a party;
(e) insurance premiums, interest charges, 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 the
Securities and Exchange Commission, state or blue sky securities agencies and
foreign jurisdictions, including the preparation of prospectuses and statements
of additional information for filing with such regulatory agencies; (g) all
expenses of shareholders' and trustees' meetings and of preparing, printing and
distributing prospectuses, notices, proxy statements and all reports to
shareholders and to governmental agencies; (h) charges and expenses of legal
counsel to the fund and the Trustees; (i) distribution fees paid by the fund in
accordance with Rule 12b-1 promulgated by the Securities Exchange Commission
pursuant to the Investment Company Act of 1940 (1940 Act); (j) compensation of
those trustees of the fund who are not affiliated with or interested persons of
Pioneer, the fund (other than as trustees), PGI or Pioneer Fund Distributor,
Inc. (PFD); (k) the cost of preparing and printing share certificates; and (l)
interest on borrowed money, if any. In addition, the fund shall pay all brokers'
and underwriting commissions chargeable to the fund in connection with
securities transactions to which the fund is a party. 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.
26
<PAGE>
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.
As compensation for its management services, Pioneer High Yield Fund will pay
Pioneer a fee equal to 0.70% of Pioneer High Yield Fund's average daily net
assets up to $500 million; 0.65% of the next $500 million; and 0.60% on assets
over $1 billion. The fee is normally computed and accrued daily and paid
monthly.
Pioneer High Yield Fund has entered into an administration agreement with
Pioneer pursuant to which certain accounting and legal services which are
expenses payable by the fund under the management contract are performed by
Pioneer and pursuant to which Pioneer is reimbursed for its costs of providing
such services.
Pioneer has agreed to waive all or part of its management fee or to reimburse
Pioneer High Yield Fund for other expenses (other than extraordinary expenses)
to the extent the fund's Class A share expenses exceed 0.75% of average daily
net assets attributable to the Class A shares. This agreement may be revised or
terminated at any time by Pioneer. If Pioneer waives any fee or reimburses any
expenses, and the expenses of the fund are subsequently less than 0.75% of the
average daily net assets, the fund will reimburse Pioneer for such waived fees
or reimbursed expenses provided that such reimbursement does not cause the
fund's expenses to exceed 0.75% of the average daily net assets.
PIONEER HIGH YIELD FUND'S RULE 12B-1 DISTRIBUTION PLAN
As described above, Pioneer High Yield Fund has adopted a 12b-1 plan for Class A
shares. Because of the 12b-1 plan, long-term shareholders may pay more than the
economic equivalent of the maximum sales charge permitted by the National
Association of Securities Dealers, Inc. regarding investment companies.
Pursuant to the 12b-1 plan the fund will reimburse its principal underwriter,
PFD for its actual expenditures to finance any activity primarily intended to
result in the sale of Class A shares or to provide services to holders of Class
A shares, provided the categories of expenses for which reimbursement is made
are approved by the fund's board of trustees. The fund's board of trustees has
approved the following categories of expenses that may be reimbursed under the
Class A plan: (i) a service fee to be paid to qualified broker-dealers in an
amount not to exceed 0.25% per annum of the fund's daily net assets attributable
to Class A shares; (ii) reimbursement to PFD for its expenditures for
broker-dealer commissions and employee compensation on certain sales of the
fund's Class A shares with no initial sales charge; and (iii) reimbursement to
PFD for expenses incurred in providing services to Class A shareholders and
supporting broker-dealers and other organizations (such as banks and trust
companies) in their efforts to provide such services. Banks are currently
prohibited under the Glass-Steagall Act from providing certain underwriting or
distribution services. If a bank is prohibited from acting in any capacity or
providing any of the described services, management will consider what action,
if any, would be appropriate. The expenses of the fund pursuant to the plan are
accrued daily at a rate which may not exceed the annual rate of 0.25% of the
fund's average daily net assets attributable to Class A shares. Distribution
expenses of PFD are expected to substantially exceed the distribution fees paid
by the fund in a given year. The fund will not, however, pay such 12b-1 fees on
assets attributable to Class A shares issued in the reorganization, other than
those issued to omnibus accounts.
The 12b-1 plan does not provide for the carryover of reimbursable expenses
beyond 12 months from the time the fund is first invoiced for an expense. The
limited carryover provision in the 12b-1 plan may result in an expense invoiced
to the fund in one fiscal year being paid in the subsequent fiscal year and thus
being treated for purposes of calculating the maximum expenditures of the fund
as having been incurred in the
27
<PAGE>
subsequent fiscal year. In the event of termination or non-continuance of
the plan, the fund has 12 months to reimburse any expense which it incurs prior
to such termination or non-continuance, provided that payments by the fund
during such 12-month period shall not exceed 0.25% of the fund's average daily
net assets attributable to Class A shares during such period.
TRUSTEES AND EXECUTIVE OFFICERS OF PIONEER HIGH YIELD FUND
When the reorganization occurs, you will become a shareholder of Pioneer High
Yield Fund, which is under different management from Third Avenue High Yield
Fund. Information regarding the trustees and executive officers of Pioneer High
Yield Fund is set forth below.
The following table sets forth each trustee's position(s) with the fund, and
age, address, principal occupation and employment during the past five years and
any other directorships held. Each trustee first became a trustee of the fund on
August 3, 1999. Because the fund is newly organized and not operational, no
trustee owns shares of the fund, beneficially or otherwise.
<TABLE>
<CAPTION>
Name, age, position(s) with Principal occupation or employment and trusteeships(1)
the fund and address
<S> <C>
JOHN F. COGAN, JR.* President, Chief Executive Officer and a Director of
(72) PGI; Chairman and a Director of Pioneer, PFD, Pioneer
CHAIRMAN OF THE BOARD, Goldfields Limited, Teberebie Goldfields Limited, Closed
PRESIDENT AND TRUSTEE Joint-Stock Company "Amgun-Forest," Closed Joint-Stock
60 State Street Company "Udinskoye" and Closed Joint-Stock Company "Tas-Yurjah" Mining
Boston, MA 02109 Company; Director of Pioneer Real Estate Advisors, Inc. (PREA), Pioneer
Forest, Inc., Pioneer Explorer, Inc., Pioneer Management (Ireland) Ltd.
(PMIL), Pioneer First Investment Fund and Closed Joint-Stock Company
"Forest-Starma"; President and Director of Pioneer Metals and Technology,
Inc. (PMT), Pioneer International Corp. (PIntl), Pioneer First Russia,
Inc. and Pioneer Omega, Inc. (Pioneer Omega); Chairman of the Supervisory
Board of Pioneer Fonds Marketing, GmbH, Pioneer First Polish Investment
Fund Joint Stock Company, S.A. (Pioneer First Polish) and Pioneer Czech
Investment Company, A.S. (Pioneer Czech); Member of the Supervisory Board
of Pioneer Universal Pension Fund Company; Chairman, President and Trustee
of all of the Pioneer mutual funds; Director of Pioneer Global Equity
Fund Plc, Pioneer Global Bond Fund Plc, Pioneer Euro Reserve Fund Plc,
Pioneer European Equity Fund Plc, Pioneer Emerging Europe Fund Plc,
Pioneer US Real Estate Fund Plc, Pioneer U.S. Growth Fund Plc, Pioneer
Diversified Income Fund Plc and Pioneer America Fund Plc (collectively,
the Irish Funds); and Partner, Hale and Dorr LLP (counsel to PGI and the fund).
MARY K. BUSH President, Bush & Co. (international financial advisory firm); Director
(51) and/or Trustee of Mortgage Guaranty Insurance Corporation, Novecon Management
TRUSTEE Company, Hoover Institution, Folger Shakespeare Library, March of Dimes,
4201 Cathedral Ave. NW Project 2000, Inc. (not-for-profit educational organization), Wilberforce
Washington, DC 20016 University and Texaco, Inc.; Advisory Board Member, Washington Mutual
Investors Fund (registered investment company);
and Trustee of all of the Pioneer mutual funds,
except Pioneer Variable Contracts Trust.
28
<PAGE>
RICHARD H. EGDAHL, M.D. Alexander Graham Bell Professor of Health Care Entrepreneurship, Boston
(72) University; Professor of Management, Boston University School of Management;
TRUSTEE Professor of Public Health, Boston University School of Public Health;
Boston University Health Professor of Surgery, Boston University School of Medicine, University
Policy Institute Program for Health Care Entrepreneurship, CORE (management of workers'
53 Bay State Road compensation and disability costs - Nasdaq National Market) and WellSpace
Boston, MA 02215 (provider of complementary health care); Trustee, Boston Medical Center;
Honorary Trustee, Franciscan Children's Hospital; and Trustee of all of the
Pioneer mutual funds.
MARGARET B.W. GRAHAM Founding Director, The Winthrop Group, Inc. (consulting firm); Manager of
(51) Research Operations, Xerox Palo Alto Research Center, from 1991 to 1994;
TRUSTEE formerly Professor of Operations Management and Management of Technology and
The Keep Associate Dean, Boston University School of Management; and Trustee of all of
P.O. Box 110 the Pioneer mutual funds, except Pioneer Variable Contracts Trust.
Little Deer Isle, ME
04650
JOHN W. KENDRICK Professor Emeritus, George Washington University; Director, American
(82) Productivity and Quality Center; Adjunct Scholar, American Enterprise
TRUSTEE Institute; Economic Consultant; and Trustee of all of the Pioneer mutual
636 Waterway Drive funds, except Pioneer Variable Contracts Trust.
Falls Church, VA 22044
MARGUERITE A. PIRET President, Newbury, Piret & Company, Inc. (merchant banking firm); Trustee of
(50) Boston Medical Center; Member of the Board of Governors of the Investment
TRUSTEE Company Institute; Director, Organogenesis Inc. (tissue engineering company);
One Boston Place and Trustee of all of the Pioneer mutual funds.
26th Floor
Boston, MA 02108
DAVID D. TRIPPLE* Executive Vice President and a Director of PGI; President and a Director of
(55) Pioneer and PFD; Director of Pioneering Services Corporation (PSC), PIntl,
EXECUTIVE VICE PRESIDENT AND PREA, Pioneer Omega, PMIL, Pioneer First Investment Fund and the Irish Funds;
TRUSTEE Member of the Supervisory Board of Pioneer First Polish and Pioneer Czech;
60 State Street and Executive Vice President and Trustee of all of the Pioneer mutual funds.
Boston, MA 02109
STEPHEN K. WEST Of Counsel, Sullivan & Cromwell (law firm); Director, Kleinwort Benson
(71) Australian Income Fund, Inc., The Swiss Helvetia Fund, Inc. (investment
TRUSTEE companies), AMVESCAP PLC (investment managers) and ING American Insurance
125 Broad Street Holdings, Inc.; Trustee, The Winthrop Focus Funds (mutual funds); and Trustee
New York, NY 10004 of all of the Pioneer mutual funds.
JOHN WINTHROP President, John Winthrop & Co., Inc. (private investment firm); Director, of
(63) NUI Corp. (energy sales, services and distribution); and Trustee of all of
TRUSTEE the Pioneer mutual funds, except Pioneer Variable Contracts Trust.
One North Adgers Wharf
Charleston, SC 29401
* Messrs. Cogan and Tripple are "interested persons" of the fund and Pioneer
within the meaning of Section 2(a)(19) of the 1940 Act.
29
<PAGE>
(1) Each trustee also serves as a trustee for each of the open-end
investment companies (mutual funds) in the Pioneer family of mutual
funds, for Pioneer Interest Shares, a closed-end investment company,
and for each of the 13 portfolios of the Pioneer Variable Contracts
Trust (except as noted).
</TABLE>
Ms. Piret, Mr. West and Mr. Winthrop serve on the audit committee of the
board of trustees. The functions of the audit committee include recommending
independent auditors to the trustees, monitoring the independent auditors'
performance, reviewing the results of audits and responding to certain other
matters deemed appropriate by the trustees. Ms. Graham, Ms. Piret and Mr.
Winthrop also serve on the nominating committee of the board of trustees. The
primary responsibility of the nominating committee is the selection and
nomination of candidates to serve as independent trustees. The nominating
committee will also consider nominees recommended by shareholders to serve as
trustees provided that shareholders submitting such recommendations comply with
all relevant provisions of Rule 14a-8 under the Securities Exchange Act of 1934.
Ms. Bush, Dr. Egdahl, Ms. Graham, Mr. Kendrick, Ms. Piret, Mr. West and Mr.
Winthrop (the non-interested trustees) also serve on the Non-Interested Trustees
Committee of the board of trustees. The Non-Interested Trustees Committee meets
at least quarterly to discuss matters of particular interest to the
non-interested trustees.
As of September 30, 1999, Mr. Cogan owned approximately 13.2% and Mr. Tripple
owned approximately 1.2% of the outstanding common stock of PGI, and none of the
other trustees owned PGI common stock.
The following table sets forth certain information with respect to the
compensation of each trustee of the fund.
<TABLE>
<CAPTION>
PENSION OR RETIREMENT TOTAL COMPENSATION FROM
AGGREGATE BENEFITS ACCRUED AS OTHER PIONEER MUTUAL
COMPENSATION FROM PART OF FUND EXPENSES FUNDS**
TRUSTEE FUND*
<S> <C> <C> <C>
John F. Cogan, Jr.*** $ 750.00 $0 $ 18,750.00
Mary K. Bush 1,806.00 0 77,125.00
Richard H. Egdahl, M.D. 1,806.00 0 79,125.00
Margaret B.W. Graham 1,812.00 0 81,750.00
John W. Kendrick 1,456.00 0 65,900.00
Marguerite A. Piret 1,906.00 0 98,750.00
David D. Tripple*** 750.00 0 18,750.00
Stephen K. West 1,731.00 0 85,050.00
John Winthrop 1,906.00 0 85,875.00
---------- -- -----------
$13,923.00 $0 $611,075.00
------------------------
* Estimated for the fiscal year ending October 31, 2000.
** For the calendar year ended December 31, 1998.
*** Under the management agreement, Pioneer will reimburse the fund for any trustees fees
paid by the fund.
</TABLE>
OTHER EXECUTIVE OFFICERS
In addition to Messrs. Cogan and Tripple, who serve as executive officers of the
fund, the following table provides information with respect to the other
executive officers of the fund. Each executive officer is elected by the board
of trustees and serves until his successor is chosen and qualified or until his
resignation or removal by the board. The business address of all officers of the
fund is 60 State Street, Boston, Massachusetts 02109.
30
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH THE FUND PRINCIPAL OCCUPATION(S)
<S> <C>
ERIC W. RECKARD, (43), Treasurer Executive Vice President, Chief Financial Officer and
Treasurer of PGI since June 1999; Treasurer of
Pioneer, PFD, PSC, PIntl, PREA, PMT and Pioneer Omega
since June 1999; Vice President-Corporate Finance of
PGI from February 1999 to June 1999; Manager of
Business Planning and Internal Audit of PGI since
September 1996; Manager of Fund Accounting of Pioneer
since May 1994; Manager of Auditing, Compliance and
Business Analysis for PGI prior to May 1994; and
Treasurer of all of the Pioneer mutual funds
(Assistant Treasurer prior to June 1999).
VINCENT NAVE (54), Assistant Treasurer Vice President-Fund Accounting, Administration and
Custody Services of Pioneer (Manager from September
1996 to February 1999); Senior Vice President of The
Boston Company's Investor Services Group prior to July
1994; and Assistant Treasurer of all of the Pioneer
mutual funds since June 1999.
JOSEPH P. BARRI, (53), Secretary Corporate Secretary of PGI and most of its
subsidiaries; Secretary of all of the Pioneer mutual
funds; and Partner, Hale and Dorr LLP.
ROBERT P. NAULT, (35), Assistant Secretary Senior Vice President, General Counsel and Assistant
Secretary of PGI since 1995; Assistant Secretary of
Pioneer, certain other PGI subsidiaries and all of the
Pioneer mutual funds; Assistant Clerk of PFD and PSC;
and junior partner of Hale and Dorr LLP prior to 1995.
</TABLE>
31
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table helps you understand your fund's financial
performance.
Certain information reflects financial results for a single share of Third
Avenue High Yield Fund. The total returns in the table represent the rate that
you would have earned on an investment in Third Avenue High Yield Fund (assuming
reinvestment of all dividends and distributions).
The information for the period from February 12, 1998 through October 31, 1998
has been audited by PricewaterhouseCoopers LLP, whose report is included in the
1998 annual report of Third Avenue Trust along with the financial statements of
Third Avenue High Yield Fund. The annual and semiannual reports are available
upon request.
THIRD AVENUE HIGH YIELD FUND
Selected data (for a share outstanding throughout each period) and ratios are as
follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE PERIOD
APRIL 30, 1999 ENDED
(UNAUDITED) OCTOBER 31, 19981
<S> <C> <C>
Net asset value, beginning of period $8.50 $ 10.00
----- -------
Increase (loss) from investment operations:
Net investment income 0.34 0.34
Net gain (loss) on securities (both realized and unrealized) 0.92 (1.56)
---- ------
Total from investment operations 1.26 (1.22)
---- ------
Less distributions:
Dividends from net investment income (0.35) (0.28)
------ ------
Net asset value, end of period $9.41 $8.50
===== =====
Total return 15.02%2 (12.39)%2
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $8,620 $7,691
Ratio of expenses to average net assets
Before expense reimbursement 4.12%3 3.993
After expense reimbursement 1.90%3 1.90%3
Ratio of net income to average net assets
Before expense reimbursement 4.96%3 4.13%3
After expense reimbursement 7.18%3 6.22%3
Portfolio turnover rate 5%2 38%2
----------------
1 The fund commenced investment operations February 12, 1998.
2 Not annualized.
3 Annualized.
</TABLE>
32
<PAGE>
INFORMATION CONCERNING THE MEETING
SOLICITATION OF PROXIES
In addition to the mailing of these proxy materials, proxies may be solicited by
telephone, by fax or in person by the trustees, officers and employees of your
fund; by personnel of Pioneer, EQSF Advisers, Inc. or the fund's transfer agent,
First Data Investors Services Group, Inc.; or by any of their representatives or
compensated agents, including broker-dealer firms. Shareholder Communications
Corporation, a third-party solicitation firm, has agreed to provide proxy
solicitation services to your fund at a cost of approximately $_______.
REVOKING PROXIES
A Third Avenue High Yield fund shareholder signing and returning a proxy has the
power to revoke it at any time before it is exercised:
o By filing a written notice of revocation with the Secretary, or
o By returning a duly executed proxy with a later date before the time
of the meeting, or
o If a shareholder has executed a proxy but is present at the meeting and
wishes to vote in person, by notifying the secretary of your fund (without
complying with any formalities) at any time before it is voted
Being present at the meeting alone does NOT revoke a previously executed and
returned proxy.
OUTSTANDING SHARES AND QUORUM
As of October 31, 1999, 783,315.49 shares of beneficial interest of your fund
were outstanding. Only shareholders of record on November 24, 1999 (the record
date) are entitled to notice of and to vote at the meeting. A majority of the
outstanding shares of your fund that are entitled to vote will be considered a
quorum for the transaction of business.
OTHER BUSINESS
Your fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposal. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
ADJOURNMENTS
If a quorum is not present in person or by proxy at the time any session of the
meeting is called to order, the persons named as proxies may vote those proxies
that have been received to adjourn the meeting to a later date. If a quorum is
present but there are not sufficient votes in favor of the proposal, the persons
named as proxies may propose one or more adjournments of the meeting to permit
further solicitation of proxies concerning the proposal. Any adjournment will
require the affirmative vote of a majority of your fund's shares at the session
of the meeting to be adjourned. If an adjournment of the meeting is proposed
because there are not sufficient votes in favor of the proposal, the persons
named as proxies will vote those proxies favoring the proposal in favor of
adjournment, and will vote those proxies against the reorganization against
adjournment.
33
<PAGE>
TELEPHONE VOTING
In addition to soliciting proxies by mail, by fax or in person, your fund may
also arrange to have votes recorded by telephone by officers and employees of
your fund or by personnel of Pioneer, EQSF Advisers, Inc. or your fund's
transfer agent, or by representatives of compensated agents of any of these
parties. The telephone voting procedure is designed to verify a shareholder's
identity, to allow a shareholder to authorize the voting of shares in accordance
with the shareholder's instructions and to confirm that the voting instructions
have been properly recorded. If these procedures were subject to a successful
legal challenge, these telephone votes would not be counted at the meeting. Your
fund has not obtained an opinion of counsel about telephone voting, but is
currently not aware of any challenge.
o A shareholder will be called on a recorded line and will be asked to
provide the shareholder's social security number or other identifying
information
o The shareholder will then be given an opportunity to authorize proxies to
vote his or her shares at the meeting in accordance with the shareholder's
instructions
o To ensure that the shareholder's instructions have been recorded correctly,
the shareholder will also receive a confirmation of the voting instructions
by mail
o A toll-free number will be available in case the voting information
contained in the confirmation is incorrect
o If the shareholder decides after voting by telephone to attend the meeting,
the shareholder can revoke the proxy at that time and vote the shares at
the meeting
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of your fund, as of October 31, 1999, the following persons
owned of record or beneficially 5% or more of the outstanding shares of the
fund. No shares of Pioneer High Yield Fund were outstanding on October 31, 1999.
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------------------- -------------------------------------------
NAMES AND ADDRESSES OF OWNERS
OF MORE THAN 5% OF SHARES SHARES OF PRO FORMA OWNERSHIP OF PIONEER HIGH YIELD
THIRD AVENUE HIGH YIELD FUND FUND
- ------------------------------- ---------------------------------------- -------------------------------------------
<S> <C> <C>
- ------------------------------- ---------------------------------------- -------------------------------------------
Charles Schwab & Co. Inc.
101 Montgomery Street
San Francisco, CA 94104-4122 274,677.75 Shares (35.06%) 274,677.75 Shares (35.06%)
- ------------------------------- ---------------------------------------- -------------------------------------------
National Investor Services
Corporation
55 Water Street, 32nd Floor
New York, NY 10041-3299 48,306.01 (6.16%) 48,306.01 (6.16%)
- ------------------------------- ---------------------------------------- -------------------------------------------
National Financial Services
Corporation
Church Street Station
P.O. Box 3908
New York, NY 10008-3908 47,821.45 (6.10%) 47,821.45 (6.10%)
- ------------------------------- ---------------------------------------- -------------------------------------------
</TABLE>
As of October 31, 1999, the trustees and officers of your fund, as a group,
owned in the aggregate less than 1% of the outstanding shares of your fund.
As of November 30, 1999, the trustees and officers of Pioneer High Yield Fund,
as a group, owned in the aggregate less than 1% of the outstanding shares of
Pioneer High Yield Fund.
EXPERTS
The financial statements of Third Avenue High Yield Fund as of October 31, 1998
are incorporated by reference into this proxy statement and prospectus. The
financial statements and highlights have been
34
<PAGE>
independently audited by PricewaterhouseCoopers LLP, as stated in their
report appearing in the statement of additional information. These financial
statements and highlights are included in reliance upon the reports given upon
the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and files reports,
proxy statements and other information with the SEC. These reports, proxy
statements and other information can be inspected and copied (at prescribed
rates) at the public reference facilities of the SEC at 450 Fifth Street, N.W.,
Washington, D.C., and at the following regional offices: Chicago (500 West
Madison Street, Suite 1400, Chicago, Illinois); and New York (7 World Trade
Center, Suite 1300, New York, New York). Copies of such material can also be
obtained by mail from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, copies
of these documents may be viewed on-screen or downloaded from the SEC's Internet
site at http://www.sec.gov.
35
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made as
of this ____ day of October, 1999, between Pioneer High Yield Fund (the
"ACQUIRING FUND"), a business trust organized under the laws of the State of
Delaware with its principal place of business at 60 State Street, Boston,
Massachusetts 02109, and THIRD AVENUE TRUST, a business trust organized under
the laws of the State of Delaware with its principal place of business at 767
Third Avenue, New York, New York 10017-2023 (the "TRUST"), on behalf of Third
Avenue High Yield Fund (the "ACQUIRED FUND"), a series of the Trust.
This Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "CODE"). The reorganization (the
"REORGANIZATION") will consist of (a) the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange for (i) the issuance of Class A
shares of beneficial interest of the Acquiring Fund (collectively, the
"ACQUIRING FUND SHARES" and each, an "ACQUIRING FUND SHARE") to the Acquired
Fund, and (ii) the assumption by the Acquiring Fund of (I) the liabilities of
the Acquired Fund that are included in the calculation of net asset value
("NAV") on the closing date set forth below (the "CLOSING DATE") and (II) the
liabilities of the Acquired Fund with respect to its investment operations that
are not required by generally accepted accounting principles ("GAAP") to be
included in the calculation of NAV consistent with liabilities incurred by
registered management investment companies in the ordinary course of their
businesses (i.e., not including any extraordinary obligations, including, but
not limited to legal proceedings, shareholder claims and distribution payments)
(the "ASSUMED LIABILITIES"), and (b) the distribution by the Acquired Fund, on
the Closing Date, or as soon thereafter as practicable, of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in liquidation of the Acquired
Fund and the termination of the Acquired Fund, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, Acquiring Fund and the Trust are each registered investment
companies classified as management companies of the open-end type, and the
Acquired Fund owns securities that generally are assets of the character in
which the Acquiring Fund is permitted to invest;
WHEREAS, the Acquiring Fund is authorized to issue shares of beneficial
interest;
WHEREAS, the Board of Trustees of the Acquiring Fund has determined
that the exchange of all of the assets of the Acquired Fund for Acquiring Fund
Shares and the assumption of the Assumed Liabilities of the Acquired Fund by the
Acquiring Fund are in the best interests of the Acquiring Fund shareholders;
WHEREAS, the Board of Trustees of the Trust has determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of the Assumed Liabilities of the Acquired Fund by the Acquiring
Fund are in the best interests of the Acquired Fund shareholders.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND ASSUMPTION OF THE ASSUMED LIABILITIES AND LIQUIDATION
AND TERMINATION OF THE ACQUIRED FUND.
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the Acquired
Fund agrees to transfer its assets as set forth in paragraph 1.2 to the
Acquiring Fund free and clear of all liens and encumbrances (other than those
arising under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
liens for taxes not yet due and contractual restrictions on the transfer
36
<PAGE>
of the acquired assets), and the Acquiring Fund agrees in exchange
therefor: (a) to issue to the Acquired Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined (to at least two decimal
places) by dividing the value of the Acquired Fund's net assets transferred to
the Acquiring Fund, computed in the manner and as of the time and date set forth
in paragraph 2.1, by the NAV of one Acquiring Fund Share, computed in the manner
and as of the time and date set forth in paragraph 2.2; and (b) to assume the
Assumed Liabilities, as set forth in paragraph 1.3. Such transactions shall take
place at the closing provided for in paragraph 3.1 (the "CLOSING").
1.2. (a) The assets of the Acquired Fund to be acquired by the
Acquiring Fund shall consist of all of its property, including, without
limitation, all goodwill, all contractual rights of the Acquired Fund or the
Trust in respect of the Acquired Fund, all other intangible property owned by
the Acquired Fund and originals or copies of all books and records of the
Acquired Fund but shall not include any interest in the name "Third Avenue."
(b) The Acquired Fund has provided the Acquiring Fund with a
list of all of the Acquired Fund's securities and other assets as of the date of
this Agreement. The Acquired Fund reserves the right to sell any of these
securities but will not, without the prior approval of the Acquiring Fund,
acquire any additional securities other than securities of the type in which the
Acquiring Fund is permitted to invest and shall not acquire, without the consent
of the Acquiring Fund, any securities that are valued at "fair value" under the
valuation procedures of either the Acquired Fund or the Acquiring Fund.
1.3. The Acquired Fund will endeavor to discharge all the Acquired
Fund's known liabilities and obligations that are or will become due prior to
the Closing Date. The Acquired Fund shall prepare an unaudited statement of
assets and liabilities (the "CLOSING STATEMENT"), as of the Valuation Date (as
defined in paragraph 2.1), in accordance with GAAP consistently applied from the
prior audited period, including a calculation of the net assets of the Acquired
Fund as of the close of business on the Closing Date. The Acquiring Fund shall
assume the Assumed Liabilities.
1.4. On the Closing Date or as soon thereafter as is conveniently
practicable, the Trust shall liquidate the Acquired Fund and distribute pro rata
to the Acquired Fund's shareholders of record determined as of the close of
business on the Closing Date (the "ACQUIRED FUND SHAREHOLDERS") the Acquiring
Fund Shares it receives pursuant to paragraph 1.1. Such liquidation and
distribution will be accomplished by the Trust instructing the Acquiring Fund to
transfer the Acquiring Fund Shares then credited to the account of the Acquired
Fund on the books of the Acquiring Fund to open accounts on the share records of
the Acquiring Fund in the names of the Acquired Fund Shareholders (as provided
to the Acquiring Fund by the Trust) and representing the respective pro rata
number of the Acquiring Fund Shares due such shareholders. The Trust shall
promptly provide the Acquiring Fund with evidence of such liquidation and
distribution. All issued and outstanding shares of the Acquired Fund will
simultaneously be cancelled on the books of the Acquired Fund, although share
certificates representing interests in the Acquired Fund will represent a number
of Acquiring Fund Shares after the Closing Date as determined in accordance with
paragraph 1.1. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent for its Class A shares. Acquiring Fund
Shares will be issued in the manner described in the Acquiring Fund's
Registration Statement on Form N-14 in the form attached to this Agreement as
Annex A.
1.6. Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund
shares on the books of the Acquired Fund as of the time of issuance shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7. Any reporting responsibility of the Trust with respect to the
Acquired Fund is and shall remain the responsibility of the Trust up to and
including the Closing Date and such later date on which the Acquired Fund is
terminated.
1.8. The Acquired Fund shall, following the Closing Date and the making
of all distributions pursuant to paragraph 1.4, be terminated as a series of the
Trust under the laws of the State of Delaware and in accordance with the Trust
Instrument and By-Laws of the Trust.
37
<PAGE>
2. VALUATION
2.1. The value of the assets of the Acquired Fund to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of regular trading on the New York Stock Exchange, Inc. on the Closing
Date (such time and date being hereinafter called the "VALUATION DATE"), using
the valuation procedures set forth in the prospectus or statement of additional
information of the Acquired Fund as in effect on the date hereof.
2.2. The NAV of the Acquiring Fund Class A shares shall be calculated
in accordance with the valuation procedures described in paragraph 2.1.
2.3. All computations of value shall be made by First Data Investors
Services Group, Inc. in accordance with its regular practice as pricing agent
for the Acquired Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be February 29, 2000, or such later date as
the parties may agree to in writing. All acts taking place at the Closing shall
be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 5:00
p.m. (Eastern time) at the offices of Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts, or at such other time and/or place as the parties may
agree.
3.2. Portfolio securities shall be presented by the Acquired Fund to
Brown Brothers Harriman & Co. ("BBH") as custodian for the Acquiring Fund for
examination no later than three business days preceding the Valuation Date. The
Acquiring Fund may, in its sole discretion, reject any securities if it
reasonably believes that the ownership of such securities by the Acquired Fund
or the acquisition of such securities by the Acquiring Fund would violate the
investment policies and restrictions of the Acquired Fund and the Acquiring
Fund. The portfolio securities, cash and due bills shall be delivered by the
Acquired Fund to BBH as custodian for the Acquiring Fund for the account of the
Acquiring Fund at the Closing duly endorsed in proper form for transfer in such
condition as to constitute good delivery thereof in accordance with the custom
of brokers. The cash shall be delivered by wire in federal funds to an account
of the Acquiring Fund specified by the Acquiring Fund.
3.3. Custodial Trust Company, custodian for the Acquired Fund, shall
deliver at the Closing a certificate of an authorized officer stating that: (a)
the Acquired Fund's assets have been delivered in proper form to the Acquiring
Fund on the Closing Date and (b) all necessary transfer taxes including all
applicable federal and state stock transfer stamps, if any, have been paid, or
provision for payment shall have been made, in conjunction with the delivery of
portfolio securities.
3.4. In the event that on the Valuation Date (a) the primary trading
market for portfolio securities of the Acquired Fund shall be closed to
trading or trading thereon shall be restricted or (b) trading or the reporting
of trading on such market shall be disrupted so that accurate calculation based
upon available market prices of the value of the net assets of the parties
hereto is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed and
reporting shall have been restored, provided that unless the parties otherwise
agree, if the transactions contemplated by this Agreement shall not have
occurred on or prior to April 15, 2000, each party's obligations under this
Agreement shall terminate without liability to the other party, except for any
liability that may arise out of a party's breach of its obligations under this
Agreement prior to such termination.
3.5. The Acquired Fund shall deliver to the Acquiring Fund at the
Closing (or, if not reasonably available at the Closing, as soon as practicable
thereafter) a list of the names, addresses, taxpayer identification numbers and
backup withholding and nonresident alien withholding status of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding shares owned
by each such shareholder immediately prior to the Closing, certified by the
President or a Vice President of the Trust on behalf of the Acquired Fund as
being an accurate record of the information (i) provided by Acquired Fund
Shareholders or (ii) derived from the Trust's records by such officers or one of
the Trust's service providers.
3.6. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited to the Acquired Fund's
account on the Closing Date to the Secretary of the Trust on behalf of the
38
<PAGE>
Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account on the
books of the Acquiring Fund. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. LIQUIDATION AND DISSOLUTION OF ACQUIRED FUND
4.1. As soon as practicable after the Closing, the Trust shall
liquidate the Acquired Fund and distribute pro rata to the Acquired Fund
Shareholders the Acquiring Fund Shares received pursuant to paragraph 1.1. Such
liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares credited to the account of the Acquired Fund to open
accounts on the share records in the names of Acquired Fund Shareholders as
delivered to the Acquiring Fund prior to the Closing Date in accordance with
paragraph 3.5 and representing the respective pro rata entitlement of each
Acquired Fund Shareholder in the Acquiring Fund Shares.
4.2. In connection with such liquidating distributions, (a) the
Acquiring Fund shall not deliver certificates representing its shares and (b)
the share transfer books of the Acquired Fund shall be permanently closed as of
the Closing Date and arrangements satisfactory to the Acquiring Fund, acting
reasonably, shall be made to restrict the further transfer of the Acquired
Fund's shares.
4.3. As soon as practicable after the liquidation of the Acquired
Fund, the Trust shall terminate the Acquired Fund as a series of the Trust
under the laws of the State of Delaware and in accordance with the Trust
Instrument and By-Laws of the Trust.
5. REPRESENTATIONS AND WARRANTIES
5.1. The Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund, which representations and warranties will be
true and correct on the date hereof and on the Closing Date as though made on
and as of the Closing Date, as follows:
(a) The Acquired Fund is a series of the Trust. The Trust is a
business trust validly existing and in good standing under the laws of the
State of Delaware and has the power to own all of its properties and assets
and, subject to approval by the Acquired Fund Shareholders, to perform its
obligations under this Agreement. The Acquired Fund is not required to qualify
to do business in any jurisdiction in which it is not so qualified or where
failure to qualify would not subject it to any material liability or
disability. Each of the Acquired Fund and the Trust has all necessary federal,
state and local authorizations to own all of the properties and assets
attributable to the Acquired Fund and to carry on the business of the Acquired
Fund as now being conducted;
(b) The Trust is a registered investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "COMMISSION") under the Investment
Company Act of 1940 (the "INVESTMENT COMPANY ACT") is in full force and effect;
(c) The Trust is not, and the execution, delivery and performance of
this Agreement in respect of the Acquired Fund will not result, in a material
violation of its Trust Instrument or By-Laws or of any material agreement,
indenture, instrument, contract, lease or other undertaking with respect to the
Acquired Fund to which the Trust is a party or by which the Acquired Fund or
its assets are bound;
(d) Except as specifically disclosed on Schedule 5.1(d) or included in
the calculation of NAV on the Valuation Date, the Trust has no material
contracts or other commitments (other than this Agreement) with respect to the
Acquired Fund which will be terminated with liability to either the Trust or to
the Acquired Fund on or prior to the Closing Date;
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or to its knowledge
threatened against the Trust with respect to the Acquired Fund or any of the
Acquired Fund's properties or assets, except as previously disclosed in writing
to, and acknowledged in writing by, the Acquiring Fund. Neither the Trust nor
the Acquired Fund is a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects the Acquired Fund's business or the Trust's ability to
consummate the transactions herein contemplated;
39
<PAGE>
(f) The statement of assets and liabilities of the Acquired Fund as of October
31, 1998 has been, and the statement of assets and liabilities of the Acquired
Fund as of October 31, 1999 to be delivered to the Acquiring Fund pursuant to
paragraph 8.4 will be, audited by PricewaterhouseCoopers LLP, independent
certified public accountants, and is or will be in accordance with GAAP
consistently applied and fairly reflects, or will fairly reflect, the financial
condition of the Acquired Fund as of such dates; except for the Assumed
Liabilities, the Acquired Fund will not have any known or contingent liabilities
on the Closing Date;
(g) Since October 31, 1998, except as disclosed on a schedule to this Agreement
or specifically disclosed in the Acquired Fund's prospectus or statement of
additional information as in effect on the date of this Agreement, there has not
been any material adverse change in the Acquired Fund's financial condition,
assets, liabilities, business or prospects, or any incurrence by the Acquired
Fund of indebtedness, except for normal contractual obligations incurred in the
ordinary course of business or in connection with the settlement of purchases
and sales of portfolio securities. For the purposes of this subparagraph (g), a
decline in NAV per share of the Acquired Fund arising out of its normal
investment operations or a decline in net assets of the Acquired Fund as a
result of redemptions shall not constitute a material adverse change;
(h) For each taxable year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company and has elected to be treated as such and will
qualify as such as of the Closing Date. The Acquired Fund has not taken any
action which has caused or will cause the Acquired Fund to fail to qualify as a
regulated investment company under the Code. The Acquired Fund has not been
notified that any tax return or other filing of the Acquired Fund has been
reviewed or audited by any federal, state, local or foreign taxing authority.
Except as set forth on Schedule 5.1:
(A) Within the times and in the manner prescribed by law, the
Acquired Fund has filed all federal, state and local tax returns,
including all information returns and payee statements, and all tax
returns for foreign countries, provinces and other governing bodies
that have jurisdiction to levy taxes upon it and which are required to
be filed;
(B) The Acquired Fund has paid all taxes, interest, penalties,
assessments and deficiencies which have become due or which
have been claimed to be due;
(C) All tax returns filed by the Acquired Fund constitute
complete and accurate reports of the respective tax liabilities of the
Acquired Fund or, in the case of information returns and payee
statements, the amounts required to be reported accurately set
forth all items required to be included or reflected in such
returns except for such instances of misreporting with respect
to which, individually or in the aggregate, the Acquired Fund
is not required to notify any shareholder;
(D) The Acquired Fund has not waived or extended any applicable
statute of limitations relating to the assessment of federal,
state, local or foreign taxes; and
(E) The Acquired Fund has not been notified that any examinations
of the federal, state, local or foreign tax returns of the
Acquired Fund are currently in progress or threatened and no
deficiencies have been asserted or assessed against the
Acquired Fund as a result of any audit by the Internal Revenue
Service or any state, local or foreign taxing authority, and no
such deficiency has been proposed or threatened;
(i) All issued and outstanding shares of the Acquired Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. To the Trust's knowledge, all of the issued and outstanding
shares of the Acquired Fund will, at the time of Closing, be held of record by
the persons and in the amounts set forth in the records of the transfer agent
as provided in paragraph 3.5. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any shares of
the Acquired Fund, nor is there outstanding any security convertible into any
shares of the Acquired Fund;
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(j) At the Closing Date, the Trust in respect of the Acquired Fund
will have good and marketable title to the assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.1 and full right, power and authority to
sell, assign, transfer and deliver such assets hereunder, and, upon delivery
and payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto, subject to no restrictions on the full transfer
thereof, except such restrictions as might arise under the Securities Act,
other than as disclosed in writing to, and acknowledged in writing by, the
Acquiring Fund;
(k) The Trust on behalf of the Acquired Fund has the trust power and
authority to enter into and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement has been duly authorized
by all necessary action on the part of the Trust's Board of Trustees on behalf
of the Acquired Fund, and, subject to the approval of the Acquired Fund
Shareholders, assuming due authorization, execution and delivery by the
Acquiring Fund, this Agreement will constitute a valid and binding obligation
of the Trust in respect of the Acquired Fund, enforceable in accordance with
its terms, subject as to enforcement, bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(l) Any information furnished by EQSF Advisers, Inc. or the Trust on
behalf of the Acquired Fund for use in registration statements, proxy materials
and any information necessary to compute the yield and total return of the
Acquired Fund shall be accurate and complete in all material respects and shall
comply in all material respects with federal securities and other laws and
regulations applicable thereto or the requirements of any form for which its
use is intended;
(m) The proxy statement to be included in the Acquiring Fund's
Registration Statement on Form N-14 attached hereto as Annex A (other than
information therein that relates to Pioneer Investment Management, Inc., the
Acquiring Fund or their affiliates) will, on the effective date of that
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(n) Except as set forth on Schedule 5.1 and as will be obtained on or
prior to the Closing Date, no consent, approval, authorization or order of any
court or governmental authority is required for the consummation by the Trust
or the Acquired Fund of the transactions contemplated by this Agreement;
(o) To the Trust's knowledge, all of the issued and outstanding shares
of beneficial interest of the Acquired Fund have been offered for sale and sold
in conformity with all applicable federal and state securities laws, except as
may have been previously disclosed in writing to the Acquiring Fund;
(p) The Acquired Fund currently complies in all material respects with
and since its organization has complied in all material respects with the
requirements of, and the rules and regulations under, the Investment Company
Act, the Securities Act, the Securities Exchange Act of 1934 (the "EXCHANGE
ACT"), state "Blue Sky" laws and all other applicable federal and state laws or
regulations. The Acquired Fund currently complies in all material respects with,
and since its organization has complied in all material respects with, all
investment objectives, policies, guidelines and restrictions and any compliance
procedures established by the Trust with respect to the Acquired Fund. All
advertising and sales material used by the Acquired Fund complies in all
material respects with and has complied in all material respects with the
applicable requirements of the Securities Act, the rules and regulations of the
Commission, and, to the extent applicable, the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") and any applicable state
regulatory authority. All registration statements, prospectuses, reports, proxy
materials or other filings required to be made or filed with the Commission, the
NASD or any state securities authorities by the Acquired Fund have been duly
filed and have been approved or declared effective, if such approval or
declaration of effectiveness is required by law. Such registration statements,
prospectuses, reports, proxy materials and other filings under the Securities
Act, the Exchange Act and the Investment Company Act (i) are or were in
compliance in all material respects with the requirements of all applicable
statutes and the rules and regulations thereunder and (ii) do not or did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not false or misleading;
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(q) The Acquired Fund has previously provided to the Acquiring Fund
(and will at the Closing provide an update through the Closing Date of such
information) with data which supports a calculation of the Acquired Fund's total
return and yield for all periods since the organization of the Acquired Fund.
Such data has been prepared in accordance in all material respects with the
requirements of the Investment Company Act and the regulations thereunder and
the rules of the NASD; and
(r) The prospectus of the Acquired Fund dated February 28, 1999, and
any amendments or supplements thereto, previously furnished to the Acquiring
Fund, did not as of their dates or the dates of their distribution to the
public contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading.
5.2. The Acquiring Fund represents and warrants to the Trust, which
representations and warranties will be true and correct on the date hereof and
on the Closing Date as though made on and as of the Closing Date, as follows:
(a) The Acquiring Fund is a business trust, validly existing and in
good standing under the laws of the State of Delaware and has the power to own
all of its properties and assets and to perform its obligations under this
Agreement. The Acquiring Fund is not required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to qualify would
not subject it to any material liability or disability. The Acquiring Fund has
all necessary federal, state and local authorizations to own all of its
properties and assets and to carry on its business as now being conducted;
(b) The Acquiring Fund is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in full
force and effect;
(c) The prospectus and statement of additional information of the
Acquiring Fund included in the Acquiring Fund's registration statement that
will be in effect on the Closing Date will conform in all material respects
with the applicable requirements of the Securities Act and the Investment
Company Act and the rules and regulations of the Commission thereunder and did
not as of its date and will not as of the Closing Date contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(d) The Acquiring Fund is not, and its execution, delivery and
performance of this Agreement will not result, in a violation of its Agreement
and Declaration of Trust or By-Laws or a material violation of any agreement,
indenture, instrument, contract, lease or other undertaking with respect to the
Acquiring Fund to which it is a party or by which it is bound;
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or threatened
against the Acquiring Fund or any of the Acquiring Fund's properties or assets,
except as previously disclosed in writing to, and acknowledged in writing by,
the Acquired Fund. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings, and the Acquiring Fund is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects the Acquiring
Fund's business or its ability to consummate the transactions contemplated
herein;
(f) The Acquiring Fund has the trust power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action,
if any, on the part of the Acquiring Fund's Board of Trustees, and, assuming
due authorization, execution and delivery by the Acquired Fund, this Agreement
will constitute a valid and binding obligation of the Acquiring Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights and to general equity principles;
(g) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares and will be fully paid and non-assessable; the Acquiring Fund does
not have outstanding any options, warrants or other
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rights to subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into any of the Acquiring Fund Shares;
(h) The information to be furnished by the Acquiring Fund or Pioneer Investment
Management, Inc. for use in proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations applicable
thereto or the requirements of any form for which its use is intended;
(i) The Acquiring Fund is a qualified institutional buyer as defined in Rule
144A under the Securities Act;
(j) Neither the Acquiring Fund nor, to the knowledge of the Acquiring Fund, any
"affiliated person" of the Acquiring Fund has been convicted of any felony
or misdemeanor, described in Section 9(a)(1) of the Investment Company Act, nor,
to the knowledge of the Acquiring Fund, has any affiliated person of the
Acquiring Fund been the subject, or presently is the subject, of any proceeding
or investigation with respect to any disqualification that would be a basis for
denial, suspension or revocation of registration as an investment adviser under
Section 203(e) of the Investment Advisers Act of 1940 or Rule 206(4)-4(b)
thereunder or of a broker-dealer under Section 15 of the Exchange Act, or for
disqualification as an investment adviser, employee, officer or director of an
investment company under Section 9 of the Investment Company Act;
(k) The Acquiring Fund intends to elect to qualify as a regulated investment
company under Section 851 of the Code. Immediately prior to the Closing, the
Acquiring Fund will be in compliance in all material respects with all
applicable laws, rules and regulations, including, without limitation, the
Investment Company Act, the Securities Act, the Exchange Act and all applicable
state securities laws. Immediately prior to the Closing, the Acquiring Fund will
be in compliance in all material respects with the applicable investment
policies and restrictions set forth in its registration statement currently in
effect and will have calculated its NAV in accordance with the Acquiring Fund's
registration statement;
(l) The Acquiring Fund Shares to be issued pursuant to this Agreement shall on
the Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of the Acquiring Fund then in effect and qualified for
sale under the applicable state securities laws; and
(m) The Acquiring Fund Shares to be issued pursuant to this Agreement are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform in all material respects to the description
thereof contained in the Acquiring Fund's Registration Statement on Form N-14.
On the Closing Date, the Acquiring Fund shall not, except as provided herein,
have outstanding any warrants, options, convertible securities or any other type
of right pursuant to which any person could acquire Acquiring Fund Shares.
6. COVENANTS OF EACH OF THE PARTIES
6.1. The Trust, on behalf of the Acquired Fund, will operate the
Acquired Fund's business in the ordinary course between the date hereof and the
Closing Date. It is understood that such ordinary course of business will
include the declaration and payment of customary dividends and distributions
and any other dividends and distributions necessary or advisable (except to the
extent distributions that are not customary may be limited by representations
made in connection with the issuance of the tax opinion described in paragraph
9.5 hereof), in each case payable either in cash or in additional shares.
6.2. The Trust will call a meeting of the Acquired Fund Shareholders
to consider and act upon the matters set forth in the proxy statement. Each of
the Trust, on behalf of the Acquired Fund, and the Acquiring Fund will use
reasonable efforts to promptly prepare and file with the Commission a
Registration Statement on Form N-14 relating to the transactions contemplated
by this Agreement.
6.3. The Trust, on behalf of the Acquired Fund, covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
6.4. The Acquired Fund will assist the Acquiring Fund in obtaining
such information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund's shares.
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6.5. Subject to the provisions of this Agreement each of the Trust, on
behalf of the Acquired Fund, and the Acquiring Fund will take, or cause to be
taken, all actions, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
6.6. The Acquired Fund shall furnish to the Acquiring Fund on the
Closing Date the Closing Statement, which statement shall be prepared in
accordance with GAAP consistently applied and shall be certified by the Trust's
Treasurer or Assistant Treasurer. As promptly as practicable, but in any case
within 90 days after the Closing Date, the Trust shall furnish to the Acquiring
Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a
statement of the earnings and profits of the Acquired Fund for federal income
tax purposes, and of any capital loss carryovers and other items that will be
carried over to the Acquiring Fund as a result of Section 381 of the Code, and
which statement will be certified by the Treasurer of the Trust.
6.7. The Trust will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus, which will include the
proxy statement, referred to in paragraph 5.1(m), all to be included in the
Acquiring Fund's Registration Statement on Form N-14, in compliance with the
Securities Act, the Exchange Act and the Investment Company Act in connection
with the meeting of the Acquired Fund Shareholders to consider approval of this
Agreement and the transactions contemplated herein.
6.8. The Trust shall maintain errors and omissions insurance covering
management of the Acquired Fund prior to and including the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Acquiring Fund of all of the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the following further
conditions, unless waived by the Acquired Fund in writing:
7.1. All representations and warranties made in this Agreement by the
Acquiring Fund shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date; and
7.2. The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance reasonably satisfactory
to the Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties made in this Agreement by or on behalf of the
Acquiring Fund are true and correct in all material respects at and as of the
Closing Date, except as they may be affected by the transactions contemplated
by this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Trust and Acquired Fund of all of the obligations to be performed by them
hereunder on or before the Closing Date and, in addition thereto, the following
further conditions:
8.1. All representations and warranties made in this Agreement by or
on behalf of the Trust and the Acquired Fund shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date;
8.2. The Trust shall have delivered to the Acquiring Fund a statement
of the Acquired Fund's assets and liabilities showing the federal tax bases and
holding periods as of the Closing Date, certified by the Trust's Treasurer or
Assistant Treasurer on behalf of the Trust;
8.3. The Trust, on behalf of the Acquired Fund, shall have delivered
to the Acquiring Fund on the Closing Date a certificate executed in its
name by its President or Vice President and Treasurer or Assistant Treasurer,
in form and substance reasonably satisfactory to the Acquiring Fund and dated
as of the Closing Date, to the effect that the representations and warranties
made in this Agreement are true and correct in all material
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respects at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement; and
8.4. The Trust shall have delivered to the Acquiring Fund at least 30
days prior to the Closing Date financial statements of the Acquired Fund as of
October 31, 1999 audited by PricewaterhouseCoopers LLP. With the consent of
PricewaterhouseCoopers LLP (which the Trust agrees to use its reasonable
efforts to obtain), the Trust consents to the inclusion of such financial
statements, and any financial statement of the Acquired Fund for a prior
period, in the Acquiring Fund's registration statements under the Securities
Act and the Investment Company Act.
9. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE PARTIES
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to either party hereto, the other party to this
Agreement shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
9.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of each of the Trust's Trust
Instrument and By-Laws, and certified copies of the votes evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither party hereto may waive the conditions
set forth in this paragraph 9.1;
9.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
9.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities) deemed
necessary by either party hereto to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of
either party hereto, provided that either party may for itself waive any of such
conditions;
9.4. The Acquiring Fund's Registration Statement on Form N-14 shall
have become effective under the Securities Act and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the Securities Act;
9.5. The parties shall have received a favorable opinion of Skadden,
Arps, Slate, Meagher & Flom (Illinois), addressed to the Acquiring Fund and the
Trust in respect of the Acquired Fund and satisfactory to the Acquiring Fund and
the Trust, substantially to the effect that for federal income tax purposes, on
the basis of the facts, representations and assumptions set forth in such
opinion, the acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to
the Acquired Fund and the assumption of all of the Assumed Liabilities by the
Acquiring Fund, followed by the distribution by the Acquired Fund, in
liquidation of the Acquired Fund, of Acquiring Fund Shares to the Acquired Fund
Shareholders in exchange for their Acquired Fund shares of beneficial interest
and the termination of the Acquired Fund, will constitute a reorganization
within the meaning of Section 368(a) of the Code, and the Acquired Fund and the
Acquiring Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code.
9.6. Each of the Acquiring Fund and the Acquired Fund agrees to make,
to the extent that it is able to accurately do so, and provide representations
with respect to itself that are reasonably necessary to enable Skadden, Arps,
Slate, Meagher & Flom (Illinois) to deliver an opinion substantially as set
forth in paragraph 9.5.
10. BROKERAGE FEES AND EXPENSES
10.1. Each party hereto represents and warrants to the other party
hereto that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
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10.2. The parties have been informed by Pioneer Investment Management,
Inc. that it will pay all expenses incurred in connection with the
Reorganization (including, but not limited to, the preparation of the proxy
statement and solicitation expenses), except that the Acquired Fund shall be
liable for its fees and expenses incurred in connection with its liquidation and
termination; provided, however, that any fees and expenses of counsel to the
Trust in excess of $15,000 shall be paid by EQSF Advisers, Inc.; and provided
further that in the event that the transactions contemplated by this Agreement
are not approved by the shareholders of the Acquired Fund or the transactions
contemplated hereby are not otherwise completed otherwise than as a result of a
breach of this Agreement, each of Pioneer Investment Management, Inc. and EQSF
Advisers, Inc. shall pay 50% of the costs incurred by each of the Acquiring Fund
and the Acquired Fund in connection with the transactions contemplated by this
Agreement; provided finally EQSF Advisers, Inc. shall not be liable for more
than $20,000 pursuant to the preceding clause. EQSF Advisers, Inc. shall also be
solely liable for any expenses incurred in connection with obtaining the
approval of the Trustees of the Trust of the transactions contemplated by this
Agreement.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The parties hereto agree that no party has made any
representation, warranty or covenant not set forth herein or referred to in
paragraph 9.6 hereof and that this Agreement constitutes the entire agreement
between the parties.
11.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
12. TERMINATION
12.1. This Agreement may be terminated at any time prior to the Closing
Date by: (a) the mutual agreement of the Trust, on behalf of the Acquired Fund,
and the Acquiring Fund; (b) any party in the event that the other party hereto
shall breach any material representation, warranty or agreement contained herein
to be performed at or prior to the Closing Date and has not cured such breach
within 10 days of notice thereof; or (c) a condition herein expressed to be
precedent to the obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
12.2. In the event of any such termination, there shall be no liability
for damages on the part of any party hereto or their respective Trustees or
officers to the other party, but, except as provided in Section 10, each shall
bear the expenses incurred by it incidental to the preparation and carrying out
of this Agreement.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Trust on behalf of the Acquired Fund and the Acquiring Fund; provided, however,
that following the meeting of the Acquired Fund Shareholders called by the Trust
pursuant to paragraph 6.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of the Acquired Fund Shareholders without their further
approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the Trust on behalf of the
Acquired Fund at 767 Third Avenue, New York, New York 10017-2023, and the
Acquiring Fund at 60 State Street, Boston, Massachusetts 02109.
15. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
15.1. The article and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
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15.3. This Agreement shall be governed by and construed in accordance
with the laws of The Commonwealth of Massachusetts.
15.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
either party without the written consent of the other party hereto. Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give any person, firm, corporation or other entity, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
15.5 It is expressly agreed that the obligations of the Acquiring Fund
and the Trust, on behalf of the Acquired Fund, shall not be binding upon any of
their respective Trustees, shareholders, nominees, officers, agents or employees
personally, but bind only the trust property of the Acquiring Fund or the
Acquired Fund, as the case may be, as provided in the trust instruments of the
Acquiring Fund and the Trust, respectively. The execution and delivery of this
Agreement have been authorized by the Trustees of each of the Acquiring Fund and
the Trust, on behalf of the Acquired Fund, and this Agreement has been executed
by authorized officers of the Acquiring Fund and the Trust, on behalf of the
Acquired Fund, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officers shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Acquiring Fund and the
Acquired Fund, as the case may be, as provided in the trust instruments of the
Acquiring Fund and the Trust, respectively.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President or Vice President and attested by its
Secretary or Assistant Secretary.
Attest: THIRD AVENUE TRUST ON BEHALF OF
THIRD AVENUE HIGH YIELD FUND
By: __________________________ By: __________________________
Name: Ian M. Kirschner Name: __________________________
Title: Secretary Title: __________________________
Attest: PIONEER HIGH YIELD FUND
By: __________________________ By: __________________________
Name: Joseph P. Barri Name: __________________________
Title: Secretary Title: __________________________
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EXHIBIT B
EXCERPTS FROM THIRD AVENUE HIGH YIELD FUND'S
APRIL 30, 1999 SEMI-ANNUAL REPORT AND OCTOBER 31, 1998 ANNUAL REPORT
The following information is provided for your convenience. It has been
excerpted in its entirety from Third Avenue High Yield Fund's most recent
semi-annual and annual reports, both of which were mailed to shareholders of
Third Avenue High Yield Fund. Specifically, these excerpts contain your fund's
portfolio manager's discussion of portfolio holdings and factors affecting fund
performance.
EXCERPT FROM THIRD AVENUE HIGH YIELD FUND'S
APRIL 30, 1999 SEMI-ANNUAL REPORT
Dear Fellow Shareholders:
At April 30, 1999, the unaudited net asset value attributable to the 916,197
common shares outstanding of the Third Avenue High Yield Fund (the "Fund") was
$9.41 per share. On March 31, 1999, the most recent dividend date, the Fund paid
$0.167 per share in dividends, representing income received from the Fund's
holdings of fixed income securities. Since the end of the Fund's last fiscal
year, ending on October 31, 1998, when the Fund's net asset value was $8.50, a
total of $0.35 per share has been paid in dividends. On January 31, 1999, the
last day of the Fund's first fiscal quarter, the net asset value per share was
$9.58. At May 20, 1999, the net asset value per share was $9.64.
QUARTERLY ACTIVITY
During the second quarter of fiscal 1999, the Fund made small reductions in
three holdings, and established three new positions, as shown below.
PAR VALUE
OR NUMBER OF SHARES REDUCTIONS IN EXISTING POSITIONS
$100,000 Alpharma, Inc. 144A 5.75% due 4/01/05
$100,00 Credence Systems Corp. 5.25% due 9/15/02
1,000 shares Nextlink Communications, Inc. 144A 6.50%,
due 3/31/10
These reductions were made in order to better reflect what we thought were
appropriate weightings for these holdings, given their substantial appreciation
at the time of their sales in the fiscal year. We continue to regard the
business prospects of these companies favorably, and expect to retain our still
significant positions.
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Alpharma is a generic pharmaceutical company which develops and sells a wide
range of human and animal health products worldwide, and has grown steadily
through development of new products and selected acquisitions.
Credence Systems makes automatic test equipment and software used in the
production of semiconductors. It sells its products worldwide to semiconductor
makers, and after some delays in the introduction of new products, should have a
good increase in sales as these products have been received quite favorably by
its customers. Its equipment is increasingly focused on the most rapidly growing
segments of the semiconductor market: those used in telecommunications, internet
applications, media and consumer devices.
NEXTLINK is a new telecommunications company established in 1996 to provide
local, long distance and data communication services. The company was formed to
take advantage of the many growth opportunities in the industry following the
federal telecommunication act of 1996 which opened competition in
telecommunication services to new entrants.
PAR VALUE
OR NUMBER OF SHARES NEW POSITIONS ACQUIRED
$500,000 Webb (Del E.) Corp. 10.25% due 2/15/10
4,000 shares KN Energy, Inc. 8.25% due 11/30/01
$250,000 NCI Building Systems, Inc. 144A 9.25% due
5/01/09
Del Webb is one of the US's biggest residential real estate developers, and the
nation's largest developer of planned age-restricted retirement communities,
with operations primarily in the sunbelt states of Nevada, Arizona, California,
Florida, and South Carolina, as well as in Illinois. Recently, the company has
expanded its development activities to include communities without the age
restrictions. It has an excellent track record, diversified locations, and is
well positioned for the move-up buyer, as well as the active adult market
segment.
KN Energy gathers, processes, stores and transports natural gas, and operates
pipelines in the central and western US. It is the nation's sixth largest
integrated natural gas company. Above-normal winter temperatures have reduced
demand for natural gas, and the resulting depressed prices for gas, along with
low oil prices, have recently caused financial results to decline. However, the
company is well run, has diversified operations, and earnings are expected to
recover with more normal seasonal temperatures and higher energy prices in
general. Recently, Sempra Energy offered to acquire KN Energy. San Diego-based
Sempra has started the process of restructuring, as California begins to
deregulate the retail power market, and has sold some assets, while expanding
further into the gas industry, through its offer to purchase KN Energy. The
credit quality of KN Energy would be improved if the acquisition were made,
since Sempra's corporate debt is A-rated, or one level above that of KN Energy.
NCI Building Systems was substantially expanded a year ago with the acquisition
of a major competitor. The company is one of the largest integrated
manufacturers of metal products for the nonresidential building industry. It
operates in 17 states and Mexico. NCI makes and sells metal components and
engineered building systems such as metal roof and wall systems; overhead,
interior and exterior doors; and related accessories, both to the new
construction and renovation markets. With its recent acquisition, it is
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now twice as large as its next competitor, has substantial purchasing power
because of its size in a fragmented market, and has proprietary techniques for
producing higher margin coated metal products. Metal roofing products comprise
only 6% of the $21 billion roofing market, but this segment is growing faster
than the industry as a whole due to low cost, flexibility of use, and
improvements in function and appearance.
PORTFOLIO STRUCTURE
The table below lists our largest sector concentrations for the portfolio as of
April 30, 1999, reflecting our emphasis on industries which we feel represent
attractive value.
INDUSTRY PERCENTAGE OF TOTAL ASSETS
Telecommunications 14.54%
Semiconductor capital equipment 13.66%
Diversified technology 12.33%
Real estate 11.56%
Electric and gas utilities 10.58%
We think the telecommunications industry remains an excellent investment, and
have made a substantial commitment. Lower prices, faster transmission speed, and
greater functionality have dramatically changed the nature of telecommunications
in the last few years, and these trends should continue into the future. Usage
of traditional voice services has expanded much faster than growth of the
general economy, as falling prices have stimulated demand. In addition,
increasing amounts of data are being transported as information needs grow. New
demand for an enlarged range of data, video and voice services, spawned by ever
growing internet usage, has also dramatically multiplied.
Increased uses of semiconductors in a widening array of products continue to
drive the revenues of technology companies, for both SEMICONDUCTOR CAPITAL
EQUIPMENT issuers, and in other TECHNOLOGY based companies. The capital
equipment sector has bottomed out from a two year cyclical decline in new
capacity, but early indications are that an upswing in new investment is
underway. Technology demand is growing not only from augmenting computer sales,
but also from telecommunications' increased utilization of complex chips, as
discussed above. In addition, industrial processes and consumer products
continue to incorporate more intelligence on chips to increase efficiency and
performance characteristics, and always at continuously declining prices.
We believe increasing use of intelligent silicon has been a big contributor to
the higher productivity of the American worker over the past few years.
Technology comprises an ever larger share of our economic activity, with
constantly falling prices, yet offering much higher functionality. So we think
the Fund should reflect these positive trends through the industries in which we
invest.
We regard the REAL ESTATE sector as undervalued, and therefore we have
moderately increased our exposure to this area, as discussed in the new
purchases section above. Our positive view of real estate is shared by our other
Third Avenue funds, which have also increased their commitments.
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Our investment in the ELECTRIC AND GAS UTILITY industry has grown in the
quarter. We consider this sector to be under-appreciated by many investors. We
think that deregulation of the retail market, now proceeding on a state by state
basis, will create opportunities for well-run companies to restructure by
selling under-performing assets, and to increase their investment in activities
which will expand their operations and improve their efficiency.
We want to keep the portfolio positioned in front of these high growth trends,
as well as to emphasize those areas that are undervalued in today's often fickle
and short-term oriented marketplace.
Sincerely,
/s/ Margaret D. Patel
Margaret D. Patel
Portfolio Manager, Third Avenue High Yield Fund
EXCERPT FROM THIRD AVENUE HIGH YIELD FUND'S
OCTOBER 31, 1998 ANNUAL REPORT
Dear Fellow Shareholders:
At October 31, 1998, the audited net asset value attributable to the 904,440
common shares outstanding of the Third Avenue High Yield Fund (the "Fund") was
$8.50 per share. This compares with an unaudited net asset value of $9.82 at
July 31, 1998, and a net asset value of $10.00 per share at February 12, 1998,
the date of the Fund's inception. At December 11, 1998, the unaudited net asset
value was $9.00 per share.
QUARTERLY ACTIVITY
During the fourth quarter of fiscal 1998, the Fund established one new position,
as new monies flowed into the Fund, and eliminated three positions in order to
raise cash to accommodate redemptions of shares by short-term investors on
several occasions.
Transactions made during the quarter are summarized below.
PAR VALUE NEW POSITION ACQUIRED
$500,000 CalEnergy Co., Inc 8.48%, due 9/15/28
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POSITIONS ELIMINATED
$300,000 Alcatel SA 7.00%, due 8/01/04
$300,000 MascoTech 4.50%, due 12/15/03
$500,000 PSINet, Inc. 10.00%, due 2/15/05
PORTFOLIO ACTIVITY
The three months ending October 31 marked a once-in-a-decade chance for
investors in the high yield bond market, where the Fund has substantial
investments, to profit from disorderly market conditions. Because of lack of
liquidity and forced sales from leveraged investors, yields rose to levels which
on a relative basis were at least as attractive as in the 1990-1991 period, the
last such great unsettled period. Similarly, convertible bonds, where the bulk
of the Fund's assets is currently concentrated, dropped to levels seen only
fleetingly in 1990. Convertible bonds suffered from the combined effects of
lower stock prices and higher interest rates on below investment grade bonds in
general.
We believe the Fund's portfolio of securities offers both high current income
and the possibility of future capital appreciation. Further, our holdings are
concentrated in companies and industries whose profits, we think, will expand
faster than the economy as a whole, either through internal growth or in
combination with restructuring and consolidating among companies. Such asset
transfer activity can improve profits and return on investment even in
businesses with slow underlying growth rates.
Our largest concentration of holdings, comprising just over 14% of total assets,
is in the semiconductor capital equipment industry. Our companies hold leading
technological positions in this multifaceted area, and have the financial
flexibility to ride out the rest of the current industry consolidation. We
believe they are well positioned for the next industry upswing, which some
industry analysts think is already underway.
Our second largest industry representation, about 13.5% of total assets,
consists of issues of corporations manufacturing a wide range of technology
products such as semiconductors, networking products and disks for computers.
Companies in these industries have just completed a period of relatively flat
demand, coupled with the worst excess inventory supply cycle seen in the
post-World War II period, causing sharp price erosion as inventories were worked
off. This process is nearly completed, and demand, especially for computer-based
products, seems to be moving up again at very healthy rates.
The third largest sector in the Fund, amounting to 11% of assets, is
telecommunications. This industry is undergoing dynamic change as a result of
the Telecommunications Act of 1996. This legislation provided for the
deregulation of the industry and has spawned a number of aggressive competitors
offering voice, data, and internet services using new technology to share in the
explosive growth in demand. We hold issues of several of these new entrants, and
think they will profit not only from new markets but also by taking market share
from existing incumbent service providers.
Healthcare makes up close to 11% of the Fund's total assets. Current industry
conditions are unsettled, as long-term care providers adjust their business
plans to new federal government regulations on reimbursement for care. The
number of people needing long-term care along with ancillary services is growing
much faster than the population as a whole. Once companies adapt to the new
reimbursement rules being phased into the system, we expect other investors will
recognize their bright future, as demand for both the quantity and quality of
healthcare expands faster than growth of the domestic economy.
52
<PAGE>
The electric and gas utility industry is our fifth largest sector, amounting to
close to 10% of the Fund's total assets. While this industry should grow at
levels in line with overall economic growth in the U.S., massive changes are
just starting to be felt as states begin to deregulate the power industry.
Similar deregulation moves are also going on in industrialized countries
overseas, which in some cases, notably the United Kingdom (U.K.), are actually
ahead of the U.S. in opening their power markets to free competition. We think
smart managements will be able to take advantage of these changes to grow their
revenues and profits far above the growth of the power market as a whole.
Further, the electric utility industry in the U.S. and other industrialized
countries is relatively insensitive to the recent economic declines in less
industrialized, so-called emerging market countries, primarily in Asia and Latin
America. These countries have begun to reduce their demand for many products
manufactured in the U.S., and are attempting to increase their exports to
industrialized countries, in an effort to solve their economic troubles. As a
result of this lowered export demand and increased import supply, many domestic
companies, especially those in commodity-based industries like metals, energy,
chemicals, paper and forest products, and textiles, will experience revenue and
profit pressure next year.
NEW PURCHASE
CalEnergy is a diversified global energy company which has grown by acquisition
of electric and gas companies in the U.S., U.K., Australia, Canada, and New
Zealand. Its recent purchase of Iowa-based MidAmerican Energy will provide
access to an attractive and growing market for its low cost power. As the
electric utility industry begins to deregulate, both in the U.S. and abroad,
CalEnergy should benefit from the knowledge it has gained since its 1997
acquisition of Northern Electric in the U.K.
POSITIONS ELIMINATED
Among the three positions which were eliminated in the quarter were bonds of
Alcatel, the large French telecommunications equipment company. Alcatel had
agreed in June, 1998, to take over DSC Communications, a Texas-based
telecommunications equipment company. The DSC bonds had a speculative grade
rating of "B" by the major rating services, and experienced substantial
appreciation in price due to Alcatel's higher investment grade credit rating of
"A" by the major rating agencies.
MascoTech convertible bonds were sold, although our fundamentally favorable
opinion of the company has not changed, because we felt other holdings in the
portfolio had a likelihood of greater capital appreciation. Similarly, we also
sold our holding of PSINet, an Internet access and Web hosting provider to
corporations and other Internet service providers, because we felt its
continuing need to tap the high yield bond market at future dates would provide
other opportunities to reestablish a position in this credit in the future.
THE MISFORTUNE OF MARKET TIMING
Notably, redemptions of the Fund in the quarter were concentrated during the
first half of October, the very period when financial markets were at their most
stressed condition in many years, and short-term downward pressure was most
intense on all securities prices. You may recall that at this time, prices of
virtually all securities, except for U.S. Treasury issues, declined sharply, due
to liquidity pressures arising from forced sales of securities by numerous
leveraged investment funds. In addition, credit concerns about so-called
emerging market bonds, such as those from Russia which defaulted in the quarter,
caused prices
53
<PAGE>
of all emerging market debt, as well as prices of domestic high yield
bonds, to drop significantly. The combination of all these events led to
extremely illiquid market conditions not seen in many years.
Of course, we recognize that in future periods of market turmoil, the net asset
value per share of the Fund may well drop again, reflecting short-term changes
in the prices of securities held in the Fund. We regard such times as great
opportunities to purchase, but certainly not to sell. Lower prices allow us to
buy more bonds or shares for the same amount of money. If our intensive research
evaluations are accurate, we can take advantage of short-term price declines to
create even greater opportunity to increase our shareholders' investment over
the long term.
1998 DISTRIBUTIONS
On November 18, 1998, the Fund declared a dividend from the Fund's estimated net
investment income through the period ending December 31, 1998. The amount is
estimated to be approximately $0.16 per Fund share. This distribution is payable
January 6, 1999 to Fund shareholders of record on December 30, 1998. The precise
amount of the distribution will be determined based on the total number of Fund
shares outstanding on the close of business on the record date, December 30,
1998. The distribution is payable in cash or, for those shareholders who have
elected the reinvestment option, in additional Fund shares at the Fund's net
asset value on December 31, 1998, the "ex" date, or valuation date, for
reinvestment.
I look forward to writing to you again when the first quarter report for the
period ending January 31, 1999 is published.
Sincerely,
/s/ Margaret D. Patel
Margaret D. Patel
Portfolio Manager, Third Avenue High Yield Fund
54
<PAGE>
PERFORMANCE INFORMATION
PERFORMANCE ILLUSTRATIONS
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THIRD AVENUE HIGH YIELD FUND AND THE MERRILL LYNCH HIGH YIELD
MASTER II INDEX AND THE MERRILL LYNCH INDEX OF
ALL CONVERTIBLES, SPECULATIVE QUALITY
Total Return Since Inception
-12.39%
[The following table represents a chart in the printed piece.]
TAHYF Merrill Lynch Merrill Lynch
High Yield Index of all Convertibles,
Master II Index Speculative Quality
2/12/98 $10,000.00 $10,000.00 $10,000.00
10/31/98 8,761.00 9,621.00 9,293.00
________________________________________________________________________________
* Period beginning February 12, 1998 (Third Avenue High Yield Fund's
commencement of operations)
As with all mutual funds, past performance does not indicate future results.
55
<PAGE>
PROXY PROXY
THIRD AVENUE HIGH YIELD FUND
PROXY FOR THE MEETING OF SHAREHOLDERS
To be held February 23, 2000
I (we), having received notice of the meeting and management's proxy
statement therefor, and revoking all prior proxies, hereby appoint David M.
Barse, Michael T. Carney and Ian M. Kirschner, and each of them, my (our)
attorneys (with full power of substitution in them and each of them) for and in
my (our) name(s) to attend the Meeting of Shareholders of my (our) fund to be
held on Wednesday, February 23, 2000, at 2:00 p.m. (New York time) at the
offices of EQSF Advisers, Inc., 767 Third Avenue, New York, New York 10017, and
any adjourned session or sessions thereof, and there to vote and act upon the
following matter (as more fully described in the accompanying proxy statement)
in respect of all shares of the fund which I (we) will be entitled to vote or
act upon, with all the powers I (we) would possess if personally present.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
PROPOSAL.
NOTE: In signing, please write
name(s) exactly as appearing
hereon. When signing as attorney,
executor, administrator or other
fiduciary, please give your full
title as such. Joint owners
should each sign personally.
--------------------------------
Signature
--------------------------------
Signature(s)
--------------------------------
Date
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF YOUR FUND AND
SHOULD BE RETURNED AS SOON AS POSSIBLE IN THE ENVELOPE PROVIDED. THE BOARD
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE FOLLOWING:
1. To approve an Agreement and Plan of FOR AGAINST ABSTAIN
Reorganization between your fund and
Pioneer High Yield Fund as more fully [ ] [ ] [ ]
described in the proxy statement.
<PAGE>
PIONEER HIGH YIELD FUND
STATEMENT OF ADDITIONAL INFORMATION
December [18], 1999
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the related Prospectus (also dated December [18], 1999)
which covers Class A shares of beneficial interest of Pioneer High Yield Fund to
be issued in exchange for shares of beneficial interest of Third Avenue High
Yield Fund, a series of Third Avenue Trust. Please retain this Statement of
Additional Information for further reference.
The Prospectus is available to you free of charge (please call 1-800-443-1021 or
1-212-888-5222, or write to Third Avenue High Yield Fund at 767 Third Avenue,
New York, New York 10017-2023).
TABLE OF CONTENTS
Exhibits......................................................................2
Introduction..................................................................3
ADDITIONAL INFORMATION ABOUT THIRD AVENUE HIGH YIELD FUND
Fund History.........................................................3
Description of the Fund and its Investment Risks.....................3
Management of Third Avenue High Yield Fund/Trust.....................3
Control Persons and Principal Holders of Securities..................3
Investment Advisory and Other Services...............................3
Brokerage Allocation and Other Practices.............................3
Capital Stock and Other Securities...................................3
Purchase, Redemption, and Pricing of Shares..........................4
Taxation of the Fund.................................................4
Underwriters.........................................................4
Calculation of Performance Data......................................4
Financial Statements.................................................4
ADDITIONAL INFORMATION ABOUT PIONEER HIGH YIELD FUND
Fund History.........................................................4
Description of the Fund and its Investment Risks.....................4
Management of Pioneer High Yield Fund................................4
Control Persons and Principal Holders of Securities..................4
Investment Advisory and Other Services...............................5
Brokerage Allocation and Other Practices.............................5
Capital Stock and Other Securities...................................5
Purchase, Redemption, and Pricing of Shares..........................5
Taxation of the Fund.................................................5
Underwriters.........................................................5
Calculation of Performance Data......................................5
Financial Statements.................................................5
<PAGE>
EXHIBITS
A - Statement of Additional Information, dated February 28 as supplemented
June 28, 1999, of Third Avenue Trust.
B - Preliminary Statement of Additional Information, dated December [18],
1999, of Pioneer High Yield Fund.
C - Audited financial statements of Third Avenue High Yield Fund at
October 31, 1998.
D - Unaudited financial statements of Third Avenue High Yield Fund at
April 30, 1999.
2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a Proxy Statement and Prospectus dated December [18],
1999 (the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus
has been sent to the shareholders of Third Avenue High Yield Fund in connection
with the solicitation by the management of Third Avenue High Yield Fund of
proxies to be voted at the Meeting of Shareholders of Third Avenue High Yield
Fund to be held on February 23, 2000. This Statement of Additional Information
includes the statement of additional information, dated February 28 as
supplemented June 28, 1999, of Third Avenue Trust (the "Third Avenue SAI"), a
series of which is Third Avenue High Yield Fund, and the Preliminary Statement
of Additional Information, dated December [18], 1999, of Pioneer High Yield Fund
(the "Pioneer SAI").
ADDITIONAL INFORMATION ABOUT
THIRD AVENUE HIGH YIELD FUND
FUND HISTORY
For additional information about Third Avenue High Yield Fund generally
and its history, see "General Information" in the Third Avenue SAI.
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS
For additional information about Third Avenue High Yield Fund's
investment objective, policies, risks and restrictions, see "Investment
Policies," "Investment Restrictions" and "Appendix" in the Third Avenue SAI.
MANAGEMENT OF THIRD AVENUE HIGH YIELD FUND/TRUST
For additional information about Third Avenue High Yield Trust's Board
of Trustees, officers and management personnel, see "Management of the Trust" in
the Third Avenue SAI.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For additional information about ownership of shares of Third Avenue
High Yield Fund, see "Principal Stockholders" in the Third Avenue SAI.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information, see "Investment Adviser," "Investment
Advisory Agreement," "Distributor," "Administrator," "Custodian," "Transfer
Agent" and "Independent Accountants" in the Third Avenue SAI.
BROKERAGE ALLOCATION AND OTHER PRACTICES
For additional information about Third Avenue High Yield Fund's
brokerage allocation practices, see "Portfolio and Trading Practices" in the
Third Avenue SAI.
CAPITAL STOCK AND OTHER SECURITIES
For additional information about the voting rights and other
characteristics of Third Avenue High Yield Fund's shares, see "Share
Information" in the Third Avenue SAI.
3
<PAGE>
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about share purchase, redemption and pricing
of Third Avenue High Yield Fund shares, see "Purchase Orders," "Redemption of
Shares" and "Redemption In Kind" in the Third Avenue SAI.
TAXATION OF THE FUND
For additional information about tax matters, see "Dividends, Capital
Gain Distributions and Taxes" in the Third Avenue SAI.
UNDERWRITERS
For additional information, see "Distributor" in the Third Avenue SAI.
CALCULATION OF PERFORMANCE DATA
For additional information about the investment performance of Third
Avenue High Yield Fund, see "Performance Information" in the Third Avenue SAI.
FINANCIAL STATEMENTS
For additional information, see "Financial Statements" in the Third
Avenue SAI.
ADDITIONAL INFORMATION ABOUT
PIONEER HIGH YIELD FUND
FUND HISTORY
For additional information about Pioneer High Yield Fund generally and
its history, see "Fund History" in the Pioneer SAI.
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS
For additional information about Pioneer High Yield Fund's investment
objective, policies, risks and restrictions see "Investment Policies, Risks and
Restrictions" and "Appendix B" in the Pioneer SAI.
MANAGEMENT OF PIONEER HIGH YIELD FUND
For additional information about Pioneer High Yield Fund's Board of
Trustees, officers and management personnel, see "Management of the Fund" and
"Appendix A" in the Pioneer SAI.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For additional information about ownership of shares of Pioneer High
Yield Fund, see "Shareownership" and "Appendix A" in the Pioneer SAI.
4
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information, see "Investment Adviser," "Principal
Underwriter and Distribution Plans," "Shareholder Servicing/Transfer Agent,"
"Custodian," "Independent Public Accountants," "Appendix A" and "Appendix D" in
the Pioneer SAI.
BROKERAGE ALLOCATION AND OTHER PRACTICES
For additional information about Pioneer High Yield Fund's brokerage
allocation practices, see "Portfolio Transactions" in the Pioneer SAI.
CAPITAL STOCK AND OTHER SECURITIES
For additional information about the voting rights and other
characteristics of shares of beneficial interest of Pioneer High Yield Fund, see
"Description of Shares" in the Pioneer SAI.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about purchase, redemption and pricing, see
"Sales Charges," "Redeeming Shares," "Telephone Transactions" and "Pricing of
Shares" in the Pioneer SAI.
TAXATION OF THE FUND
For additional information about tax matters, see "Tax Status " in the
Pioneer SAI.
UNDERWRITERS
For additional information about Pioneer High Yield Fund's principal
underwriter and distribution plans, see "Principal Underwriter and Distribution
Plans" and "Appendix A" in the Pioneer SAI.
CALCULATION OF PERFORMANCE DATA
For additional information about the investment performance of Pioneer
High Yield Fund, see "Investment Results," "Appendix A" and "Appendix B" in the
Pioneer SAI.
FINANCIAL STATEMENTS
For additional information, see "Financial Statements" in the Pioneer
SAI.
5
<PAGE>
Third Avenue Trust
Third Avenue Value Fund
Third Avenue Small-Cap Value Fund
Third Avenue High Yield Fund
Third Avenue Real Estate Value Fund
Supplement dated June 28, 1999 to Prospectus dated February 28, 1999 and
Statement of Additional Information dated February 28, 1999
The information below supplements and replaces any contrary information
contained in the Prospectus and Statement of Additional Information.
Effective June 28, 1999 please send any additional investments you wish to make
by mail to:
First Data Investor Services Group, Inc.
211 South Gulph Road
P.O. Box 61767
King of Prussia, PA 19406
Effective June 28, 1999 investments made by bank wire should be sent using the
following instructions:
Boston Safe Deposit & Trust
ABA#: 011001234
Credit: (Insert Name of Your Fund)
Acct#: 003514
FBO: (Insert Shareholder name and account number)
Please note, when making an initial purchase by wire, you must first telephone
the transfer agent at (800) 443-1021, Option 2 to receive an account number.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE PROSPECTUS FOR FUTURE REFERENCE
<PAGE>
(LOGO)
STATEMENT OF ADDITIONAL INFORMATION
Dated February 28, 1999
THIRD AVENUE TRUST
THIRD AVENUE VALUE FUND
THIRD AVENUE SMALL-CAP VALUE FUND
THIRD AVENUE HIGH YIELD FUND
THIRD AVENUE REAL ESTATE VALUE FUND
This Statement of Additional Information (SAI) is not a Prospectus and should be
read together with the Funds' Prospectus dated February 28, 1999. The Funds'
Annual Report to Shareholders is incorporated by reference in this SAI (is
legally considered part of this SAI). A copy of the Prospectus and the Funds'
reports to shareholders may be obtained without charge by writing to the Funds
at 767 Third Avenue, New York, NY 10017-2023, or by calling the Funds at (800)
443-1021 (toll free) or (212) 888-5222.
<PAGE>
Table of Contents
GENERAL INFORMATION 3
INVESTMENT POLICIES 3
INVESTMENT RESTRICTIONS 10
MANAGEMENT OF THE TRUST 12
COMPENSATION TABLE 16
PRINCIPAL STOCKHOLDERS 16
INVESTMENT ADVISER 18
INVESTMENT ADVISORY AGREEMENT 18
DISTRIBUTOR 19
ADMINISTRATOR 20
CUSTODIAN 20
TRANSFER AGENT 20
INDEPENDENT ACCOUNTANTS 20
PORTFOLIO TRADING PRACTICES 21
PURCHASE ORDERS 23
REDEMPTION OF SHARES 23
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES 23
SHARE INFORMATION 25
PERFORMANCE INFORMATION 25
FINANCIAL STATEMENTS 26
APPENDIX 27
-2-
<PAGE>
General Information
This Statement of Additional Information is in addition to and serves to expand
and supplement the current Prospectus of Third Avenue Trust (the "Trust"). The
Trust is an open-end, non-diversified management investment company which
currently consists of four separate investment series: THIRD AVENUE VALUE FUND,
THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE FUND (each a "Fund" and collectively, the "Funds").
The Trust was organized as a business trust under the laws of the state of
Delaware pursuant to a Trust Instrument dated October 31, 1996. At the close of
business on March 31, 1997, shareholders of Third Avenue Value Fund, Inc.
("Third Avenue Maryland"), a Maryland corporation which was incorporated on
November 27, 1989 and began operations on October 9, 1990, became shareholders
of THIRD AVENUE VALUE FUND, a series of the Trust, pursuant to a merger
agreement which was approved by a majority of Third Avenue Maryland's
shareholders on December 13, 1996. Upon this merger, all assets, privileges,
powers, franchises, liabilities and obligations of Third Avenue Maryland were
assumed by the Trust. Except as noted herein, all information about THIRD AVENUE
VALUE FUND or the Trust, as applicable, includes information about its
predecessor, Third Avenue Maryland.
Investment Policies
The Funds, and particularly THIRD AVENUE VALUE FUND, expect to invest in a broad
range of securities (subject to each Fund's fundamental investment objective).
The particular types of securities and the percentage of a Fund's assets
invested in each type, will vary depending on where the Adviser sees the most
value at the time of investment. The following is a description of the different
types of securities that the Adviser may invest in and certain of the risks
relating to those securities.
Investment In Equity Securities
In selecting common stocks, the Adviser generally seeks issuing companies that
exhibit the following characteristics:
(1) A strong financial position, as measured not only by balance sheet
data but also by off-balance sheet assets, liabilities and
contingencies (as disclosed in footnotes to financial statements and
as determined through research of public information), where debt
service(1) consumes a small part of such companies' cash flow.
(2) Responsible management and control groups, as gauged by managerial
competence as operators and investors as well as by an apparent
absence of intent to profit at the expense of stockholders.
(3) Availability of comprehensive and meaningful financial and related
information. A key disclosure is audited financial statements and
information which the Adviser believes are reliable benchmarks to
aid in understanding the business, its values and its dynamics.
(4) Availability of the security at a market price which the Adviser
believes is at a substantial discount to the Adviser's estimate of
what the issuer is worth as a private company or as a takeover or
merger and acquisition candidate.
(1) "Debt Service" means the current annual required payment of interest and
principal to creditors.
In selecting preferred stocks, the Adviser will use its selection criteria for
either common stocks or debt securities, depending on the Adviser's
determination as to how the particular issue should be viewed, based, among
other things, upon the terms of the preferred stock and where it fits in the
issuer's capital structure.
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Although the Adviser does not pay attention to market factors in making
investment decisions, the Funds are, of course, subject to the vagaries of the
markets. In particular, small-cap stocks have less market liquidity and tend to
have more price volatility than larger capitalization stocks.
Investment In Debt Securities
Each of THIRD AVENUE VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE FUND intends its investment in debt securities to be, for the
most part, in securities which the Adviser believes will provide above-average
current yields, yields to events, or yields to maturity. In selecting debt
instruments for THIRD AVENUE VALUE FUND, the Adviser requires the following
characteristics:
1) Strong covenant protection, and
2) Yield to maturity at least 500 basis points above that of a
comparable credit.
In acquiring debt securities for THIRD AVENUE VALUE FUND, the Adviser
generally will look for covenants which protect holders of the debt issue from
possible adverse future events such as, for example, the addition of new debt
senior to the issue under consideration. Also, the Adviser will seek to analyze
the potential impacts of possible extraordinary events such as corporate
restructurings, refinancings, or acquisitions. The Adviser will also use its
best judgment as to the most favorable range of maturities. In general, THIRD
AVENUE VALUE FUND will acquire debt issues which have a senior position in an
issuer's capitalization and will avoid "mezzanine" issues such as
non-convertible subordinated debentures. THIRD AVENUE HIGH YIELD FUND and THIRD
AVENUE REAL ESTATE VALUE FUND may invest in such "mezzanine" issues.
The market value of debt securities is affected by changes in prevailing
interest rates and the perceived credit quality of the issuer. When prevailing
interest rates fall or perceived credit quality is increased, the market values
of debt securities generally rise. Conversely, when interest rates rise or
perceived credit quality is lowered, the market values of debt securities
generally decline. The magnitude of these fluctuations will be greater when the
average maturity of the portfolio securities is longer.
Convertible Securities
THIRD AVENUE HIGH YIELD FUND, THIRD AVENUE VALUE FUND and THIRD AVENUE REAL
ESTATE VALUE FUND may invest in convertible securities, which are bonds,
debentures, notes, preferred stocks or other securities that may be converted
into or exchanged for a prescribed amount of equity securities (generally common
stock) of the same or a different issuer within a particular period of time at a
specified price or formula. Convertible securities have general characteristics
similar to both fixed income and equity securities. Yields for convertible
securities tend to be lower than for non-convertible debt securities but higher
than for common stocks. Although to a lesser extent than with fixed income
securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying security and therefore also will react to
variations in the general market for equity securities and the operations of the
issuer. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
Mortgage-Backed Securities
THIRD AVENUE VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL
ESTATE VALUE FUND may invest in mortgage-backed securities and derivative
mortgage-backed securities, including, with respect to THIRD AVENUE HIGH YIELD
FUND, "principal only" and "interest only" components. Mortgage-backed
securities are securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans on real property. Those
Funds intend to invest in these securities only when they believe, after
analysis, that there is unlikely to ever be permanent impairment of capital as
measured by whether there will be a money default by either the issuer or the
guarantor of these securities. These securities do,
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nonetheless, entail considerable market risk (meaning fluctuations in quoted
prices for the instruments), interest rate risk, prepayment risk and inflation
risk.
THIRD AVENUE VALUE FUND will not invest in non-investment grade subordinated
classes of residential mortgage-backed securities and does not intend to invest
in commercial mortgage-backed securities. THIRD AVENUE HIGH YIELD FUND and THIRD
AVENUE REAL ESTATE VALUE FUND may invest in commercial mortgage-backed
securities if these securities are available at a sufficient yield spread over
risk-free investments. Prepayments of principal generally may be made at any
time without penalty on residential mortgages and these prepayments are passed
through to holders of one or more of the classes of mortgage-backed securities.
Prepayment rates may change rapidly and greatly, thereby also affecting yield to
maturity, reinvestment risk and market value of the mortgage-backed securities.
As a result, the high credit quality of many of these securities may provide
little or no protection against loss in market value, and there have been
periods during which many mortgage-backed securities have experienced
substantial losses in market value. The Adviser believes that, under certain
circumstances, many of these securities may trade at prices below their inherent
value on a risk-adjusted basis and believes that selective purchases by a Fund
may provide high yield and total return in relation to risk levels.
Asset-Backed Securities
BOTH THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND may also invest in
asset-backed securities that, through the use of trusts and special purpose
vehicles, are securitized with various types of assets, such as automobile
receivables, credit card receivables and home-equity loans in pass-through
structures similar to the mortgage-related securities described above. In
general, the collateral supporting asset-backed securities is of shorter
maturity than the collateral supporting mortgage loans and is less likely to
experience substantial prepayments. However, asset-backed securities are not
backed by any governmental agency.
Floating Rate, Inverse Floating Rate And Index Obligations
Both THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND may invest in debt
securities with interest payments or maturity values that are not fixed, but
float in conjunction with (or inversely to) an underlying index or price. These
securities may be backed by U.S. Government or corporate issuers, or by
collateral such as mortgages. The indices and prices upon which such securities
can be based include interest rates, currency rates and commodities prices.
However, neither Fund will invest in any instrument whose value is computed
based on a multiple of the change in price or value of an asset or an index of
or relating to assets in which that Fund cannot or will not invest.
Floating rate securities pay interest according to a coupon which is reset
periodically. The reset mechanism may be formula based, or reflect the passing
through of floating interest payments on an underlying collateral pool. Inverse
floating rate securities are similar to floating rate securities except that
their coupon payments vary inversely with an underlying index by use of a
formula. Inverse floating rate securities tend to exhibit greater price
volatility than other floating rate securities.
Neither Fund intends to invest more than 5% of its total assets in inverse
floating rate securities. Floating rate obligations generally exhibit a low
price volatility for a given stated maturity or average life because their
coupons adjust with changes in interest rates. Interest rate risk and price
volatility on inverse floating rate obligations can be high, especially if
leverage is used in the formula. Index securities pay a fixed rate of interest,
but have a maturity value that varies by formula, so that when the obligation
matures a gain or loss may be realized. The risk of index obligations depends on
the volatility of the underlying index, the coupon payment and the maturity of
the obligation.
Investment In High Yield Debt Securities
THIRD AVENUE VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL
ESTATE VALUE FUND may invest in high yield debt securities, including those
rated below Baa by Moody's Investors Service, Inc.
("Moody's") and below BBB by Standard & Poor's Ratings Group
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("Standard & Poor's") and unrated debt securities, commonly referred to as "junk
bonds". THIRD AVENUE HIGH YIELD FUND intends to invest at least 65% of its total
assets, under normal market conditions, in non-investment grade high yield fixed
income and other debt securities, including straight debt instruments,
convertible debt, preferred securities and unrated securities. See also
"Investment in Debt Securities" and "Restricted and Illiquid Securities." Such
securities are predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligation, and may in fact be in default. THIRD AVENUE VALUE FUND and THIRD
AVENUE REAL ESTATE VALUE FUND do not intend to invest more than 35% of their
total assets in such securities. The ratings of Moody's and Standard & Poor's
represent their opinions as to the credit quality of the securities which they
undertake to rate (see Appendix A for a description of those ratings). It should
be emphasized, however, that ratings are relative and subjective and, although
ratings may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market price risk of these securities. In
seeking to achieve its investment objective, each such Fund depends on the
Adviser's credit analysis to identify investment opportunities. For the Funds,
credit analysis is not a process of merely measuring the probability of whether
a money default will occur, but also measuring how the creditor would fare in a
reorganization or liquidation in the event of a money default.
Before investing in any high yield debt instruments, the Adviser will evaluate
the issuer's ability to pay interest and principal, as well as the seniority
position of such debt in the issuer's capital structure vis-a-vis any other
outstanding debt or potential debts. There appears to be a direct cause and
effect relationship between the weak financial conditions of issuers of high
yield bonds and the market valuation and prices of their credit instruments, as
well as a direct relationship between the weak financial conditions of such
issuers and the prospects that principal or interest may not be paid.
The market price and yield of bonds rated below Baa by Moody's and below BBB by
Standard & Poor's are more volatile than those of higher rated bonds due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity and the risk of an issuer's inability
to meet principal and interest payments. In addition, the secondary market for
these bonds is generally less liquid than that for higher rated bonds.
Lower rated or unrated debt obligations also present reinvestment risks based on
payment expectations. If an issuer calls the obligation for redemption, the Fund
may have to replace the security with a lower yielding security, resulting in a
decreased return for investors.
The market values of these higher yielding debt securities tend to be more
sensitive to economic conditions and individual corporate developments than
those of higher rated securities. Companies that issue such bonds often are
highly leveraged and may not have available to them more traditional methods of
financing. Under adverse economic conditions, there is a risk that highly
leveraged issuers may be unable to service their debt obligations or to repay
their obligations upon maturity. Under deteriorating economic conditions or
rising interest rates, the capacity of issuers of lower-rated securities to pay
interest and repay principal is more likely to weaken significantly than that of
issuers of higher-rated securities. Investors should carefully consider the
relative risks of investing in high yield securities and understand that such
securities are generally not meant for short-term investing.
THIRD AVENUE VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL
ESTATE VALUE FUND may also purchase or retain debt obligations of issuers not
currently paying interest or in default (i.e., with a rating from Moody's of C
or lower or Standard & Poor's of C1 or lower). In addition, those Funds may
purchase securities of companies that have filed for protection under Chapter 11
of the United States Bankruptcy Code. Defaulted securities will be purchased or
retained if, in the opinion of the Adviser, they may present an opportunity for
subsequent price recovery, the issuer may resume payments, or other advantageous
developments appear likely.
Zero-Coupon and Pay-in-Kind Securities
THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND may invest in zero
coupon and pay-in-kind ("PIK") securities. Zero coupon securities are debt
securities that pay no cash income but
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are sold at substantial discounts from their value at maturity. PIK securities
pay all or a portion of their interest in the form of additional debt or equity
securities. Because such securities do not pay current cash income, the price of
these securities can be volatile when interest rates fluctuate. While these
securities do not pay current cash income, federal income tax law requires the
holders of zero coupon and PIK securities to include in income each year the
portion of the original issue discount (or deemed discount) and other non-cash
income on such securities accrued during that year. In order to continue to
qualify for treatment as a "regulated investment company" under the Internal
Revenue Code and avoid a certain excise tax, each Fund may be required to
distribute a portion of such discount and income and may be required to dispose
of other portfolio securities, which may occur in periods of adverse market
prices, in order to generate cash to meet these distribution requirements.
Loans And Other Direct Debt Instruments
THIRD AVENUE VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE REAL
ESTATE VALUE FUND may invest in loans and other direct debt instruments owed by
a borrower to another party. Each of THIRD AVENUE HIGH YIELD FUND and THIRD
AVENUE REAL ESTATE VALUE FUND may also from time to time make loans. These
instruments represent amounts owed to lenders or lending syndicates (loans and
loan participations) or to other parties. Direct debt instruments may involve a
risk of loss in case of default or insolvency of the borrower and may offer less
legal protection to a Fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. The markets in loans are not regulated by
federal securities laws or the SEC. THIRD AVENUE SMALL-CAP VALUE FUND may invest
in loans and other direct debt instruments but currently does not intend to do
so except to the extent it has excess cash or for temporary defensive purposes.
Trade Claims
Both THIRD AVENUE VALUE FUND and THIRD AVENUE HIGH YIELD FUND may invest in
trade claims. Trade claims are interests in amounts owed to suppliers of goods
or services and are purchased from creditors of companies in financial
difficulty. For purchasers such as a Fund, trade claims offer the potential for
profits since they are often purchased at a significant discount from face value
and, consequently, may generate capital appreciation in the event that the
market value of the claim increases as the debtor's financial position improves
or the claim is paid.
An investment in trade claims is speculative and carries a high degree of risk.
Trade claims are illiquid instruments which generally do not pay interest and
there can be no guarantee that the debtor will ever be able to satisfy the
obligation on the trade claim. The markets in trade claims are not regulated by
federal securities laws or the SEC. Because trade claims are unsecured, holders
of trade claims may have a lower priority in terms of payment than certain other
creditors in a bankruptcy proceeding.
Foreign Securities
Each Fund may invest in foreign securities. Each Fund's foreign securities
investments will have characteristics similar to those of domestic securities
selected for the Fund. Each Fund intends to limit its investments in foreign
securities to companies issuing U.S. dollar-denominated American Depository
Receipts or which, in the judgment of the Adviser, otherwise provide financial
information which provides the Adviser with substantively similar financial
information as SEC disclosure requirements. By limiting their investments in
this manner, the Funds seek to avoid investing in securities where there is no
compliance with SEC requirements to provide public financial information, or
such information is unreliable as a basis for analysis.
Foreign securities markets generally are not as developed or efficient as those
in the United States. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. The Funds will be
subject to additional risks which include: possible adverse political and
economic developments, seizure or nationalization of foreign deposits and
adoption of governmental restrictions that may adversely affect the payment of
principal and interest on the foreign securities or currency blockage that would
restrict such payments from being brought back
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to the United States. Because foreign securities often are purchased with and
payable in foreign currencies, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations.
Foreign Currency Transactions
Each Fund may, from time to time, engage in foreign currency transactions in
order to hedge the value of its portfolio holdings denominated in foreign
currencies against fluctuations in foreign currency prices versus the U.S.
dollar. These transactions include forward currency contracts, exchange listed
and OTC options on currencies, currency swaps and other swaps incorporating
currency hedges.
The notional amount of a currency hedged by a Fund will be closely related to
the aggregate market value (at the time of making such hedge) of the securities
held and reasonably expected to be held in its portfolio denominated or quoted
in or currently convertible into that particular currency or a closely related
currency. If a Fund enters into a hedging transaction in which such Fund is
obligated to make further payments, its custodian will segregate cash or readily
marketable securities having a value at all times at least equal to such Fund's
total commitments.
The cost to a Fund of engaging in currency hedging transactions varies with
factors such as (depending upon the nature of the hedging transaction) the
currency involved, the length of the contract period, interest rates in foreign
countries for prime credits relative to U.S. interest rates for U.S. Treasury
obligations, the market conditions then prevailing and fluctuations in the value
of such currency in relation to the U.S. dollar. Transactions in currency
hedging contracts usually are conducted on a principal basis, in which case no
fees or commissions are involved. The use of currency hedging contracts does not
eliminate fluctuations in the prices in local currency of the securities being
hedged. The ability of a Fund to realize its objective in entering into currency
hedging transactions is dependent on the performance of its counterparties on
such contracts, which may in turn depend on the absence of currency exchange
interruptions or blockage by the governments involved, and any failure on their
part could result in losses to a Fund. The requirements for qualification as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), may cause a Fund to restrict the degree to which it engages in
currency hedging transactions.
Restricted And Illiquid Securities
None of the Funds will purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets (taken at current market value) would be
invested in securities that are illiquid. Generally speaking, an illiquid
security is any asset or investment which a Fund cannot sell in the ordinary
course of business within seven days at approximately the value at which the
Fund has valued the asset or investment, including securities that cannot be
sold publicly due to legal or contractual restrictions.
Over the past several years, strong institutional markets have developed for
various types of restricted securities, including repurchase agreements,
commercial paper, and some corporate bonds and notes. Securities freely salable
among qualified institutional investors under special rules adopted by the SEC
or otherwise determined to be liquid, including "principal only" and "interest
only" components of mortgage-backed securities, may be treated as liquid if they
satisfy liquidity standards established by the Board of Trustees. The continued
liquidity of such securities is not as well assured as that of publicly traded
securities, and accordingly the Board of Trustees will monitor their liquidity.
The Board will review pertinent factors such as trading activity, reliability of
price information and trading patterns of comparable securities in determining
whether to treat any such security as liquid for purposes of the foregoing 15%
test. To the extent the Board treats such securities as liquid, temporary
impairments to trading patterns of such securities may adversely affect the
Fund's liquidity.
Investment In Relatively New Issues
THIRD AVENUE VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND and THIRD AVENUE REAL
ESTATE VALUE FUND intend to invest occasionally in the common stock of selected
new issuers; THIRD
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AVENUE HIGH YIELD FUND intends to invest occasionally in the debt securities of
selected new issuers. Investments in relatively new issuers, i.e., those having
continuous operating histories of less than three years, may carry special risks
and may be more speculative because such companies are relatively unseasoned.
Such companies may also lack sufficient resources, may be unable to generate
internally the funds necessary for growth and may find external financing to be
unavailable on favorable terms or even totally unavailable. Those companies will
often be involved in the development or marketing of a new product with no
established market, which could lead to significant losses.
Temporary Defensive Investments
When, in the judgment of the Adviser, a temporary defensive posture is
appropriate, a Fund may hold all or a portion of its assets in short-term U.S.
Government obligations, cash or cash equivalents. The adoption of a temporary
defensive posture does not constitute a change in such Fund's investment
objective.
Borrowing
Each Fund may also make use of bank borrowing as a temporary measure for
extraordinary or emergency purposes, such as for liquidity necessitated by
shareholder redemptions, and may use securities as collateral for such
borrowing. Such temporary borrowing may not exceed 5% of the value of the
applicable Fund's total assets at the time of borrowing.
Investment In Other Investment Companies
THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE FUND may invest in securities of other investment companies,
to the extent permitted under the Investment Company Act of 1940, provided that
after any purchase the Fund does not own more than 3% of such investment
company's outstanding stock. Third Avenue Value Fund may invest up to 10% of its
total assets in securities of other investment companies; up to 5% of its total
assets may be invested in any one investment company, provided that after its
purchase no more than 3% of such investment company's outstanding stock is owned
by the Fund. The Adviser will charge an advisory fee on the portion of a Fund's
assets that are invested in securities of other investment companies. Thus,
shareholders will be responsible for a "double fee" on such assets, since both
investment companies will be charging fees on such assets.
Simultaneous Investments
Investment decisions for a Fund are made independently from those of the other
accounts advised by the Adviser and its affiliates. If, however, such other
accounts wish to invest in, or dispose of, the same securities as one of the
Funds, available investments will be allocated equitably to each Fund and other
account. This procedure may adversely affect the size of the position obtained
for or disposed of by a Fund or the price paid or received by a Fund.
Securities Lending
THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE FUND may lend their portfolio securities to qualified
institutions. By lending its portfolio securities, a Fund attempts to increase
its income through the receipt of interest on the loan. Any gain or loss in the
market price of the securities loaned that may occur during the term of the loan
will be for the account of the Fund. A Fund may lend its portfolio securities so
long as the terms and the structure of such loans are not inconsistent with the
requirements of the Investment Company Act of 1940, which currently provide that
(a) the borrower pledge and maintain with the Fund collateral consisting of
cash, a letter of credit issued by a domestic U.S. bank, or securities issued or
guaranteed by the U.S. government having a value at all times not less than 100%
of the value of the securities loaned, (b) the borrower add to such collateral
whenever the price of the securities loaned rises (i.e., the value of the loan
is "marked to the market" on a daily basis), (c) the loan be made subject to
termination by the Fund at any time and the loaned securities be subject to
recall within the normal and customary settlement time for securities
transactions and (d) the Fund receive reasonable interest on the loan (which may
include the
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Fund's investing any cash collateral in interest bearing short-term
investments), any distributions on the loaned securities and any increase in
their market value.
A Fund will not lend portfolio securities if, as a result, the aggregate of such
loans exceeds 33 1/3% of the value of its total assets (including such loans).
Loan arrangements made by a Fund will comply with all other applicable
regulatory requirements. All relevant facts and circumstances, including the
creditworthiness of the qualified institution, will be monitored by the Adviser,
and will be considered in making decisions with respect to lending of
securities, subject to review by the Fund's Board of Trustees.
A Fund may pay reasonable negotiated fees in connection with loaned securities,
so long as such fees are set forth in a written contract and approved by its
Board of Trustees. In addition, the Fund shall, through the ability to recall
securities prior to any required vote, retain voting rights over the loaned
securities.
On behalf of THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and
THIRD AVENUE REAL ESTATE VALUE FUND, the Trust has entered into a master lending
arrangement with Bear, Stearns Securities Corp. in compliance with the foregoing
requirements.
Portfolio Turnover
The Funds' investment policies and objectives, which emphasize long-term
holdings, would tend to keep the number of portfolio transactions relatively
low. Third Avenue Value Fund's portfolio turnover rate for the years ended
October 31, 1997 and 1998 was 10% and 24%, respectively. Third Avenue Small-Cap
Value Fund's portfolio turnover rate for the period ended October 31, 1997 was
7% and for the year ended October 31, 1998 was 6%. The portfolio turnover rate
for Third Avenue High Yield Fund and Third Avenue Real Estate Value Fund for the
period ended October 31, 1998 was 38% and 0%, respectively.
Short Sales
THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE FUND may, but currently do not intend to, engage in short
sales. In a short sale transaction, the Fund sells a security it does not own in
anticipation of a decline in the market value of the security.
Commodities
THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and THIRD AVENUE
REAL ESTATE VALUE FUND may, but currently do not intend to, invest in
commodities or commodity contracts and futures contracts.
Investment Restrictions
For the benefit of shareholders, each Fund has adopted the following
restrictions, which are fundamental policies and cannot be changed without the
approval of a majority of such Fund's outstanding voting securities.(1)
The following investment restrictions apply to each Fund. No Fund may:
1. Borrow money or pledge, mortgage or hypothecate any of its assets
except that each Fund may borrow on a secured or unsecured basis
as a temporary measure for extraordinary or emergency purposes.
Such temporary borrowing may not exceed 5% of the value of such
Fund's total assets when the borrowing is made.
2. Act as underwriter of securities issued by other persons, except
to the extent that, in connection with the disposition of
portfolio securities, it may technically be deemed to be an
underwriter under certain securities laws.
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3. Invest in interests in oil, gas, or other mineral exploration or
development programs, although it may invest in the marketable
securities of companies which invest in or sponsor such programs.
4. Issue any senior security (as defined in the Investment Company
Act of 1940, as amended) (the "1940 Act"). Borrowings permitted by
Item 1 above are not senior securities.
5. Invest 25% or more of the value of its total assets in the
securities (other than Government Securities or the securities of
other regulated investment companies) of any one issuer, or of two
or more issuers which the Fund controls and which are determined
to be engaged in the same industry or similar trades or businesses
or related trades or businesses.
6. Invest 25% or more of the value of its total assets in any one
industry, except that THIRD AVENUE REAL ESTATE VALUE FUND will
invest more than 25% of its total assets in the real estate
industry or related industries or that own significant real estate
assets at the time of investment.
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(1) As used in this Statement of Additional Information as to any matter
requiring shareholder approval, the phrase "majority of the outstanding
securities" means the vote at a meeting of (i) 67% or more of the shares present
or represented, if the holders of more than 50% of the outstanding voting
securities are present in person or represented by proxy, or (ii) more than 50%
of the outstanding voting securities, whichever is less.
The following investment restrictions apply only to THIRD AVENUE VALUE FUND. The
Fund may not:
1. Make short sales of securities or maintain a short position.
2. Buy or sell commodities or commodity contracts, futures contracts
or real estate or interests in real estate, although it may
purchase and sell securities which are secured by real estate and
securities of companies which invest or deal in real estate.
3. Invest in securities of other investment companies if the Fund,
after such purchase or acquisition owns, in the aggregate, (i) more
than 3% of the total outstanding voting stock of the acquired
company; (ii) securities issued by the acquired company having an
aggregate value in excess of 5% of the value of the total assets of
the Fund, or (iii) securities issued by the acquired company and
all other investment companies (other than treasury stock of the
Fund) having an aggregate value in excess of 10% of the value of
the total assets of the Fund.
4. Participate on a joint or joint and several basis in any trading account in
securities.
5. Make loans, except through (i) the purchase of bonds, debentures,
commercial paper, corporate notes, and similar evidences of
indebtedness of a type commonly sold to financial institutions, and
(ii) repurchase agreements. The purchase of a portion of an issue
of securities described under (i) above distributed publicly,
whether or not the purchase is made on the original issuance, is
not considered the making of a loan.
Each Fund is required to comply with the above fundamental investment
restrictions applicable to it only at the time the relevant action is taken. A
Fund is not required to liquidate an existing position solely because a change
in the market value of an investment or a change in the value of
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<PAGE>
the Fund's net or total assets causes it not to comply with the restriction at a
future date. A Fund will not purchase any portfolio securities while any
borrowing exceeds 5% of its total assets.
Management of the Trust
The Board of Trustees of the Funds oversees the management of the Funds. The
Trustees are responsible for such matters as reviewing and approving fundamental
operating, financial, and corporate governance policies; evaluating the
Adviser's performance; detemining management fees; and reviewing and approving
procedures for providing financial and operational information to the Board.
Trustees and officers of the Funds, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each trustee who is deemed to be an "interested person" of the Funds, as
defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Name & Address Age Position(s) Principal Occupation During Past 5 Years
Held with
Registrant
<S> <C> <C> <C>
PHYLLIS W. BECK* 72 Trustee An Associate Judge (1981 to Present) of the Superior Court
GSB Bldg. Suite 800 of Pennsylvania; Trustee or Director of the Trust or its
City Line & Belmont predecessor since November, 1992.
Ave.
Bala Cynwyd, PA
19004-1611
LUCINDA FRANKS 52 Trustee Journalist (1969 to Present); Author "Wild Apples" (1990),
64 East 86th Street "Waiting Out a War; The Exile of Private John Picciano
New York, NY 10028 (1974); Winner of the 1971 Pulitzer Prize for Journalism;
Trustee of the Trust since February, 1998.
GERALD HELLERMAN 61 Trustee Managing Director (8/93 to Present) of Hellerman
10965 Eight Bells Associates, a financial and corporate consulting firm;
Lane Chief Financial Analyst (1976 to 7/93) of the Antitrust
Columbia, MD 21044 Division of U.S. Department of Justice; Director of
Clemente Global Growth Fund, Inc. (9/98 to Present);
Trustee or Director of the Trust or its predecessor since
September, 1993.
MARVIN MOSER, M.D. 75 Trustee Trustee (1992 to Present) of the Trudeau Institute, a
13 Murray Hill Road medical research institute; Clinical Professor of Medicine
Scarsdale, NY 10583 (1984 to Present) at Yale University School of Medicine;
Senior Medical Consultant (1972 to Present) for the
National High Blood Pressure Education Program of the
National Heart, Lung and Blood Institute; Chairman
(1977) and a member in 1980, 1984, 1988, 1992 and 1996 of
the Joint National Committee on Detection, Evaluation and
Treatment of High Blood Pressure for the National
Heart, Lung and Blood Institute; Director of AMBI
Corp. (1997 to Present); Trustee or Director of the
Trust or its predecessor since November, 1994.
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<PAGE>
MYRON M. SHEINFELD 68 Trustee Counsel to (12/96 to present) and Attorney and Shareholder
1001 Fannin St., (1986 to 12/96) of Sheinfeld, Maley & Kay P.C., a law
Suite 3700 firm; Adjunct Professor (1975 to 1991) of the University
Houston, TX 77002 of Texas Law School; Director (1984 to 1992) of Equity
Strategies Fund, Inc.; Director (1988 to Present)
of Nabors Industries, Inc., an international oil
drilling contractor; Director (11/98 to present)
of Anchor Glass Container Corp.; former Consultant
(11/90 to 4/95) to Meyer Hendricks Victor Osborn &
Maledon, a law firm in Phoenix, Arizona; Co-Editor
and Co-Author "Collier on Bankruptcy 15th Edition
Revised" and "Collier on Bankruptcy Taxation";
Trustee or Director of the Trust or its predecessor
since its inception.
MARTIN SHUBIK 72 Trustee Seymour H. Knox Professor (1975 to Present) of
Yale University Mathematical and Institutional Economics, Yale University;
Dept. of Economics Director (1984 to 4/94) of Equity Strategies Fund, Inc.;
Box 2125, Trustee or Director of the Trust or its predecessor since
Yale Station its inception.
New Haven, CT 06520
CHARLES C. WALDEN 54 Trustee Executive Vice-President--Investments (1973 to Present)
11 Williamsburg Cir. (Chief Investment Officer) of Knights of Columbus, a
Madison, CT 06443 fraternal benefit society selling life insurance and
annuities; Chartered Financial Analyst; Trustee
or Director of the Trust or its predecessor since May,
1996.
BARBARA WHITMAN* 40 Trustee Registered Securities Representative (11/96 to Present) of
767 Third Avenue M.J. Whitman, Inc., a broker-dealer and the Funds'
New York, NY underwriter; Director (4/95 to Present) of EQSF Advisers,
10017-2023 Inc., the Funds' investment adviser; Director (8/97 to
6/98) of Riverside Stage Company, a theater; House
Manager (1/94 to 8/94) of Whiting Auditorium, a
theater; Substitute Teacher (1/92 to 6/93) of
National-Louis University Movement Center, a
university. Trustee of the Trust since September, 1997.
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<PAGE>
MARTIN J. WHITMAN* 74 Chairman, Chairman and CEO (3/90 to Present), President (1/91 to
767 Third Avenue Chief 5/98), of the Trust; Chairman and CEO (3/90 to Present),
New York, NY Executive President (1/91 to 2/98), of EQSF Advisers, Inc.;
10017-2023 Officer, Chairman, CEO (1/1/95 to Present), President (1/1/95 to
and Trustee 6/29/95) and Chief Investment Officer (10/92 to Present)
of M.J. Whitman Advisers, Inc., a subsidiary of M.J.
Whitman Holding Corp., (MJWHC), a holding company managing
investment subsidiaries and an investment adviser to
private and institutional clients; Chairman, CEO (1/1/95
to Present) and President (1/1/95 to 6/29/95) of MJWHC and
of M.J. Whitman, Inc., a subsidiary of MJWHC and the
successor broker-dealer of M.J. Whitman, L.P. (MJWLP), a
Delaware limited partnership which has been dissolved;
Distinguished Management Fellow (1972 to Present) and
Member of the Advisory Board (10/94 to 6/95) of the Yale
School of Management at Yale University; Director and
Chairman (8/90 to Present), President (8/90 to 12/90), CEO
(8/96 to Present) and Chief Investment Officer (12/90 to
8/96) of Danielson Holding Corporation, and a Director of
its subsidiaries; Director (3/91 to Present) of Nabors
Industries, Inc., an international oil drilling
contractor; Director (8/97 to Present) of Tejon Ranch Co.;
President and CEO (10/74 to Present) of Martin J. Whitman
& Co., Inc., (formerly M.J. Whitman & Co., Inc.), a
private investment company; Trustee or Director of the
Trust or its predecessor
since its inception;
Chartered Financial Analyst.
DAVID M. BARSE 36 President President (5/98 to Present), and Executive Vice President
767 Third Avenue and Chief (4/95 to 5/98) of the Trust; President, Chief Operating
New York, NY Operating Officer and Director (7/96 to Present) of Danielson
10017-2023 Officer Holding Corporation; Director (8/96 to Present) of
(COO) National American Insurance Company of California;
President (2/98 to Present), Executive Vice President
(4/95 to 2/98), and Director (4/95 to Present) of EQSF
Advisers, Inc.; President (6/95 to Present), Director,
Chief Operating Officer (1/95 to Present), Secretary (1/95
to 1/96) and Executive Vice President (1/95 to 6/95) of
MJWHC; President (6/95 to Present), Director and COO (1/95
to Present), Secretary (1/95 to 1/96), Executive Vice
President (1/95 to 6/95) of M.J. Whitman, Inc.; President
(6/95 to Present), Director and COO (1/95 to Present),
Executive Vice President (1/95 to 6/95) and Corporate
Counsel (10/92 to 12/95) of M.J. Whitman Advisers, Inc.;
Director (6/97 to Present) of CGA Group, Ltd.; Director
(7/94 to 12/94), Executive Vice President and Secretary
(1/92 to 12/94) of Whitman Securities Corp.
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<PAGE>
MICHAEL CARNEY 45 Treasurer Director, (1/1/95 to Present) Executive Vice President,
767 Third Avenue Chief Chief Financial Officer (6/29/95 to Present) of MJWHC and
New York, NY Financial of M.J. Whitman, Inc.; Treasurer, Director (1/1/95 to
10017-2023 Officer Present), Executive Vice President (6/29/95 to Present)
(CFO) and CFO (10/92 to Present) of M.J. Whitman Advisers, Inc.;
Treasurer (12/93 to 4/96) of Longstreet Investment Corp.;
CFO (3/26/93 to 6/95) of Danielson Trust Company; Limited
Partner (1/92 to 12/31/94) of M.J. Whitman, L.P.; CFO of
WHR Management Corporation (8/91 to Present), Danielson
Holding Corporation (8/90 to Present) and Carl Marks
Strategic Investments, L.P., an investment partnership
(1/90 to 4/94); CFO (1/90 to 4/94) of Carl Marks & Co.,
Inc., a broker-dealer; CFO (8/89 to 12/90) of Whitman
Advisors, Ltd.; CFO and Treasurer (5/89 to 4/94) of Equity
Strategies Fund, Inc.; CFO and Treasurer (5/89 to Present)
of EQSF Advisers, Inc.; CFO (5/89 to Present) of Whitman
Heffernan Rhein & Co., Inc., Martin J. Whitman & Co.,
Inc., (formerly M.J. Whitman & Co., Inc.) and WHR
Management Company, L.P., a firm managing investment
partnerships.
KERRI WELTZ 31 Assistant Assistant Treasurer (5/96 to Present), Controller (1/96 to
Treasurer Present), Assistant Controller (1/93 to 12/95) and Staff
Accountant (1/92 to 12/92) for the Trust; Controller
(1/96 to Present), Assistant Controller (1/93 to 12/95),
and Staff Accountant (1/92 to 12/92) of EQSF Advisers,
Inc.; Controller (8/96 to Present), of Danielson
Holding Corp.; Controller (5/96 to Present) and
Assistant Controller (1/95 to 5/96) of Whitman
Heffernan & Rhein Workout Fund II, L.P. and Whitman
Heffernan & Rhein Workout Fund II-A, L.P.; Controller
(5/96 to Present) of WHR Management Corp.; Controller
(5/96 to present), Assistant Controller (1/93 to 5/96)
and Staff Accountant (5/91 to 12/92), of Whitman
Heffernan Rhein & Co., Inc.; Controller (5/96 to Present)
of Martin J. Whitman & Co., Inc.; Assistant Controller
(10/94 to 4/96) of Longstreet Investment Corp
and Emerald Investment Partners, L.P.; Assistant
Controller (1/93 to 4/94) and Staff Accountant (1/92
to 12/92) of Equity Strategies Fund, Inc.;
Payroll manager (5/91 to 12/93) of M.J. Whitman, L.P.
IAN M. KIRSCHNER 43 General General Counsel and Secretary (8/96 to Present) of
767 Third Avenue Counsel and Danielson Holding Corporation; General Counsel and
New York NY Secretary ecretary (1/96 to Present) of MJWHC, M.J. Whitman, Inc.,
10017-2023 and M. J. Whitman Advisers, Inc.; General Counsel and
Secretary (1/97 to Present) of the Trust; General Counsel
and Secretary (1/97 to Present) of EQSF Advisers, Inc.;
Vice-President, General Counsel and Secretary (2/93 to
6/95) of 2 I Inc.; Of Counsel (10/90 to 10/92) to
Morgan, Lewis & Bockius.
</TABLE>
The Trust does not pay any fees to its officers for their services as such,
but does pay Trustees who are not affiliated with the Investment Adviser a fee
of $1,500 per Fund for each meeting of the Board of Trustees that they attend,
in addition to reimbursing all Trustees for travel and incidental expenses
incurred by them in connection with their attendance at Board meetings. The
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<PAGE>
Trust also pays the non-interested Trustees an annual stipend of $2,000 per Fund
in January of each year for the previous year's service. The Trust paid Trustees
in the aggregate, $165,479 in such fees and expenses for the year ended October
31, 1998. Trustees do not receive any pension or retirement benefits.
For the fiscal year ended October 31, 1998, the aggregate amount of compensation
paid to each Trustee by the Trust is listed below.
Compensation Table
Aggregate Compensation
From Registrant for Total Compensation From
Fiscal Year Ended Registrant and Fund
Name and Position Held October 31, 1998* Complex Paid to Trustees*
---------------------- ----------------- ------------------------
Phyllis W. Beck, Trustee $ 0 $ 0
Tibor Fabian ** $ 3,000 $ 3,000
Lucinda Franks, Trustee $19,666 $19,666
Gerald Hellerman, Trustee $28,166 $28,166
Marvin Moser, M.D., Trustee $28,166 $28,166
Myron M. Sheinfeld, Trustee $28,166 $28,166
Martin Shubik, Trustee $25,166 $25,166
Charles C. Walden, Trustee $28,166 $28,166
Barbara Whitman, Trustee $ 0 $ 0
Martin J. Whitman, Chairman and $ 0 $ 0
Chief Executive Officer
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $4,983 for all Trustees as a group. Amounts for THIRD
AVENUE HIGH YIELD FUND are for the period from February 12, 1998
(inception) through October 31, 1998. Amounts for THIRD AVENUE REAL
ESTATE VALUE FUND are for the period from September 17, 1998 (inception)
through October 31, 1998. For the fiscal year ended October 31, 1999, it is
anticipated that in addition to the compensation specified above, the
Trustees will receive additional compensation from THIRD AVENUE HIGH YIELD
FUND and THIRD AVENUE REAL ESTATE VALUE FUND in an estimated amount equal
to $1,500 and $4,500 per Trustee, respectively, and THIRD AVENUE HIGH YIELD
FUND and THIRD AVENUE REAL ESTATE VALUE FUND will reimburse the Trustees
for approximately $2,500 in expenses in the aggregate (such estimated
amounts are based upon the aggregate compensation received and expenses
incurred by the Trustees for the fiscal year ended October 31, 1998).
** Mr. Fabian passed away on December 6, 1997.
Principal Stockholders
The following persons beneficially own of record or are known to beneficially
own of record 5 percent or more of the outstanding common stock of THIRD AVENUE
VALUE FUND, THIRD AVENUE SMALL-CAP VALUE FUND, THIRD AVENUE HIGH YIELD FUND and
THIRD AVENUE REAL ESTATE VALUE FUND as of February 10, 1999:
THIRD AVENUE VALUE FUND
Percentage of
Name and Address Third Avenue Value Fund Number of Shares
- ---------------- ----------------------- ----------------
Charles Schwab & Co., Inc.(2) 41.73% 20,151,609
101 Montgomery Street
San Francisco, CA 94104
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<PAGE>
Donaldson Lufkin & Jenrette 11.53% 5,568,039
Securities Corporation(3)
Mutual Funds Dept. 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
National Financial Securities 9.95% 4,804,531
Corp.(3)
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
THIRD AVENUE SMALL-CAP VALUE FUND
Percentage of
Third Avenue
Name and Address Small-Cap Value Fund Number of Shares
- ---------------- -------------------- ----------------
Charles Schwab & Co., Inc.(2) 33.65% 4,236,663
101 Montgomery Street
San Francisco, CA 94104
National Financial Securities 19.82% 2,653,564
Corp.(3)
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Bear Stearns Securities Corp.(4) 7.57% 1,012,752
One Metrotech Center North
Brooklyn, NY 11201-3859
Donaldson Lufkin & Jenrette 6.63% 887,463
Securities Corporation(3)
Mutual Funds Dept. 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
THIRD AVENUE HIGH YIELD FUND
Percentage of
Third Avenue
Name and Address High Yield Fund Number of Shares
- ---------------- --------------- ----------------
Bear Stearns Securities Corp.(4) 29.58% 274,114
One Metrotech Center North
Brooklyn, NY 11201-3859
Charles Schwab & Co., Inc.(2) 25.81% 239,227
101 Montgomery Street
San Francisco, CA 94104
National Financial Securities 10.85% 100,584
Corp.(3)
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
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<PAGE>
THIRD AVENUE REAL ESTATE VALUE FUND
Percentage of
Third Avenue
Name and Address Real Estate Value Fund Number of Shares
- ---------------- ---------------------- ----------------
Bear Stearns Securities Corp.(4) 42.49% 141,330
One Metrotech Center North
Brooklyn, NY 11201-3859
National Financial Securities 12.79% 42,554
Corp.(3)
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Dobson Tape Ministry 8.65% 28,777
1306 S Church Street
Greenville, SC 29605
Charles Schwab & Co., Inc.(2) 7.39% 24,586
101 Montgomery Street
San Francisco, CA 94104
(2) Charles Schwab & Co., Inc. is a discount broker-dealer acting as a
nominee for registered investment advisers whose clients have purchased
shares of the Fund, and also holds shares for the benefit of its
clients.
(3) Donaldson Lufkin & Jenrette Securities Corporation and National
Financial Services Corp. are broker-dealers holding shares for the
benefit of their respective clients.
(4) Bear Stearns Securities Corp. is a broker-dealer holding shares for
the benefit of its clients, including, at such time, clients of MJW,
the Funds' affiliated broker-dealer, principal underwriter and
distributor.
The officers and Trustees of the Funds own in the aggregate 1.80% of THIRD
AVENUE VALUE FUND, 0.84% of THIRD AVENUE SMALL-CAP VALUE FUND, 3.25% of THIRD
AVENUE HIGH YIELD FUND, and 18.42% of THIRD AVENUE REAL ESTATE VALUE FUND.
Investment Adviser
The Investment Adviser to the Trust is EQSF Advisers, Inc. (the "Adviser").
Martin J. Whitman is a controlling person of the Adviser. His control is based
upon an irrevocable proxy signed by his children, who own in the aggregate 75%
of the outstanding common stock of the Adviser, pursuant to a shareholders'
agreement entered into by and among them. Mr. Whitman is Chairman and Chief
Executive Officer of the Adviser.
The following individuals are affiliated persons of the Trust and Adviser:
Capacity With Funds Capacity With Adviser
------------------- ---------------------
Martin J. Whitman Chairman and Chief Executive Chairman and Chief Executive
Officer Officer
David M. Barse President, Chief Operating President, Chief Operating
Officer Officer
Michael Carney Treasurer, Chief Financial Treasurer, Chief Financial
Officer Officer
Ian M. Kirschner General Counsel and Secretary General Counsel and Secretary
Kerri Weltz Assistant Treasurer Assistant Treasurer
Barbara Whitman Trustee Director
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<PAGE>
Investment Advisory Agreement
The investment advisory services of the Adviser are furnished to each of the
Funds pursuant to an Investment Advisory Agreement approved by the Board of
Trustees of the Trust, including a majority of the Trustees who are not
"interested persons" as defined in the 1940 Act, and by the sole shareholder of
each Fund on the same date. The Adviser has provided investment advisory
services to the Funds since their inception.
After the initial two-year term, each Investment Advisory Agreement will
continue from year to year if approved annually by the Board of Trustees of the
Trust or a majority of the outstanding voting securities of the Trust, and by
vote of a majority of the Trustees who are not parties to the Investment
Advisory Agreements or "interested persons" (as defined in the 1940 Act) of such
parties, cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory Agreements may be terminated at any time
without penalty, upon 60 days written notice by either party to the other, and
will automatically be terminated upon any assignment thereof.
For the investment advisory services provided by the Adviser, each Fund pays the
Adviser a monthly fee of 1/12 of .90% (an annual rate of .90%) on the average
daily net assets in the Fund during the prior month. During the fiscal years
ended October 31, 1998, 1997 and 1996, THIRD AVENUE VALUE FUND paid investment
advisory fees to the Adviser of $15,893,039, $9,303,435, and $3,976,741,
respectively. During the fiscal year ended October 31, 1998 and the period from
inception to October 31, 1997, THIRD AVENUE SMALL-CAP VALUE FUND paid investment
advisory fees to the Adviser of $1,248,794 and $252,298, respectively. During
the period from inception to October 31, 1998, THIRD AVENUE HIGH YIELD FUND paid
investment advisory fees to the Adviser of $50,472. During the period from
inception to October 31, 1998, THIRD AVENUE REAL ESTATE VALUE FUND paid
investment advisory fees to the Adviser of $568.
Under the Investment Advisory Agreements, the Adviser supervises and assists in
the management of the Trust, provides investment research and research
evaluation and makes and executes recommendations for the purchase and sale of
securities. The Adviser furnishes at its expense all necessary office equipment
and personnel necessary for performance of the obligations of the Adviser and
pays the compensation of officers of the Trust. However, in the event that any
person serving as an officer of the Trust has both executive duties attendant to
such offices and administrative duties to the Trust apart from such office, the
Adviser does not pay any amount relating to the performance of such
administrative duties.
All other expenses incurred in the operation of the Funds and the continuous
offering of its shares, including taxes, fees and commissions, bookkeeping
expenses, Fund employees, expenses of redemption of shares, charges of
administrators, custodians and transfer agents, auditing and legal expenses and
fees of outside Trustees are borne by the Funds. Any expense which cannot be
allocated to a specific Fund will be allocated to each of the Funds based on
their relative net asset values on the date the expense is incurred. From time
to time, the Adviser may waive receipt of its fees and/or assume certain
expenses of a Fund, which would have the effect of lowering the expense ratio of
the Fund and increasing yield to investors. Under current arrangements, whenever
in any fiscal year, a Fund's normal operating expenses, including the investment
advisory fee, but excluding brokerage commissions and interest and taxes,
exceeds 1.9% of the first $100 million of average daily net assets of the Fund,
and 1.5% of assets in excess of $100 million, the Adviser is obligated to
reimburse the Fund in an amount equal to that excess. If a Fund's operating
expenses fall below the expense limitation, that Fund will begin repaying the
Adviser for the amount contributed on behalf of the Fund. This repayment will
continue for up to three years after the end of the fiscal year in which an
expense is reimbursed by the Adviser, subject to the expense limitation, until
the Adviser has been paid for the entire amount contributed or such three year
period expires.
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<PAGE>
Distributor
The distribution services of M.J. Whitman, Inc., 767 Third Avenue, New York, NY
10017 ("MJW" or the "Distributor") are furnished to each Fund pursuant to a
Distribution Agreement (the "Distribution Agreement"). Under such agreements,
the Distributor shall (1) assist in the sale and distribution of each Fund's
shares; and (2) qualify and maintain the qualification as a broker-dealer in
such states where shares of the Funds are registered for sale.
Each Distribution Agreement will remain in effect provided that it is approved
at least annually by the Board of Trustees or by a majority of the Fund's
outstanding shares, and in either case, by a majority of the Trustees who are
not parties to the Distribution Agreement or interested persons of any such
party. Each Distribution Agreement terminates automatically if it is assigned
and may be terminated without penalty by either party on not less than 60 days
written notice.
Administrator
The Funds have entered into an Administration Services Agreement (the
"Administration Agreement") with First Data Investor Services Group, Inc.
("Investor Services Group"), a wholly owned subsidiary of First Data
Corporation. The Administration Agreement provides that Investor Services Group
shall provide all administrative services to each Fund other than those relating
to the investment portfolio of the Funds, the distribution of the Funds and the
maintenance of each Fund's financial records. The Administration Agreement has
an initial two year term and may be terminated at any time (effective after such
initial term) without penalty, upon 180 days written notice by either party to
the other, and will automatically be terminated upon any assignment thereof. The
Trust has agreed to pay Investor Services Group an amount equal to $186,000 per
annum plus .01% of aggregate assets of the Funds in excess of $1 billion. During
the fiscal years ended October 31, 1998 and 1997, THIRD AVENUE VALUE FUND paid
fees to Investor Services Group of $236,033 and $143,175, respectively, for
these services. During the fiscal year ended October 31, 1998 and the period
from inception to October 31, 1997, THIRD AVENUE SMALL-CAP VALUE FUND paid fees
to Investor Services Group of $18,586 and $8,116, respectively, for these
services. During the period from inception to October 31, 1998, THIRD AVENUE
HIGH YIELD FUND paid fees to Investor Services Group of $9,207 for these
services. During the period from inception to October 31, 1998, THIRD AVENUE
REAL ESTATE VALUE FUND paid fees to Investor Services Group of $1,434 for these
services.
Custodian
Custodial Trust Company, 101 Carnegie Center, Princeton, NJ 08540-6231, serves
as custodian for the Funds pursuant to a custodian agreement. Under such
agreement, the Custodian (1) maintains a separate account or accounts in the
name of each Fund; (2) holds and transfers portfolio securities on account of
each Fund; (3) accepts receipts and makes disbursements of money on behalf of
each Fund; (4) collects and receives all income and other payments and
distributions on account of each Fund's securities; and (5) makes periodic
reports to the Board of Trustees concerning each Fund's operations.
Transfer Agent
First Data Investor Services Group, Inc., 3200 Horizon Drive, P.O. Box 61503,
King of Prussia, PA 19406-0903, is the transfer agent for each of the Funds.
Independent Accountants
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036, is
the independent public accountants for the Funds. The independent public
accoutants audit the
-20-
<PAGE>
financial statements of the Funds following the end of each fiscal year and
provide a report to the Board of Trustees of the results of the audit.
Portfolio Trading Practices
Under the Investment Advisory Agreement between the Trust and the Adviser, the
Adviser has the responsibility of selecting brokers and dealers. The Adviser
must place portfolio transactions with brokers and dealers who render
satisfactory service in the execution of orders at the most favorable prices and
at reasonable commission rates, but has discretion to pay a greater amount if
it, in good faith, determines that such commission was reasonable in relation to
the value of the brokerage and research services provided by such broker or
dealer, either in terms of that particular transaction or in fulfilling the
overall responsibilities of the Adviser to the Funds. Where transactions are
executed in the over-the-counter market, or in the "third market" (the
over-the-counter market in listed securities), the Fund will normally first seek
to deal with the primary market makers. However, when the Funds consider it
advantageous to do so, they will utilize the services of brokers, but will, in
all cases, attempt to negotiate the best price and execution. The determination
of what may constitute the most favorable price and execution in a securities
transaction by a broker involves a number of considerations, including, without
limitation, the overall direct net economic result to the Funds (involving both
price paid or received and any commissions or other costs paid), the efficiency
with which the transaction is effected, the ability to effect the transaction at
all if selling large blocks is involved, the availability of the broker to stand
ready to execute possibly difficult transactions in the future and the financial
strength and stability of the broker. Such considerations are judgmental and are
weighed by management in determining the overall reasonableness of brokerage
commissions paid. In allocating any such portfolio brokerage on a national
securities exchange, the Funds may consider the research, statistical and other
factual information and services provided by brokers from time to time to the
Adviser. Such services and information are available to the Adviser for the
benefit of all clients of the Adviser and its affiliates and it is not practical
for the Adviser to assign a particular value to any such service.
The Adviser intends to use brokers affiliated with the Adviser as brokers for
the Funds where, in its judgment, such firms will be able to obtain a price and
execution at least as favorable as other qualified brokers. Martin J. Whitman,
David M. Barse, Michael Carney and Ian M. Kirschner, who are executive officers
of the Trust and the Adviser, are also executive officers of MJW and M.J.
Whitman Senior Debt Corp. ("Senior Debt Corp."), a broker of private debt
instruments under common control with MJW.
In determining the commissions to be paid to MJW and Senior Debt Corp., it is
the policy of the Funds that such commissions will, in the judgment of the
Adviser, be (i) at least as favorable as those which would be charged by other
qualified brokers having comparable execution capability and (ii) at least as
favorable as commissions contemporaneously charged by MJW or Senior Debt Corp.,
as the case may be, on comparable transactions for its most favored unaffiliated
customers, except for any customers of MJW or Senior Debt Corp., as the case may
be, considered by a majority of the disinterested Trustees not to be comparable
to the Funds. The Funds do not deem it practicable and in their best interests
to solicit competitive bids for commission rates on each transaction. However,
consideration is regularly given to information concerning the prevailing level
of commissions charged on comparable transactions by other qualified brokers.
The Trustees from time to time, at least on a quarterly basis, will review,
among other things, all the Funds' portfolio transactions including information
relating to the commissions charged by MJW and Senior Debt Corp. to the Funds
and to their other customers, and information concerning the prevailing level of
commissions charged by other qualified brokers. In addition, the procedures
pursuant to which MJW and Senior Debt Corp. effects brokerage transactions for
the Funds must be reviewed and approved no less often than annually by a
majority of the disinterested Trustees.
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<PAGE>
The Adviser expects that it will execute a portion of the Funds' transactions
through qualified brokers other than MJW and Senior Debt Corp. In selecting such
brokers, the Adviser will consider the quality and reliability of the brokerage
services, including execution capability and performance, financial
responsibility, and investment information and other research provided by such
brokers. Accordingly, the commissions charged by any such broker may be greater
than the amount another firm might charge if management of the Trust determines
in good faith that the amount of such commissions is reasonable in relation to
the value of the brokerage services and research information provided by such
broker to the Funds. Management of the Trust believes that the research
information received in this manner provides the Funds with benefits by
supplementing the research otherwise available to the Funds. Over-the-counter
purchases and sales will be transacted directly with principal market makers,
except in those circumstances where the Funds can, in the judgment of their
management, otherwise obtain better prices and execution of orders.
To the knowledge of the Funds, no affiliated person of the Funds receives
give-ups or reciprocal business in connection with security transactions of the
Funds. The Funds do not effect securities transactions through brokers in
accordance with any formula, nor will they take the sale of Fund shares into
account in the selection of brokers to execute security transactions. However,
brokers who execute brokerage transactions for the Funds, including MJW and
Senior Debt Corp., from time to time may effect purchases of Fund shares for
their customers.
For the fiscal year ended October 31, 1998, THIRD AVENUE VALUE FUND incurred
total brokerage commissions of $1,261,197, of which approximately $1,026,034 (or
81%) was paid to MJW and $38,637 (or 3%) was paid to Senior Debt Corp. For the
fiscal year ended October 31, 1997, THIRD AVENUE VALUE FUND incurred total
brokerage commissions of $620,345 of which approximately $460,641 (or 74%) was
paid to MJW and $18,047 (or 3%) was paid to Senior Debt Corp. For the fiscal
year ended October 31, 1996, THIRD AVENUE VALUE FUND incurred total brokerage
commissions of $447,855 of which approximately $329,168 (or 73%) was paid to MJW
and $70,250 (or 16%) was paid to Senior Debt Corp.
For the fiscal year ended October 31, 1998, THIRD AVENUE SMALL-CAP VALUE FUND
incurred total brokerage commissions of $205,990 of which approximately $113,016
(or 55%) was paid to MJW. For the period from inception through October 31,
1997, THIRD AVENUE SMALL-CAP VALUE FUND incurred total brokerage commissions of
$78,938 of which approximately $50,977 (or 65%) was paid to MJW.
For the period from inception through October 31, 1998, THIRD AVENUE HIGH YIELD
FUND incurred total brokerage commissions of $600, none of which was paid to
MJW.
For the period from inception through October 31, 1998, THIRD AVENUE REAL ESTATE
VALUE FUND incurred total brokerage commissions of $1,670 of which approximately
$1,470 (or 88%) was paid to MJW.
These amounts include fees paid by MJW to its clearing agents. Commissions paid
by the Funds to MJW are paid at an average discount of at least 20% to the
normal fees charged by MJW.
For the fiscal year ended October 31, 1998, THIRD AVENUE VALUE FUND effected
40.48% and 0.57% of its total transactions for which commissions were paid
through MJW and Senior Debt Corp., respectively. For the fiscal year ended
October 31, 1998, THIRD AVENUE SMALL-CAP VALUE FUND effected 39.09% of its total
transactions for which commissions were paid through MJW. For the fiscal year
ended October 31, 1998, THIRD AVENUE HIGH YIELD FUND effected none of its total
transactions for which commissions were paid through MJW. For the fiscal year
ended October 31, 1998, THIRD AVENUE REAL ESTATE VALUE FUND effected 83.33% of
its total transactions for which commissions were paid through MJW.
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At October 31, 1998, THIRD AVENUE VALUE FUND held securities of the
following of the Fund's regular broker-dealers: Raymond James Financial, Inc.
(the market value of which was $27,094,922 at October 31, 1998).
Purchase Orders
Each Fund reserves the right, in its sole discretion, to refuse purchase orders.
Without limiting the foregoing, a Fund will consider exercising such refusal
right when it determines that it cannot effectively invest the available funds
on hand in accordance with the Fund's investment policies.
Redemption of Shares
The procedure for redemption of Fund shares under ordinary circumstances is set
forth in the Prospectus. In unusual circumstances, such as in the case of a
suspension of the determination of net asset value, the right of redemption is
also suspended and, unless redeeming shareholders withdraw their certificates
from deposit, they will receive payment of the net asset value next determined
after termination of the suspension. The right of redemption may be suspended or
payment upon redemption deferred for more than seven days: (a) when trading on
the New York Stock Exchange (the "NYSE") is restricted; (b) when the NYSE is
closed for other than weekends and holidays; (c) when the Securities and
Exchange Commission (the "SEC") has by order permitted such suspension; or (d)
when an emergency exists making disposal of portfolio securities or valuation of
net assets of a Fund not reasonably practicable; provided that applicable rules
and regulations of the SEC shall govern as to whether the conditions prescribed
in (a), (c) or (d) exist.
Redemption In Kind
Each Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 pursuant to which such Fund is obligated during any 90 day period to
redeem shares for any one shareholder of record solely in cash up to the lesser
of $250,000 or 1% of the net asset value of such Fund at the beginning of such
period. Should a redemption exceed such limitation, a Fund may deliver, in lieu
of cash, readily marketable securities from its portfolio. The securities
delivered will be selected at the sole discretion of such Fund, will not
necessarily be representative of the entire portfolio and may be securities
which the Fund would otherwise sell. The redeeming shareholder will usually
incur brokerage costs in converting the securities to cash. The method of
valuing securities used to make the redemptions in kind will be the same as the
method of valuing portfolio securities and such valuation will be made as of the
same time the redemption price is determined.
Dividends, Capital Gain Distributions and Taxes
Each Fund intends to qualify and to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If they so qualify, the Funds will not be subject to
Federal income tax on their net investment income and net short-term capital
gain, if any, realized during any fiscal year to the extent that they distribute
such income and gain to their shareholders.
Each Fund will either distribute or retain for reinvestment all or part of any
net long-term capital gain. If any such net capital gain is retained, the Fund
will be subject to a tax of 35% of such amount. In that event, the Fund expects
to designate the retained amount as undistributed capital gains in a notice to
its shareholders, each of whom (1) will be required to include in income for tax
purposes, as long-term capital gains, its share of such undistributed amount,
(2) will be entitled to credit its proportionate share of the tax paid by the
Fund against its Federal income tax liability and to claim refunds to the extent
the credit exceeds such liability, and (3) will increase its basis in its shares
of such Fund by an amount equal to 65% of the amount of the
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<PAGE>
undistributed capital gains included in such shareholder's gross income. A
distribution by a Fund will be treated as paid during any calendar year if it is
declared by the Fund in October, November or December of that year, payable to
shareholders of record on a date during such month and paid by the Fund during
January of the following year. Any such distribution paid during January of the
following year will be deemed to be received on December 31 of the year the
distribution is declared, rather than when the distribution is received.
Under the Code, amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a 4% excise tax. To avoid
the tax, each Fund must distribute during each calendar year, an amount equal to
at least the sum of (1) 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) 98% of its capital gains in
excess of its capital losses for the twelve-month period ending on October 31 of
the calendar year (unless an election is made by a Fund with a November or
December year end to use the Fund's fiscal year), and (3) all ordinary income
and net capital gains for previous years that were not previously distributed.
The Federal income tax treatment of the various high yield debt securities and
other debt instruments (collectively, "Instruments" and individually, an
"Instrument") to be acquired by the Funds will depend, in part, on the nature of
those Instruments and the application of various tax rules. The Funds may derive
interest income through the accrual of stated interest payments or through the
application of the original issue discount rules, the market discount rules or
other similar provisions. The Funds may be required to accrue original issue
discount income, and in certain circumstances the Funds may be required to
accrue stated interest even though no concurrent cash payments will be received.
Moreover, it is the position of the IRS that a holder of a debt instrument
subject to the original issue discount rules is required to recognize interest
income regardless of the financial condition of the obligor, even where there is
no reasonable expectancy that the Instrument will be redeemed according to its
terms. If a Fund acquires an Instrument at a discount and the terms of that
Instrument are subsequently modified, the Fund could be required to recognize
gain at the time of the modification even though no cash payments will have been
received at that time. The market discount rules, as well as certain other
provisions, may require that a portion of any gain recognized on the sale,
redemption or other disposition of an Instrument be treated as ordinary income
as opposed to capital gain. Also, under the market discount rules, if a Fund
were to receive a partial payment on an Instrument, the Fund could be required
to recognize ordinary income at the time of the partial payment, even though the
Instrument may ultimately be settled at an overall loss. As a result of these
and other rules, the Funds may be required to recognize taxable income which
they would be required to distribute, even though the underlying Instruments
have not made concurrent cash distributions to the Funds.
The body of law governing these Instruments is complex and not well developed.
Thus the Funds and their advisors may be required to interpret various
provisions of the Internal Revenue Code and Regulations and take certain
positions on the Funds' tax returns, in situations where the law is somewhat
uncertain.
At October 31, 1998, the following Funds had available capital loss
carryforwards to offset future net capital gains, to the extent provided by
regulations, through October 31, 2006:
THIRD AVENUE VALUE FUND $15,833,338
THIRD AVENUE SMALL-CAP VALUE FUND $ 592,923
THIRD AVENUE HIGH YIELD FUND $ 50,625
THIRD AVENUE REAL ESTATE VALUE FUND $ 1,531
To the extent that capital loss carryforwards are used to offset any future
capital gains realized during the carryover period as provided by U.S. Federal
income tax regulations, no capital gains
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<PAGE>
tax liability will be incurred by a Fund for gains realized and not distributed.
To the extent that capital gains are offset, such gains will not be distributed
to the shareholders.
Share Information
All shares of the Funds have one vote and when duly issued will be fully paid
and non-assessable. Shares have no preemptive, subscription or conversion rights
and are freely transferable. The Trustees are authorized to re-classify and
issue any unissued shares to any number of additional series without shareholder
approval. Accordingly, the Trustees in the future, for reasons such as the
desire to establish one or more additional funds with different objectives,
policies, risk considerations or restrictions, may create additional series or
classes of shares. Any issuance of shares of such additional series would be
governed by the Investment Company Act of 1940, as amended, and the laws of the
State of Delaware.
Performance Information
Performance information for the Funds may appear in advertisements, sales
literature, or reports to shareholders or prospective shareholders. Performance
information in advertisements and sales literature may be expressed as "average
annual return" and "total return."
Each Fund's average annual return quotation is computed in accordance with a
standardized method prescribed by rules of the SEC. The average annual return
for a specific period is found by first taking a hypothetical $1,000 investment
("initial investment") in the Fund's shares on the first day of the period and
computing the redeemable value of that investment at the end of the period. The
redeemable value is then divided by the initial investment, and this quotient is
taken to the Nth root (N representing the number of years in the period) and 1
is subtracted from the result, which is then expressed as a percentage. The
calculation assumes that all income and capital gains dividends paid by the Fund
have been reinvested at net asset value on the reinvestment dates during the
period.
THIRD AVENUE VALUE FUND'S average annual total return for the one year, five
year and since inception periods ending October 31, 1998 are -3.86%, 13.52% and
19.33%, respectively. THIRD AVENUE SMALL-CAP VALUE FUND'S average annual total
return for the one year and since inception periods ending October 31, 1998 are
- -13.36% and 4.47%, respectively.
Calculation of a Fund's total return is subject to a standardized formula. Total
return performance for a specific period is calculated by taking an initial
investment in the Fund's shares on the first day of the period and computing the
redeemable value of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
redeemable value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Total return may also be shown as
the increased dollar value of the hypothetical investment over the period.
A Fund's yield is computed in accordance with a standardized method prescribed
by rules of the SEC. The Fund's yield is computed by dividing the net investment
income per share earned during the specified one month or 30-day period by the
net asset value per share on the last day of the period, according to the
following formula:
YIELD = 2[a-b + 1] 6 - 1
-----
[cd]
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<PAGE>
Where:
a = dividends and interest earned during the period. b = expenses accrued for
the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends. d = the maximum offering price per share on the
last day of the period.
The yield of the THIRD AVENUE HIGH YIELD FUND for the 30-day period ending on
October 31, 1998 was 10.27%.
Financial Statements
The Funds' financial statements and notes thereto appearing in their Annual
Report to Shareholders and the report thereon of PricewaterhouseCoopers LLP,
independent accountants, appearing therein, are incorporated by reference in
this Statement of Additional Information. The Funds will issue unaudited
semi-annual and audited annual financial statements.
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<PAGE>
Appendix
Description of Corporate Bond Ratings
Standard & Poor's Ratings Group
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers reliable. Standard & Poor's
does not perform any audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended
or withdrawn as a result of changes in, or unavailability of, such information
or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance
with the terms of the obligation.
II. Nature and provisions of the obligation.
III. 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.
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small
degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B, CCC, CC, C - Debt rated "BB", "B", "CCC", "CC", and "C" is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" indicates the lowest degree of
speculation and "C" the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB - Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB" rating.
B - Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The "B"
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied "BB" or "BB-" rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The "CCC" rating category is also used for
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<PAGE>
debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
C1 - The rating "C1" is reserved for income bonds on which no interest
is being paid.
D - Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments 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 if debt service payments 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
categories.
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<PAGE>
Moody's Investors Service, Inc.
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds 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,
fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risk
appear somewhat greater than the Aaa securities.
A - Bonds 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 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 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 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 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 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 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 applies numerical
modifiers: 1, 2 and 3 in each generic rating classification from Aa
through B in its corporate bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating
category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
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Board of Trustees
Phyllis W. Beck
Lucinda Franks
Gerald Hellerman
Marvin Moser
Myron M. Sheinfeld
Martin Shubik
Charles C. Walden
Barbara Whitman
Martin J. Whitman
Officers
Martin J. Whitman
Chairman, Chief Executive Officer
David M. Barse
President, Chief Operating Officer
Michael Carney
Chief Financial Officer, Treasurer
Kerri Weltz, Assistant Treasurer
Ian M. Kirschner, General Counsel and Secretary
Investment Adviser
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
Distributor
M.J. Whitman, Inc.
767 Third Avenue
New York, NY 10017-2023
Transfer Agent
First Data Investor Services Group, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-4600
(800) 443-1021 (toll-free)
Custodian
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
[LOGO]
767 Third Avenue
New York, NY 10017
Phone (212) 888-5222
Toll Free (800) 443-1021
www.thirdavenuefunds.com
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Preliminary statement of additional information dated December 18, 1999
PIONEER HIGH YIELD FUND
60 State Street
Boston, Massachusetts 02109
STATEMENT OF ADDITIONAL INFORMATION
CLASS A, CLASS B, CLASS C AND CLASS Y SHARES
[FEBRUARY 29,] 2000
This statement of additional information is not a prospectus. It should be read
in conjunction with the fund's Class A, Class B and Class C shares prospectus
and its Class Y shares prospectus each dated February 29, 2000, as supplemented
or revised from time to time. A copy of each prospectus can be obtained free of
charge by calling Shareholder Services at 1-800-225-6292 or by written request
to the fund at 60 State Street, Boston, Massachusetts 02109. You can also obtain
a copy of the fund's Class A, Class B and Class C shares prospectus from our
website at: www.pioneerfunds.com.
TABLE OF CONTENTS
PAGE
1. Fund History.............................................................2
2. Investment Policies, Risks and Restrictions..............................2
3. Management of the Fund..................................................23
4. Investment Adviser......................................................27
5. Principal Underwriter and Distribution Plans............................29
6. Shareholder Servicing/Transfer Agent....................................33
7. Custodian...............................................................33
8. Independent Public Accountants..........................................33
9. Portfolio Transactions..................................................33
10. Description of Shares...................................................35
11. Sales Charges...........................................................37
12. Redeeming Shares........................................................40
13. Telephone Transactions..................................................41
14. Pricing of Shares.......................................................42
15. Tax Status..............................................................43
16. Investment Results......................................................47
17. Financial Statements....................................................50
18. Appendix A - Annual Fee, Expense and Other Information..................51
19. Appendix B - Description of Short-Term Debt, Corporate Bond and
Preferred Stock Ratings.................................................54
20. Appendix C - Performance Statistics.....................................60
21. Appendix D - Other Pioneer Information..................................73
<PAGE>
1. FUND HISTORY
The fund is a diversified open-end management investment company. The fund
originally was established as Third Avenue High Yield Fund, a series of Third
Avenue Trust, a Delaware business Trust. Pursuant to an agreement and plan of
reorganization, the fund was reorganized as Pioneer High Yield Fund, a Delaware
business trust, on [February 29], 2000.
2. INVESTMENT POLICIES, RISKS AND RESTRICTIONS
The prospectuses present the investment objective and the principal investment
strategies and risks of the fund. This section supplements the disclosure in the
fund's prospectuses 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. Accordingly, any
later increase or decrease resulting from a change in values, net assets or
other circumstances will not be considered in determining whether the investment
complies with the fund's restrictions and policies.
PRIMARY INVESTMENTS
Under normal circumstances, the fund invests at least 65% of its total assets in
below investment grade (high yield) debt securities and preferred stocks.
DEBT SECURITIES RATING CRITERIA
Investment grade debt securities are those rated "BBB" or higher by Standard &
Poor's Ratings Group ("Standard & Poor's") or the equivalent rating of other
national 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 national statistical rating
organizations. See Appendix B 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
2
<PAGE>
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 Investment Management, Inc. ("Pioneer"), the fund's
investment adviser, 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.
CONVERTIBLE DEBT SECURITIES
The fund may invest in convertible debt securities which are debt obligations
convertible at a stated exchange rate or formula into common stock or other
equity securities of or owned by the issuer. Convertible securities rank senior
to common stocks in an issuer's capital structure and consequently may be of
higher quality and entail less risk than the issuer's common stock. As with all
debt securities, the market values of convertible securities tend to increase
when interest rates decline and, conversely, tend to decline when interest rates
increase.
DEBT OBLIGATIONS OF FOREIGN GOVERNMENTS
An investment in debt obligations of foreign governments and their political
subdivisions (sovereign debt) involves special risks that are not present in
corporate debt obligations. The foreign issuer of the sovereign debt or the
foreign 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. issues. In the past, certain foreign
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient 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 foreign 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
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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 foreign governments and their
agencies and foreign 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 foreign branches of
domestic banks; ETDs are U.S. dollar-denominated deposits in a foreign branch of
a U.S. bank or in a foreign bank; and Yankee CDs are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign 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, foreign withholding or other taxes, seizure of foreign
deposits, currency controls, interest limitations or other governmental
restrictions which might affect payment of principal or interest.
RISKS OF NON-U.S. INVESTMENTS
To the extent that the fund invests in the securities of non-U.S. issuers, those
investments involve 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 or 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 non-U.S. 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. Unanticipated political or
social developments may affect the values of the fund's investments in such
countries. The economies and securities and currency markets of many emerging
markets have experienced significant disruption and declines. There can be no
assurances that these economic and market disruptions will not continue.
FOREIGN 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 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 non-U.S. 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
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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 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 non-U.S. 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 non-U.S. 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.
Economies in emerging 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
international 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.
CUSTODIAN 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.
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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.
ECONOMIC MONETARY UNION (EMU)
January 1, 1999, 11 European countries adopted a single currency - the Euro. The
conversion to the Euro is being phased in over a three-year period. During this
time, valuation, systems and other operational problems may occur in connection
with the fund's investments quoted in the Euro. For participating countries, EMU
will mean sharing a single currency and single official interest rate and
adhering to agreed upon limits on government borrowing. Budgetary decisions will
remain in the hands of each participating country but will be subject to each
country's commitment to avoid "excessive deficits" and other more specific
budgetary criteria. A European Central Bank is responsible for setting the
official interest rate to maintain price stability within the Euro zone.
EMU is driven by the expectation of a number of economic benefits, including
lower transaction costs, reduced exchange risk, greater competition, and a
broadening and deepening of European financial markets. However, there are a
number of significant risks associated with EMU. Monetary and economic union on
this scale has never been attempted before. There is a significant degree of
uncertainty as to whether participating countries will remain committed to EMU
in the face of changing economic conditions. This uncertainty may increase the
volatility of European markets.
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,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage
Association ("FNMA"), Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, Student Loan Marketing Association,
Resolution Trust Corporation and various institutions that previously were or
currently are part of the Farm Credit System (which has been undergoing
reorganization since 1987). Some U.S. government securities, such as U.S.
Treasury bills, Treasury notes and Treasury bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States. 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, such as securities of the Student Loan Marketing
Association. 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 foreign 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
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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 forego the purchase of
additional income producing assets with these funds. Zero coupon U.S. government
securities include STRIPS and CUBES, which are issued by the U.S. Treasury as
component parts of U.S. Treasury bonds and represent scheduled interest and
principal payments on the bonds.
MUNICIPAL OBLIGATIONS
The fund may purchase municipal obligations when Pioneer believes that they
offer favorable rates of income or capital gain potential when compared to a
taxable investment. The term "municipal obligations" generally is understood to
include debt obligations issued by municipalities to obtain funds for various
public purposes, the interest on which is, in the opinion of bond counsel to the
issuer, excluded from gross income for federal income tax purposes. In addition,
if the proceeds from private activity bonds are used for the construction,
repair or improvement of privately operated industrial or commercial facilities,
the interest paid on such bonds may be excluded from gross income for federal
income tax purposes, although current federal tax laws place substantial
limitations on the size of these issues. The fund's distributions of any
interest it earns on municipal obligations will be taxable to shareholders as
ordinary income.
The two principal classifications of municipal obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from the
general taxing power. Sizable investments in these obligations could involve an
increased risk to the fund should any of the related facilities experience
financial difficulties. Private activity bonds are in most cases revenue bonds
and do not generally carry the pledge of the credit of the issuing municipality.
There are, of course, variations in the security of municipal obligations, both
within a particular classification and between classifications.
The mortgage derivatives that the fund may invest in include interests in
collateralized mortgage obligations, real estate mortgage investment conduits,
stripped mortgage-backed securities.
MORTGAGE-BACKED SECURITIES
The fund may invest in mortgage pass-through certificates and multiple-class
pass-through securities, and mortgage derivative securities such as real estate
mortgage investment conduits ("REMIC") pass-through certificates, collateralized
mortgage obligations and stripped mortgage-backed securities ("SMBS"), interest
only mortgage-backed securities and principal only mortgage-backed securities
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 collateralized mortgage
obligations (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).
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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 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 Internal Revenue Code of 1986, as amended (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 CMOs or REMIC certificates, often referred to as a
"tranche," is issued at a specific
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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 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 stripped mortgage-backed securities
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 stripped mortgage-backed securities issued by the U.S.
government, its agencies or instrumentalities are not readily marketable. If so,
these securities, together with privately-issued stripped mortgage-backed
securities, will be considered illiquid for purposes of the fund's limitation on
investments in illiquid securities. 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
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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.
STRUCTURED SECURITIES
The fund may invest in structured securities. The value of the principal and/or
interest on such securities is 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, therefor 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.
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.
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. When-issued and delayed delivery transactions will be fully
collateralized by segregated liquid assets. See "Asset Segregation."
WARRANTS
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. As a result, an investment in
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the
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value of the underlying securities, and a warrant expires worthless if
it is not exercised on or prior to its expiration date.
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.
ILLIQUID SECURITIES
The fund will not invest more than 15% of its net assets in illiquid and other
securities that are not readily marketable. Repurchase agreements maturing in
more than seven days will be included for purposes of the foregoing limit.
Securities subject to restrictions on resale under the Securities Act of 1933,
as amended (the "1933 Act"), are considered illiquid unless they are eligible
for resale pursuant to Rule 144A or another exemption from the registration
requirements of the 1933 Act and are determined to be liquid by Pioneer. Pioneer
determines the liquidity of Rule 144A and other restricted securities according
to procedures adopted by the Board of Trustees. The Board of Trustees monitors
Pioneer's application of these guidelines and procedures. The inability of the
fund to dispose of illiquid investments readily or at reasonable prices could
impair the fund's ability to raise cash for redemptions or other purposes. If
the fund sold illiquid securities other than pursuant to an exception from
registration under the 1933 Act such as rule 144A, it may be deemed to be acting
as an underwriter and subject to liability under the 1933 Act.
REAL ESTATE INVESTMENT TRUSTS ("REITS") AND ASSOCIATED RISK FACTORS
REITs are pooled investment vehicles which invest primarily in income producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. REITs are
not taxed on income distributed to shareholders provided they comply with the
applicable requirements of the Code. Debt securities issued by REITs, for the
most part, are general and unsecured obligations and are subject to risks
associated with REITs.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. An equity REIT
may be affected by changes in the value of the underlying properties owned by
the REIT. A mortgage REIT may be affected by changes in interest rates and the
ability of the issuers of its portfolio mortgages to repay their obligations.
REITs are dependent upon the skills of their managers and are not diversified.
REITs are generally dependent upon maintaining cash flows to repay borrowings
and to make distributions to shareholders and are subject to the risk of default
by lessees or borrowers. REITs whose underlying assets are concentrated in
properties used by a particular industry, such as health care, are also subject
to risks associated with such industry.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. If the REIT invests in adjustable rate mortgage loans the interest
rates on which are reset periodically, yields
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on a REIT's investments in such loans will gradually align themselves to
reflect changes in market interest rates. This causes the value of such
investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
REITs may have limited financial resources, may trade less frequently and in a
limited volume and may be subject to more abrupt or erratic price movements than
larger company securities. Historically REITs have been more volatile in price
than the larger capitalization stocks included in Standard & Poor's 500 Stock
Index (the "S&P 500").
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 objective
and policies and permissible under the Investment Company Act of 1940, as
amended (the "1940 Act"). Under the 1940 Act, the fund may not acquire the
securities of other domestic or foreign investment companies if, as a result,
(i) more than 10% of the fund's total assets would be invested in securities of
other investment companies, (ii) such purchase would result in more than 3% of
the total outstanding voting securities of any one investment company being held
by the fund, or (iii) more than 5% of the fund's total assets would be invested
in any one investment company. These limitations do not apply to the purchase of
shares of any investment company in connection with a merger, consolidation,
reorganization or acquisition of substantially all the assets of another
investment company. The fund will not invest in other investment companies for
which Pioneer or any of its affiliates act as an investment adviser or
distributor.
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.
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. The Board of
Trustees 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.
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SHORT SALES AGAINST THE BOX
The fund may sell securities "short against the box." A short sale involves the
fund borrowing securities from a broker and selling the borrowed securities. The
fund has an obligation to return securities identical to the borrowed securities
to the broker. In a short sale against the box, the fund at all times owns an
equal amount of the security sold short or securities convertible into or
exchangeable for, with or without payment of additional consideration, an equal
amount of the security sold short. The fund intends to use short sales against
the box to hedge. For example, when the fund believes that the price of a
current portfolio security may decline, the fund may use a short sale against
the box to lock in a sale price for a security rather than selling the security
immediately. In such a case, any future losses in the fund's long position
should be offset by a gain in the short position and, conversely, any gain in
the long position should be reduced by a loss in the short position.
If the fund effects a short sale against the box at a time when it has an
unrealized gain on the security, it may be required to recognize that gain as if
it had actually sold the security (a "constructive sale") on the date it effects
the short sale. However, such constructive sale treatment may not apply if the
fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale provided that certain other
conditions are satisfied. Uncertainty regarding certain tax consequences of
effecting short sales may limit the extent to which the fund may make short
sales against the box.
ASSET SEGREGATION
The 1940 Act requires that the fund segregate assets in connection with certain
types of transactions that may have the effect of leveraging the fund's
portfolio. If the fund enters into a transaction requiring segregation, such as
a forward commitment, the custodian 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
Although it is the policy of the fund not to engage in trading for short-term
profits, portfolio turnover rate is not considered a limiting factor in the
execution of investment decisions for the fund and the fund's policy may result
in the fund having a high level of portfolio turnover. See Appendix A for the
fund's annual portfolio turnover rate.
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
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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 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
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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 forego 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
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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 purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. 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
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
forego the opportunity to profit from an increase in the market price of the
underlying security.
A put option written by the fund would obligate the fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by the
fund would be covered, which means that the fund would have segregated assets
with a value at least equal to the exercise price of the put option. The purpose
of writing such options is to generate additional income for the fund. However,
in return for the option premium, the fund accepts the risk that it may be
required to purchase the underlying security at a price in excess of its market
value at the time of purchase.
Call and put options written by the fund will also be considered to be covered
to the extent that the fund's liabilities under such options are wholly or
partially offset by its rights under call and put options purchased by the fund.
In addition, a written call option or put may be covered by entering into an
offsetting forward contract and/or by purchasing an offsetting option or any
other option which, by virtue of its exercise price or otherwise, reduces the
fund's net exposure on its written option position.
WRITING CALL AND PUT OPTIONS ON SECURITIES INDICES. The fund may also write
(sell) covered call and put options on any securities index composed of
securities in which it may invest. Options on securities indices are similar to
options on securities, except that the exercise of securities index options
requires cash payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segments of the securities market
rather than price fluctuations in a single security.
The fund may cover call options on a securities index by owning securities whose
price changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional consideration if cash in such
amount is segregated) upon conversion or exchange of other securities in its
portfolio. The fund may cover call and put options on a securities index by
segregated assets with a value equal to the exercise price.
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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 foreign
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
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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 foreign 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.
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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.
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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 for bona fide hedging or non-hedging purposes 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 determine that the price fluctuations
in the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the fund or
which the fund expects to purchase. Except as stated below, the fund's futures
transactions will be entered into for traditional hedging purposes--i.e.,
futures contracts will be sold to protect against a decline in the price of
securities (or the currency in which they are denominated) that the fund owns,
or futures contracts will be purchased to protect the fund against an increase
in the price of securities (or the currency in which they are denominated) it
intends to purchase. As evidence of this hedging intent, the fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities or assets denominated in the related currency in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging definition, a
CFTC regulation permits the fund to elect to comply with a different test, under
which the sum of the amounts of initial margin deposits on the fund's existing
non-hedging futures contracts and premiums paid for options on futures entered
into for non-hedging purposes (net of the amount the positions are "in the
money") would not exceed 5% of the market value of the fund's total assets. 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 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 foreign
securities because currency movements impact the value of different securities
in differing degrees.
LENDING OF PORTFOLIO SECURITIES
The fund may lend portfolio securities to member firms of the New York Stock
Exchange (the "Exchange") 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
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market value of the securities loaned. The fund continues to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned as well as the benefit of an increase and the detriment of any decrease
in the market value of the securities loaned and would also receive compensation
based on investment of the collateral. The fund would not, however, have the
right to vote any securities having voting rights during the existence of the
loan, but would call the loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or withholding of consent on a
material matter affecting the investment.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The fund will lend portfolio securities only to firms that have
been approved in advance by the Board of Trustees, which will monitor the
creditworthiness of any such firms. At no time would the value of the securities
loaned exceed 33 1/3% of the value of the fund's total assets.
LOAN PARTICIPATIONS
The fund may invest a portion of its assets in loan participations
("Participations") and other direct claims against a borrower. By purchasing a
Participation, the fund acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate or government borrower. The
Participations typically will result in the fund having a contractual
relationship only with the lender not the borrower. The fund will have 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 the payments from the borrower. Many such loans are secured, although
some may be unsecured. Such loans may be in default at the time of purchase.
Loans that are fully secured offer a fund more protection than an unsecured loan
in the event of non-payment of scheduled interest or principal. However, there
is no assurance that the liquidation of collateral from a secured loan would
satisfy the corporate borrower's obligation, or that the collateral can be
liquidated.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS
The fund may invest in loans and other direct debt instruments owed by a
borrower to another party and may also from time to time make loans. These
instruments represent amounts owed to lenders or lending syndicates (loans and
loan participations) or to other parties. Direct debt instruments may involve a
risk of loss in case of default or insolvency of the borrower and may offer less
legal protection to the fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. The markets in loans are not regulated by
federal securities laws or the SEC.
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
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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, high grade debt 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. The fund does not currently intend to
enter into mortgage dollar rolls that are accounted for as financings.
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 non-U.S. currency. The fund's
investment in commercial bank obligations include certificates of deposit
("CDs"), time deposits ("TDs") and bankers' acceptances. Obligations of foreign
branches of U.S. banks and of foreign 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 foreign branches of
U.S. banks and of foreign 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. To the extent the fund
invests in master demand notes, these investments will be included in the fund's
limitation on illiquid securities.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS. The fund has adopted certain 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:
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(1) Issue senior securities, except as permitted by the 1940 Act and the rules
and interpretive positions of the SEC thereunder. SENIOR SECURITIES THAT THE
FUND MAY ISSUE IN ACCORDANCE WITH THE 1940 ACT INCLUDE BORROWING, FUTURES,
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD FOREIGN CURRENCY
EXCHANGE TRANSACTIONS.
(2) Borrow money, except the fund may: (a) borrow from banks or through reverse
repurchase agreements in an amount up to 33 1/3% of the fund's total assets
(including the amount borrowed); (b) to the extent permitted by applicable law,
borrow up to an additional 5% of the fund's assets for temporary purposes; (c)
obtain such short-term credits as are necessary for the clearance of portfolio
transactions; (d) the fund may purchase securities on margin to the extent
permitted by applicable law; and (e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
(3) Invest in real estate, except that 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 and mortgage-backed securities.
(4) Make loans, except by the purchase of debt obligations, by entering into
repurchase agreements or through the lending of portfolio securities.
(5) Invest in commodities or commodity contracts, except that the fund may
invest in currency instruments and contracts and financial instruments and
contracts that might be deemed to be commodities and commodity contracts. A
FUTURES CONTRACT, FOR EXAMPLE, MAY BE DEEMED TO BE A COMMODITY CONTRACT.
(6) Act as an underwriter, except as it may be deemed to be an underwriter in a
sale of restricted securities held in its portfolio.
It is the fundamental policy of the fund not to concentrate its investments in
securities of companies in any particular industry. In the opinion of the SEC,
investments are concentrated in a particular industry if such investments
aggregate 25% or more of the fund's total assets. The fund's policy does not
apply to investments in U.S. government securities.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The following restriction has been
designated as non-fundamental and may be changed by a vote of the fund's Board
of Trustees without approval of shareholders.
The fund may not:
(a) Purchase securities while borrowings are in excess of 5% of total assets.
3. MANAGEMENT OF THE FUND
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 executive officers of the fund are listed below, together with
their principal occupations during the past five years. An asterisk indicates
those Trustees who are interested persons of the fund within the meaning of the
1940 Act.
JOHN F. COGAN, JR.*, CHAIRMAN OF THE BOARD, PRESIDENT AND TRUSTEE,
DOB: JUNE 1926
President, Chief Executive Officer and a Director of The Pioneer Group,
Inc. ("PGI"); Chairman and a Director of Pioneer, Pioneer Funds Distributor,
Inc. ("PFD"), Pioneer Goldfields Limited, Teberebie Goldfields Limited, Closed
Joint-Stock Company "Amgun-Forest," Closed Joint-Stock Company
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"Udinskoye" and Closed Joint-Stock Company "Tas-Yurjah" Mining Company;
Director of Pioneer Real Estate Advisors, Inc. ("PREA"), Pioneer Forest, Inc.,
Pioneer Explorer, Inc., Pioneer Management (Ireland) Ltd. ("PMIL"), Pioneer
First Investment Fund and Closed Joint-Stock Company "Forest-Starma"; President
and Director of Pioneer Metals and Technology, Inc. ("PMT"), Pioneer
International Corp. ("PIntl"), Pioneer First Russia, Inc. and Pioneer Omega,
Inc. ("Pioneer Omega"); Chairman of the Supervisory Board of Pioneer Fonds
Marketing, GmbH, Pioneer First Polish Investment Fund Joint Stock Company, S.A.
("Pioneer First Polish") and Pioneer Czech Investment Company, A.S. ("Pioneer
Czech"); Member of the Supervisory Board of Pioneer Universal Pension Fund
Company; Chairman, President and Trustee of all of the Pioneer mutual funds;
Director of Pioneer Global Equity Fund Plc, Pioneer Global Bond Fund Plc,
Pioneer Euro Reserve Fund Plc, Pioneer European Equity Fund Plc, Pioneer
Emerging Europe Fund Plc, Pioneer US Real Estate Fund Plc, Pioneer U.S. Growth
Fund Plc, Pioneer Diversified Income Fund Plc and Pioneer America Fund Plc
(collectively, the "Irish Funds"); and Partner, Hale and Dorr LLP (counsel to
PGI and the fund).
MARY K. BUSH, TRUSTEE, DOB: APRIL 1948
4201 CATHEDRAL AVENUE, NW, WASHINGTON, DC 20016
President, Bush & Co. (international financial advisory firm); Director and/or
Trustee of Mortgage Guaranty Insurance Corporation, Novecon Management Company,
Hoover Institution, Folger Shakespeare Library, March of Dimes, Project 2000,
Inc. (not-for-profit educational organization), Wilberforce University and
Texaco, Inc.; Advisory Board Member, Washington Mutual Investors Fund
(registered investment company); and Trustee of all of the Pioneer mutual funds,
except Pioneer Variable Contracts Trust.
RICHARD H. EGDAHL, M.D., TRUSTEE, DOB: DECEMBER 1926
BOSTON UNIVERSITY HEALTH POLICY INSTITUTE, 53 BAY STATE ROAD, BOSTON, MA 02215
Alexander Graham Bell Professor of Health Care Entrepreneurship, Boston
University; Professor of Management, Boston University School of Management;
Professor of Public Health, Boston University School of Public Health; Professor
of Surgery, Boston University School of Medicine; University Professor, Boston
University; Director, Boston University Health Policy Institute, Boston
University Program for Health Care Entrepreneurship, CORE (management of
workers' compensation and disability costs - Nasdaq National Market), and
WellSpace (provider of complementary health care); Trustee, Boston Medical
Center; Honorary Trustee, Franciscan Children's Hospital; and Trustee of all of
the Pioneer mutual funds.
MARGARET B.W. GRAHAM, TRUSTEE, DOB: MAY 1947
THE KEEP, P.O. BOX 110, LITTLE DEER ISLE, ME 04650
Founding Director, The Winthrop Group, Inc. (consulting firm); Manager of
Research Operations, Xerox Palo Alto Research Center, from 1991 to 1994;
formerly Professor of Operations Management and Management of Technology and
Associate Dean, Boston University School of Management; and Trustee of all of
the Pioneer mutual funds, except Pioneer Variable Contracts Trust.
JOHN W. KENDRICK, TRUSTEE, DOB: JULY 1917
6363 WATERWAY DRIVE, FALLS CHURCH, VA 22044
Professor Emeritus, George Washington University; Director, American
Productivity and Quality Center; Adjunct Scholar, American Enterprise Institute;
Economic Consultant; and Trustee of all of the Pioneer mutual funds, except
Pioneer Variable Contracts Trust.
MARGUERITE A. PIRET, TRUSTEE, DOB: MAY 1948
ONE BOSTON PLACE, 26TH FLOOR, BOSTON, MA 02108
President, Newbury, Piret & Company, Inc. (merchant banking firm); Trustee
of Boston Medical Center; Member of the Board of Governors of the Investment
Company Institute; Director, Organogenesis Inc. (tissue engineering company);
and Trustee of all of the Pioneer mutual funds.
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DAVID D. TRIPPLE*, TRUSTEE AND EXECUTIVE VICE PRESIDENT, DOB: FEBRUARY 1944
Executive Vice President and a Director of PGI; President and a Director of
Pioneer and PFD; Director of Pioneering Services Corporation ("PSC"), PIntl,
PREA, Pioneer Omega, PMIL, Pioneer First Investment Fund and the Irish Funds;
Member of the Supervisory Board of Pioneer First Polish and Pioneer Czech; and
Executive Vice President and Trustee of all of the Pioneer mutual funds.
STEPHEN K. WEST, TRUSTEE, DOB: SEPTEMBER 1928
125 BROAD STREET, NEW YORK, NY 10004
Of Counsel, Sullivan & Cromwell (law firm); Director, Kleinwort Benson
Australian Income Fund, Inc. since May 1997 and The Swiss Helvetia Fund, Inc.
since 1995 (investment companies), AMVESCAP PLC (investment managers) since 1997
and ING American Insurance Holdings, Inc; Trustee, The Winthrop Focus Funds
(mutual funds); and Trustee of all of the Pioneer mutual funds.
JOHN WINTHROP, TRUSTEE, DOB: JUNE 1936
ONE NORTH ADGERS WHARF, CHARLESTON, SC 29401
President, John Winthrop & Co., Inc. (private investment firm); Director of
NUI Corp. (energy sales, services and distribution); and Trustee of all of the
Pioneer mutual funds, except Pioneer Variable Contracts Trust.
ERIC W. RECKARD, TREASURER, DOB: JUNE 1956
Executive Vice President, Chief Financial Officer and Treasurer of PGI since
June 1999; Treasurer of Pioneer, PFD, PSC, PIntl, PREA, PMT and Pioneer Omega
since June 1999; Vice President-Corporate Finance of PGI from February 1999 to
June 1999; Manager of Business Planning and Internal Audit of PGI since
September 1996; Manager of Fund Accounting of Pioneer since May 1994; Manager of
Auditing, Compliance and Business Analysis for PGI prior to May 1994; and
Treasurer of all of the Pioneer mutual funds (Assistant Treasurer prior to June
1999).
JOSEPH P. BARRI, SECRETARY, DOB: AUGUST 1946
Corporate Secretary of PGI and most of its subsidiaries; Secretary of all of the
Pioneer mutual funds; and Partner, Hale and Dorr LLP.
VINCENT NAVE, ASSISTANT TREASURER, DOB: JUNE 1945
Vice President-Fund Accounting, Administration and Custody Services of Pioneer
(Manager from September 1996 to February 1999); Senior Vice President of The
Boston Company's Investor Services Group prior to July 1994; and Assistant
Treasurer of all of the Pioneer mutual funds since June 1999.
ROBERT P. NAULT, ASSISTANT SECRETARY, DOB: MARCH 1964
Senior Vice President, General Counsel and Assistant Secretary of PGI since
1995; Assistant Secretary of Pioneer, certain other PGI subsidiaries and all of
the Pioneer mutual funds; Assistant Clerk of PFD and PSC; and junior partner of
Hale and Dorr LLP prior to 1995.
The business address of all officers is 60 State Street, Boston, Massachusetts
02109.
All of the outstanding capital stock of PFD, Pioneer and PSC is owned, directly
or indirectly, by PGI, a publicly owned Delaware corporation. Pioneer, the
fund's investment adviser, serves as the investment adviser for the Pioneer
mutual funds and manages the investments of certain institutional accounts.
The table below lists all of the U.S.-registered Pioneer mutual funds currently
offered to the public and the investment adviser and principal underwriter for
each fund.
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INVESTMENT ADVISER PRINCIPAL
FUND NAME UNDERWRITER
Pioneer International Growth Fund Pioneer PFD
Pioneer Europe Fund Pioneer PFD
Pioneer World Equity Fund Pioneer PFD
Pioneer Emerging Markets Fund Pioneer PFD
Pioneer Indo-Asia Fund Pioneer PFD
Pioneer Capital Growth Fund Pioneer PFD
Pioneer Mid-Cap Fund Pioneer PFD
Pioneer Growth Shares Pioneer PFD
Pioneer Small Company Fund Pioneer PFD
Pioneer Independence Fund Pioneer Note 1
Pioneer Micro-Cap Fund Pioneer PFD
Pioneer Balanced Fund Pioneer PFD
Pioneer Equity-Income Fund Pioneer PFD
Pioneer Fund Pioneer PFD
Pioneer II Pioneer PFD
Pioneer Real Estate Shares Pioneer PFD
Pioneer Limited Maturity Bond Fund Pioneer PFD
Pioneer America Income Trust Pioneer PFD
Pioneer Bond Fund Pioneer PFD
Pioneer Tax-Free Income Fund Pioneer PFD
Pioneer Cash Reserves Fund Pioneer PFD
Pioneer Interest Shares Pioneer Note 2
Pioneer Variable Contracts Trust Pioneer Note 3
Pioneer Strategic Income Fund Pioneer PFD
Pioneer Tax-Managed Fund Pioneer PFD
Pioneer High Yield Fund Pioneer PFD
Note 1 This fund is available to the general public only through Pioneer
Independence Plans, a systematic investment plan sponsored by PFD.
Note 2 This fund is a closed-end fund.
Note 3 This is a series of 12 separate portfolios designed to provide investment
vehicles for the variable annuity and variable life insurance contracts of
various insurance companies or for certain qualified pension plans.
SHARE OWNERSHIP
See Appendix A for annual information on the ownership of fund shares by the
Trustees, the fund's officers and owners in excess of 5% of any class of shares
of the fund.
COMPENSATION OF OFFICERS AND TRUSTEES
The fund pays no salaries or compensation to any of its officers. The fund
compensates each Trustee who is not affiliated with PGI, Pioneer, PFD or PSC
with a base fee, a variable fee calculated on the basis of average net assets of
the fund, per meeting fees, and annual committee participation fees for each
committee member or chairperson that are based on percentages of his or her
aggregate annual fee. See the fee table in Appendix A.
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SALES LOADS. Current and former Trustees and officers of the fund and other
qualifying persons may purchase the fund's Class A shares without an initial
sales charge.
4. INVESTMENT ADVISER
The fund has contracted with Pioneer to act as its investment adviser. Pioneer
is a wholly owned subsidiary of PGI. PGI is engaged in the financial services
business in the U.S. and other countries. Certain Trustees or officers of the
fund are also directors and/or officers of PGI and its subsidiaries (see
management biographies above).
As the fund's investment adviser, Pioneer provides the fund with investment
research, advice and supervision and furnishes an investment program for the
fund consistent with the fund's investment objective and policies, subject to
the supervision of the fund's Trustees. Pioneer determines what portfolio
securities will be purchased or sold, arranges for the placing of orders for the
purchase or sale of portfolio securities, selects brokers or dealers to place
those orders, maintains books and records with respect to the fund's securities
transactions, and reports to the Trustees on the fund's investments and
performance.
Under the terms of its contract with the fund, Pioneer pays all the operating
expenses, including executive salaries and the rental of office space, relating
to its services for the fund, with the exception of the following, which are to
be paid by the fund: (a) charges and expenses for fund accounting, pricing and
appraisal services and related overhead, including, to the extent such services
are performed by personnel of Pioneer, or its affiliates, office space and
facilities and personnel compensation, training and benefits; (b) the charges
and expenses of auditors; (c) the charges and expenses of any custodian,
transfer agent, plan agent, dividend disbursing agent and registrar appointed by
the fund; (d) issue and transfer taxes, chargeable to the fund in connection
with securities transactions to which the fund is a party; (e) insurance
premiums, interest charges, 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 the SEC, state or
blue sky securities agencies and foreign jurisdictions, including the
preparation of prospectuses and statements of additional information for filing
with such regulatory agencies; (g) all expenses of shareholders' and Trustees'
meetings and of preparing, printing and distributing prospectuses, notices,
proxy statements and all reports to shareholders and to governmental agencies;
(h) charges and expenses of legal counsel to the fund and the Trustees; (i) any
distribution fees paid by the fund in accordance with Rule 12b-1 promulgated by
the SEC pursuant to the 1940 Act; (j) compensation of those Trustees of the fund
who are not affiliated with or interested persons of Pioneer, the fund (other
than as Trustees), PGI or PFD; (k) the cost of preparing and printing share
certificates; and (l) interest on borrowed money, if any. In addition, the fund
shall pay brokers' and underwriting commissions chargeable to the fund in
connection with securities transactions to which the fund is a party. 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.
ADVISORY FEE. As compensation for its management services and expenses incurred,
the fund pays Pioneer an annual fee at the rate of 0.70% of the fund's average
daily net assets up to $500 million; 0.65% of the next $500 million; and 0.60%
of the excess over $1 billion. This fee is computed and accrued daily and paid
monthly.
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Prior to the reorganization of Third Avenue High Yield Fund into the fund, Third
Avenue High Yield Fund's investment adviser was EQSF Advisers, Inc. ("EQSF").
The investment advisory services of EQSF were performed under an investment
advisory agreement, pursuant to which the fund paid EQSF a monthly fee equal to
1/12 of 0.90% of the average daily net assets of the fund during the prior month
(an annual rate of 0.90%). See the table in Appendix A for management fees paid
during recently completed fiscal years.
ADMINISTRATION AGREEMENT. The fund has entered into an administration agreement
with Pioneer pursuant to which certain accounting and legal services which are
expenses payable by the fund under the management contract are performed by
Pioneer and pursuant to which Pioneer is reimbursed for its costs of providing
such services.
Prior to the reorganization of Third Avenue High Yield Fund into the fund, Third
Avenue High Yield Fund had entered into an administration agreement with First
Data Investor Services Group, Inc. ("Investor Services Group"). The
administration agreement provided that Investor Services Group would provide all
administrative services to the fund other than those relating to the investment
portfolio of the fund, the distribution of the fund and the maintenance of the
fund's financial records. Third Avenue Trust had agreed to pay Investor Services
Group an amount equal to $186,000 per annum plus 0.01% of aggregate assets of
its series in excess of $1 billion. See Appendix A for fees the fund paid for
administration and related services.
EXPENSE LIMIT. Pioneer has agreed to waive all or part of its management fee or
to reimburse the fund for other expenses (other than extraordinary expenses) to
the extent the fund's expenses exceed 0.75% of average daily net assets until
such time as the net assets of the fund exceed $25 million. This agreement may
be terminated at any time by Pioneer. If Pioneer waives any fee or reimburses
any expenses, and the expenses of the fund are subsequently less than 0.75%
of the average daily net assets, the fund will reimburse Pioneer for such
waived fees or reimbursed expenses provided that such reimbursement does not
cause the fund's expenses to exceed 0.75% of the average daily net assets.
POTENTIAL CONFLICT OF INTEREST. The fund is managed by Pioneer which also serves
as investment adviser to other Pioneer mutual funds and private 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 private 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
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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. In an effort to avoid conflicts of interest
with the fund, the fund and Pioneer have adopted a code of ethics that is
designed to maintain a high standard of personal conduct by directing that all
personnel defer to the interests of the fund and its shareholders in making
personal securities transactions.
5. PRINCIPAL UNDERWRITER AND DISTRIBUTION PLANS
PRINCIPAL UNDERWRITER
PFD, 60 State Street, Boston, Massachusetts 02109, is the principal underwriter
for the fund in connection with the continuous offering of its shares. PFD is an
indirect wholly owned subsidiary of PGI.
The fund entered into an underwriting agreement with PFD which provides that PFD
will bear expenses for the distribution of the fund's shares, except for
expenses incurred by PFD for which it is reimbursed or compensated by the fund
under the distribution plans (discussed below). PFD bears all expenses it incurs
in providing services under the underwriting agreement. Such expenses include
compensation to its employees and representatives and to securities dealers for
distribution-related services performed for the fund. PFD also pays certain
expenses in connection with the distribution of the fund's shares, including the
cost of preparing, printing and distributing advertising or promotional
materials, and the cost of printing and distributing prospectuses and
supplements to prospective shareholders. The fund bears the cost of registering
its shares under federal and state securities law and the laws of certain
foreign countries. Under the underwriting agreement, PFD will use its best
efforts in rendering services to the fund.
See "Class A Share Sales Charges" for the schedule of initial sales charge
reallowed to dealers as a percentage of the offering price of the fund's Class A
shares.
See the tables in Appendix A for commissions retained by PFD and reallowed to
dealers in connection with PFD's offering of the fund's Class A shares during
recently completed fiscal years.
The fund will not generally issue fund shares for consideration other than cash.
At the fund's sole discretion, however, it may issue fund shares for
consideration other than cash in connection with a bona fide reorganization,
statutory merger or other acquisition of portfolio securities.
The redemption price of shares of beneficial interest of the fund may, at
Pioneer's discretion, be paid in cash or portfolio securities. The fund has,
however, elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the fund's net asset value during any 90-day period for any
one shareholder. Should the amount of redemptions by any shareholder exceed such
limitation, the fund will have the option of redeeming the excess in cash or
portfolio securities. In the latter case, the securities are taken at their
value employed in determining the fund's net asset value. A shareholder whose
shares are redeemed in-kind may incur brokerage charges in selling the
securities received in-kind. The selection of such securities will be made in
such manner as the Board of Trustees deems fair and reasonable.
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DISTRIBUTION PLANS
The fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act with respect to its Class A shares (the "Class A Plan"), a plan of
distribution with respect to its Class B shares (the "Class B Plan") and a plan
of distribution with respect to its Class C shares (the "Class C Plan")
(together, the "Plans"), pursuant to which certain distribution and service fees
are paid to PFD. The fund has not adopted a plan of distribution with respect to
its Class Y shares. Because of the Plans, long-term shareholders may pay more
than the economic equivalent of the maximum sales charge permitted by the
National Association of Securities Dealers, Inc. (the "NASD") regarding
investment companies.
CLASS A PLAN. Pursuant to the Class A Plan the fund reimburses PFD for its
actual expenditures to finance any activity primarily intended to result in the
sale of Class A shares or to provide services to holders of Class A shares,
provided the categories of expenses for which reimbursement is made are approved
by the Board of Trustees. The Board of Trustees has approved the following
categories of expenses that may be reimbursed under the Class A Plan: (i) a
service fee to be paid to qualified broker-dealers in an amount not to exceed
0.25% per annum of the fund's daily net assets attributable to Class A shares;
(ii) reimbursement to PFD for its expenditures for broker-dealer commissions and
employee compensation on certain sales of the fund's Class A shares with no
initial sales charge; and (iii) reimbursement to PFD for expenses incurred in
providing services to Class A shareholders and supporting broker-dealers and
other organizations (such as banks and trust companies) in their efforts to
provide such services. Banks are currently prohibited under the Glass-Steagall
Act from providing certain underwriting or distribution services. If a bank is
prohibited from acting in any capacity or providing any of the described
services, management will consider what action, if any, would be appropriate.
The expenses of the fund pursuant to the Class A Plan are accrued daily at a
rate which may not exceed the annual rate of 0.25% of the fund's average daily
net assets attributable to Class A shares. Distribution expenses of PFD are
expected to substantially exceed the distribution fees paid by the fund in a
given year.
The Class A Plan does not provide for the carryover of reimbursable expenses
beyond 12 months from the time the fund is first invoiced for an expense. The
limited carryover provision in the Class A Plan may result in an expense
invoiced to the fund in one fiscal year being paid in the subsequent fiscal year
and thus being treated for purposes of calculating the maximum expenditures of
the fund as having been incurred in the subsequent fiscal year. In the event of
termination or non-continuance of the Class A Plan, the fund has 12 months to
reimburse any expense which it incurs prior to such termination or
non-continuance, provided that payments by the fund during such 12-month period
shall not exceed 0.25% of the fund's average daily net assets attributable to
Class A shares during such period. See Appendix A for the amount, if any, of
carryover of distribution expenses as of the end of the most recent calendar
year.
CLASS B PLAN. Commissions on the sale of Class B shares equal to 4.00% of the
amount invested are paid to broker-dealers who have sales agreements with PFD.
PFD may also advance to dealers the first-year service fee payable under the
Class B Plan at a rate up to 0.25% of the purchase price of such shares. As
compensation for such advance of the service fee, PFD may retain the service fee
paid by the fund with respect to such shares for the first year after purchase.
The Class B Plan provides that the fund shall pay PFD, as the fund's distributor
for its Class B shares, a daily distribution fee equal on an annual basis to
0.75% of the fund's average daily net assets attributable to Class B shares and
will pay PFD a service fee equal to 0.25% of the fund's average daily net assets
attributable to Class B shares (which PFD will in turn pay to securities dealers
which enter into a sales agreement with PFD at a rate of up to 0.25% of the
fund's average daily net assets attributable to Class B shares owned by
investors for whom that securities dealer is the holder or dealer of record).
This service fee is intended to be in consideration of personal services and/or
account maintenance services rendered by the dealer with respect to Class B
shares. Commencing in the 13th month following the purchase of
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Class B shares, dealers will become eligible for additional annual service
fees of up to 0.25% of the net asset value of such shares. Dealers may from time
to time be required to meet certain other criteria in order to receive service
fees. PFD or its affiliates are entitled to retain all service fees payable
under the Class B Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by PFD or its affiliates
for shareholder accounts.
The purpose of distribution payments to PFD under the Class B Plan is to
compensate PFD for its distribution services with respect to Class B shares of
the fund. PFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution-related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment. The Class B Plan also provides that PFD will receive all contingent
deferred sales charges ("CDSCs") attributable to Class B shares. When a
broker-dealer sells Class B shares and elects, with PFD's approval, to waive its
right to receive the commission normally paid at the time of the sale, PFD may
cause all or a portion of the distribution fees described above to be paid to
the broker-dealer.
The Class B Plan and underwriting agreement permit PFD to sell its right to
receive distribution fees under the Class B Plan and CDSCs to third parties. PFD
enters into such transactions to finance the payment of commissions to brokers
at the time of sale and other distribution-related expenses. In connection with
such arrangements, the fund has agreed that the distribution fee will not be
terminated or modified (including a modification by change in the rules relating
to the conversion of Class B shares into Class A shares) with respect to Class B
shares (a) issued prior to the date of any termination or modification or (b)
attributable to Class B shares issued through one or a series of exchanges of
shares of another investment company for which PFD acts as principal underwriter
which were initially issued prior to the date of such termination or
modification or (c) issued as a dividend or distribution upon Class B shares
initially issued or attributable to Class B shares issued prior to the date of
any such termination or modification except:
(i) to the extent required by a change in the 1940 Act, the rules or
regulations under the 1940 Act, the Conduct Rules of the NASD or an order of any
court or governmental agency;
(ii) in connection with a Complete Termination (as defined in the
Class B Plan); or
(iii) on a basis, determined by the Board of Trustees acting in good
faith, so long as from and after the effective date of such modification or
termination: neither the fund, the adviser nor certain affiliates pay, directly
or indirectly, a fee to any person for the provision of personal and account
maintenance services (as such terms are used in the Conduct Rules of the NASD)
to the holders of Class B shares of the fund and the termination or modification
of the distribution fee applies with equal effect to all Class B shares
outstanding from time to time.
The Class B Plan also provides that PFD shall be deemed to have performed all
services required to be performed in order to be entitled to receive the
distribution fee, if any, payable with respect to Class B shares sold through
PFD upon the settlement date of the sale of such Class B shares or in the case
of Class B shares issued through one or a series of exchanges of shares of
another investment company for which PFD acts as principal underwriter or issued
as a dividend or distribution upon Class B shares, on the settlement date of the
first sale on a commission basis of a Class B share from which such Class B
share was derived.
In the underwriting agreement, the fund agreed that subsequent to the issuance
of a Class B share, it would not take any action to waive or change any CDSC
(including a change in the rules applicable to
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conversion of Class B shares into another class) in respect of such Class B
shares, except (i) as provided in the fund's prospectus or statement of
additional information, or (ii) as required by a change in the 1940 Act and the
rules and regulations thereunder, the Conduct Rules of the NASD or any order of
any court or governmental agency.
CLASS C PLAN. Commissions on the sale of Class C shares of up to 0.75% of the
amount invested in Class C shares are paid to broker-dealers who have sales
agreements with PFD. PFD may also advance to dealers the first-year service fee
payable under the Class C Plan at a rate up to 0.25% of the purchase price of
such shares. As compensation for such advance of the service fee, PFD may retain
the service fee paid by the fund with respect to such shares for the first year
after purchase.
The Class C Plan provides that the fund will pay PFD, as the fund's distributor
for its Class C shares, a distribution fee accrued daily and paid quarterly,
equal on an annual basis to 0.75% of the fund's average daily net assets
attributable to Class C shares and will pay PFD a service fee equal to 0.25% of
the fund's average daily net assets attributable to Class C shares. PFD will in
turn pay to securities dealers which enter into a sales agreement with PFD a
distribution fee and a service fee at rates of up to 0.75% and 0.25%,
respectively, of the fund's average daily net assets attributable to Class C
shares owned by investors for whom that securities dealer is the holder or
dealer of record. The service fee is intended to be in consideration of personal
services and/or account maintenance services rendered by the dealer with respect
to Class C shares. PFD will advance to dealers the first-year service fee at a
rate equal to 0.25% of the amount invested. As compensation therefor, PFD may
retain the service fee paid by the fund with respect to such shares for the
first year after purchase. Commencing in the 13th month following the purchase
of Class C shares, dealers will become eligible for additional annual
distribution fees and service fees of up to 0.75% and 0.25%, respectively, of
the net asset value of such shares. Dealers may from time to time be required to
meet certain other criteria in order to receive service fees. PFD or its
affiliates are entitled to retain all service fees payable under the Class C
Plan for which there is no dealer of record or for which qualification standards
have not been met as partial consideration for personal services and/or account
maintenance services performed by PFD or its affiliates for shareholder
accounts.
The purpose of distribution payments to PFD under the Class C Plan is to
compensate PFD for its distribution services with respect to Class C shares of
the fund. PFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution-related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment. The Class C Plan also provides that PFD will receive all CDSCs
attributable to Class C shares. When a broker-dealer sells Class C shares and
elects, with PFD's approval, to waive its right to receive the commission
normally paid at the time of the sale, PFD may cause all or a portion of the
distribution fees described above to be paid to the broker-dealer.
GENERAL
In accordance with the terms of each Plan, PFD provides to the fund for review
by the Trustees a quarterly written report of the amounts expended under the
Plan and the purposes for which such expenditures were made. In the Trustees'
quarterly review of the Plans, they will consider the continued appropriateness
and the level of reimbursement or compensation the Plans provide.
No interested person of the fund, nor any Trustee of the fund who is not an
interested person of the fund, has any direct or indirect financial interest in
the operation of the Plans except to the extent that PFD and certain of its
employees may be deemed to have such an interest as a result of receiving a
portion of the amounts expended under the Plans by the fund and except to the
extent certain officers may have an interest in PFD's ultimate parent, PGI.
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Each Plan's adoption, terms, continuance and termination are governed by Rule
12b-1 under the 1940 Act. The Board of Trustees believes that there is a
reasonable likelihood that the Plans will benefit the fund and its current and
future shareholders. The Plans may not be amended to increase materially the
annual percentage limitation of average net assets which may be spent for the
services described therein without approval of the shareholders of the fund
affected thereby, and material amendments of the Plans must also be approved by
the Trustees as provided in Rule 12b-1.
See Appendix A for fund expenses under the Class A Plan, Class B Plan and Class
C Plan and CDSCs paid to PFD for the most recently completed fiscal year.
Upon redemption, Class A shares may be subject to a 1% CDSC, Class B shares are
subject to a CDSC at a rate declining from a maximum 4% of the lower of the cost
or market value of the shares and Class C shares may be subject to a 1% CDSC.
6. SHAREHOLDER SERVICING/TRANSFER AGENT
The fund has contracted with PSC, 60 State Street, Boston, Massachusetts 02109,
to act as shareholder servicing and transfer agent for the fund.
Under the terms of its contract with the fund, PSC services shareholder
accounts, and its duties include: (i) processing sales, redemptions and
exchanges of shares of the fund; (ii) distributing dividends and capital gains
associated with the fund's portfolio; and (iii) maintaining account records and
responding to shareholder inquiries.
PSC receives an annual fee of $33.00 for each Class A, Class B, Class C and
Class Y shareholder account from the fund as compensation for the services
described above. PSC is also reimbursed by the fund for its cash out-of-pocket
expenditures. The fund may compensate entities which have agreed to provide
certain sub-accounting services such as specific transaction processing and
recordkeeping services. Any such payments by the fund would be in lieu of the
per account fee which would otherwise be paid by the fund to PSC.
7. 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.
8. INDEPENDENT PUBLIC ACCOUNTANTS
, is the
fund's independent public accountants, providing audit services, tax return
review, and assistance and consultation with respect to the preparation of
filings with the SEC.
9. PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on behalf
of the fund by Pioneer pursuant to authority contained in the fund's management
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
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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 normally seeks to deal
directly with the primary market makers unless, in its opinion, better prices
are available elsewhere. Some securities are purchased and sold on an exchange
or in over-the-counter transactions conducted on an agency basis involving a
commission. Pioneer seeks to obtain the best execution on portfolio trades. The
price of securities and any commission rate paid are always factors, but
frequently not the only factors, in judging best execution. In selecting brokers
or dealers, Pioneer considers various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the execution efficiency,
settlement capability and financial condition of the dealer; the dealer's
execution services rendered on a continuing basis; and the reasonableness of any
dealer spreads. Transactions in foreign equity securities are executed by
broker-dealers in foreign countries in which commission rates are fixed and,
therefore, are not negotiable (as such rates are in the U.S.).
Pioneer 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. In addition, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, 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 in rendering
investment management services to the fund as well as other investment companies
or other accounts managed by Pioneer, 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 in carrying out its obligations to the fund. The receipt of
such research has not reduced Pioneer's normal independent research activities;
however, it enables Pioneer to avoid the additional expenses which might
otherwise be incurred if it were to attempt to develop comparable information
through its own staff.
In circumstances where two or more broker-dealers offer comparable prices and
executions, preference may be given to a broker-dealer which has sold shares of
the fund as well as shares of other investment companies managed by Pioneer.
This policy does not imply a commitment to execute all portfolio transactions
through all broker-dealers that sell shares of the fund.
The Pioneer funds have entered into third-party brokerage and/or expense offset
arrangements to reduce the funds' total operating expenses. Pursuant to
third-party brokerage arrangements, certain of the funds that invest primarily
in U.S. equity securities may incur lower custody fees by directing brokerage to
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third-party broker-dealers. Pursuant to expense offset arrangements, the funds
incur lower transfer agency expenses by maintaining their cash balances with the
custodian.
See the table in Appendix A for aggregate brokerage and underwriting commissions
paid by the fund in connection with its portfolio transactions during recently
completed fiscal years. The Board of Trustees periodically reviews Pioneer's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of the fund.
10. DESCRIPTION OF SHARES
As an open-end management investment company, the fund continuously offers its
shares to the public and under normal conditions must redeem its shares upon the
demand of any shareholder at the next determined net asset value per share less
any applicable CDSC. See "Sales Charges." When issued and paid for in accordance
with the terms of the prospectus and statement of additional information, shares
of the fund are fully paid and non-assessable. Shares will remain on deposit
with the fund's transfer agent and certificates will not normally be issued. The
fund reserves the right to charge a fee for the issuance of Class A share
certificates; certificates will not be issued for Class B, Class C or Class Y
shares.
The fund's Agreement and Declaration of Trust, dated August 3, 1999 (the
"Declaration"), permits the Board of Trustees to authorize the issuance of an
unlimited number of full and fractional shares of beneficial interest which may
be divided into such separate series as the Trustees may establish. Currently,
the fund consists of only one series. The Trustees may, however, establish
additional series of shares and may divide or combine the shares into a greater
or lesser number of shares without thereby changing the proportionate beneficial
interests in the fund. The Declaration further authorizes the Trustees to
classify or reclassify any series of the shares into one or more classes.
Pursuant thereto, the Trustees have authorized the issuance of four classes of
shares of the fund, designated as Class A shares, Class B shares, Class C shares
and Class Y shares. Each share of a class of the fund represents an equal
proportionate interest in the assets of the fund allocable to that class. Upon
liquidation of the fund, shareholders of each class of the fund are entitled to
share pro rata in the fund's net assets allocable to such class available for
distribution to shareholders. The fund reserves the right to create and issue
additional series or classes of shares, in which case the shares of each class
of a series would participate equally in the earnings, dividends and assets
allocable to that class of the particular series.
The shares of each class represent an interest in the same portfolio of
investments of the fund. Each class has equal rights as to voting, redemption,
dividends and liquidation, except that each class bears different distribution
and transfer agent fees and may bear other expenses properly attributable to the
particular class. Class A, Class B and Class C shareholders have exclusive
voting rights with respect to the Rule 12b-1 Plans adopted by holders of those
shares in connection with the distribution of shares.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to a meeting of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or more
Trustees. The fund is not required, and does not intend, to hold annual
shareholder meetings although special meetings may be called for the purpose of
electing or removing Trustees, changing fundamental investment restrictions or
approving a management contract.
The shares of each series of the fund are entitled to vote separately to approve
investment advisory agreements or changes in investment restrictions, but
shareholders of all series vote together in the election and selection of
Trustees and accountants. Shares of all series of the fund vote together as a
class on matters that affect all series of the fund in substantially the same
manner. As to matters affecting a single series or class, shares of such series
or class will vote separately. No amendment adversely
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affecting the rights of shareholders may be made to the Declaration without
the affirmative vote of a majority of the fund's shares. Shares have no
preemptive or conversion rights except that under certain circumstances Class B
shares may convert to Class A shares.
As a Delaware business trust, the fund's operations are governed by the
Declaration. Generally, Delaware business trust shareholders are not personally
liable for obligations of the Delaware business trust under Delaware law. The
Delaware Business Trust Act (the "Delaware Act") provides that a shareholder of
a Delaware business trust shall be entitled to the same limitation of liability
extended to shareholders of private for-profit corporations. The Declaration
expressly provides that the fund is organized under the Delaware Act and that
the Declaration is to be governed by Delaware law. There is nevertheless a
possibility that a Delaware business trust, such as the fund, might become a
party to an action in another state whose courts refused to apply Delaware law,
in which case the fund's shareholders could become subject to personal
liability.
To guard against this risk, the Declaration (i) contains an express disclaimer
of shareholder liability for acts or obligations of the fund and provides that
notice of such disclaimer may be given in each agreement, obligation or
instrument entered into or executed by the fund or its Trustees, (ii) provides
for the indemnification out of fund property of any shareholders held personally
liable for any obligations of the fund or any series of the fund and (iii)
provides that the fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the fund and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (1) a court
refused to apply Delaware law; (2) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (3) the fund
itself would be unable to meet its obligations. In light of Delaware law, the
nature of the fund's business and the nature of its assets, the risk of personal
liability to a fund shareholder is remote.
In addition to the requirements under Delaware law, the Declaration provides
that a shareholder of the fund may bring a derivative action on behalf of the
fund only if the following conditions are met: (a) shareholders eligible to
bring such derivative action under Delaware law who hold at least 10% of the
outstanding shares of the fund, or 10% of the outstanding shares of the series
or class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and investigate
the basis of such claim. The Trustees shall be entitled to retain counsel or
other advisers in considering the merits of the request and shall require an
undertaking by the shareholders making such request to reimburse the fund for
the expense of any such advisers in the event that the Trustees determine not to
bring such action.
The Declaration further provides that the fund shall indemnify each of its
Trustees and officers against liabilities and expenses reasonably incurred by
them in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving such Trustee or officer, directly or
indirectly, by reason of being or having been a Trustee or officer of the fund.
The Declaration does not authorize the fund to indemnify any Trustee or officer
against any liability to which he or she would otherwise be subject by reason of
or for willful misfeasance, bad faith, gross negligence or reckless disregard of
such person's duties.
The Declaration provides that any Trustee who is not an "interested person" of
Pioneer shall be considered to be independent for purposes of Delaware law
notwithstanding the fact that such Trustee receives compensation for serving as
a trustee of the fund or other investment companies for which Pioneer acts as
investment adviser.
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11. SALES CHARGES
The fund continuously offers four classes of shares designated as Class A, Class
B, Class C and Class Y shares as described in the prospectus.
CLASS A SHARE SALES CHARGES
You may buy Class A shares at the public offering price, including a sales
charge, as follows:
SALES CHARGE AS A % OF
OFFERING NET AMOUNT DEALER
AMOUNT OF PURCHASE PRICE INVESTED REALLOWANCE
Less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.75
$1,000,000 or more 0.00 0.00 see below
The schedule of sales charges above is applicable to purchases of Class A shares
of the fund by (i) an individual, (ii) an individual and his or her spouse and
children under the age of 21 and (iii) a trustee or other fiduciary of a trust
estate or fiduciary account or related trusts or accounts including pension,
profit-sharing and other employee benefit trusts qualified under Sections 401 or
408 of the Code although more than one beneficiary is involved. The sales
charges applicable to a current purchase of Class A shares of the fund by a
person listed above is determined by adding the value of shares to be purchased
to the aggregate value (at the then current offering price) of shares of any of
the other Pioneer mutual funds previously purchased and then owned, provided PFD
is notified by such person or his or her broker-dealer each time a purchase is
made which would qualify. Pioneer mutual funds include all mutual funds for
which PFD serves as principal underwriter. At the sole discretion of PFD,
holdings of funds domiciled outside the U.S., but which are managed by
affiliates of Pioneer, may be included for this purpose.
No sales charge is payable at the time of purchase on investments of $1 million
or more, or for purchases by participants in certain group plans described below
subject to a CDSC of 1% which may be imposed in the event of a redemption of
Class A shares within 12 months of purchase. PFD may, in its discretion, pay a
commission to broker-dealers who initiate and are responsible for such purchases
as follows: 1% on the first $5 million invested; 0.50% on the next $45 million
invested; and 0.25% on the excess over $50 million invested. These commissions
shall not be payable if the purchaser is affiliated with the broker-dealer or if
the purchase represents the reinvestment of a redemption made during the
previous 12 calendar months. Broker-dealers who receive a commission in
connection with Class A share purchases at net asset value by 401(a) or 401(k)
retirement plans with 1,000 or more eligible participants or with at least $10
million in plan assets will be required to return any commissions paid or a pro
rata portion thereof if the retirement plan redeems its shares within 12 months
of purchase. Contingent upon the achievement of certain sales objectives, PFD
may pay to Mutual of Omaha Investor Services, Inc. 50% of PFD's retention of any
sales commission on sales of the fund's Class A shares through such dealer. From
time to time, PFD may elect to reallow the entire initial sales charge to
participating dealers for all Class A sales with respect to which orders are
placed during a particular period. Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be underwriters under the federal
securities laws.
LETTER OF INTENT ("LOI"). Reduced sales charges are available for purchases of
$50,000 or more of Class A shares (excluding any reinvestments of dividends and
capital gains distributions) made within a 13-month period pursuant to an LOI
which may be established by completing the Letter of Intent section
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of the Account Application. The reduced sales charge will be the charge
that would be applicable to the purchase of the specified amount of Class A
shares as if the shares had all been purchased at the same time. A purchase not
made pursuant to an LOI may be included if the LOI is submitted to PSC within 90
days of such purchase. You may also obtain the reduced sales charge by including
the value (at current offering price) of all your Class A shares in the fund and
all other Pioneer mutual funds held of record as of the date of your LOI in the
amount used to determine the applicable sales charge for the Class A shares to
be purchased under the LOI. Five percent of your total intended purchase amount
will be held in escrow by PSC, registered in your name, until the terms of the
LOI are fulfilled. When you sign the Account Application, you agree to
irrevocably appoint PSC your attorney-in-fact to surrender for redemption any or
all shares held in escrow with full power of substitution. An LOI is not a
binding obligation upon the investor to purchase, or the fund to sell, the
amount specified in the LOI.
If the total purchases, less redemptions, exceed the amount specified under the
LOI and are in an amount which would qualify for a further quantity discount,
all transactions will be recomputed on the expiration date of the LOI to effect
the lower sales charge. Any difference in the sales charge resulting from such
recomputation will be either delivered to you in cash or invested in additional
shares at the lower sales charge. The dealer, by signing the Account
Application, agrees to return to PFD, as part of such retroactive adjustment,
the excess of the commission previously reallowed or paid to the dealer over
that which is applicable to the actual amount of the total purchases under the
LOI.
If the total purchases, less redemptions, are less than the amount specified
under the LOI, you must remit to PFD any difference between the sales charge on
the amount actually purchased and the amount originally specified in the LOI.
When the difference is paid, the shares held in escrow will be deposited to your
account. If you do not pay the difference in sales charge within 20 days after
written request from PFD or your dealer, PSC, after receiving instructions from
PFD, will redeem the appropriate number of shares held in escrow to realize the
difference and release any excess.
CLASS B SHARES
You may buy Class B shares at the net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class B shares redeemed within six years of purchase will be subject to
a CDSC at the rates shown in the table below. The charge will be assessed on the
amount equal to the lesser of the current market value or the original purchase
cost of the shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase price, including shares derived from
the reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of purchase until the time of redemption of Class B shares. For the
purpose of determining the number of years from the time of any purchase after
September 30, 1998, all payments during a month will be aggregated and deemed to
have been made on the first day of that month. For the purpose of determining
the number of years from the time of any purchase made prior to October 1, 1998,
all payments during a quarter will be aggregated and deemed to have been made on
the first day of that quarter. In processing redemptions of Class B shares, the
fund will first redeem shares not subject to any CDSC and then shares held
longest during the six-year period. As a result, you will pay the lowest
possible CDSC.
The CDSC for Class B shares subject to a CDSC upon redemption will be determined
as follows:
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CDSC AS A % OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CDSC
First 4.0
Second 4.0
Third 3.0
Fourth 3.0
Fifth 2.0
Sixth 1.0
Seventh and thereafter 0.0
Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class B shares, including the payment of
compensation to broker-dealers.
Class B shares will automatically convert into Class A shares at the beginning
of the calendar month (or the calendar quarter for purchases made prior to
October 1, 1998) that is eight years after the purchase date, except as noted
below. Class B shares acquired by exchange from Class B shares of another
Pioneer mutual fund will convert into Class A shares based on the date of the
initial purchase and the applicable CDSC. Class B shares acquired through
reinvestment of distributions will convert into Class A shares based on the date
of the initial purchase to which such shares relate. For this purpose, Class B
shares acquired through reinvestment of distributions will be attributed to
particular purchases of Class B shares in accordance with such procedures as the
Trustees may determine from time to time. The conversion of Class B shares to
Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service (the "IRS") or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes. The
conversion of Class B shares to Class A shares will not occur if such ruling or
opinion is not available and, therefore, Class B shares would continue to be
subject to higher expenses than Class A shares for an indeterminate period.
CLASS C SHARES
You may buy Class C shares at net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class C shares redeemed within one year of purchase will be subject to
a CDSC of 1%. The charge will be assessed on the amount equal to the lesser of
the current market value or the original purchase cost of the shares being
redeemed. No CDSC will be imposed on increases in account value above the
initial purchase price, including shares derived from the reinvestment of
dividends or capital gains distributions. Class C shares do not convert to any
other class of fund shares.
For the purpose of determining the time of any purchase after September 30,
1998, all payments during a month will be aggregated and deemed to have been
made on the first day of that month. For the purpose of determining the time of
any purchase made prior to October 1, 1998, all payments during a calendar
quarter will be aggregated and deemed to have been made on the first day of that
quarter. In processing redemptions of Class C shares, the fund will first redeem
shares not subject to any CDSC and then shares held for the shortest period of
time during the one-year period. As a result, you will pay the lowest possible
CDSC.
Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class C shares, including the payment of
compensation to broker-dealers.
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12. REDEEMING SHARES
Redemptions may be suspended or payment postponed during any period in which any
of the following conditions exist: the Exchange is closed or trading on the
Exchange is restricted; an emergency exists as a result of which disposal by the
fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the fund to fairly determine the value of the net
assets of its portfolio; or the SEC, by order, so permits.
Redemptions and repurchases are taxable transactions for shareholders that are
subject to U.S. federal income tax. The net asset value per share received upon
redemption or repurchase may be more or less than the cost of shares to an
investor, depending on the market value of the portfolio at the time of
redemption or repurchase.
SYSTEMATIC WITHDRAWAL PLAN(S) ("SWP") (CLASS A, CLASS B AND CLASS C SHARES). A
SWP is designed to provide a convenient method of receiving fixed payments at
regular intervals from fund share accounts having a total value of not less than
$10,000. You must also be reinvesting all dividends and capital gains
distributions to use the SWP option.
Periodic payments of $50 or more will be deposited monthly, quarterly,
semiannually or annually directly into a bank account designated by the
applicant or will be sent by check to the applicant, or any person designated by
the applicant. Payments can be made either by check or electronic funds transfer
to a bank account designated by you. Class B accounts must meet the minimum
initial investment requirement prior to establishing a SWP. Withdrawals from
Class B and Class C share accounts are limited to 10% of the value of the
account at the time the SWP is established. See "Qualifying for a reduced sales
charge" in the prospectus. If you direct that withdrawal payments be paid to
another person, want to change the bank where payments are sent or designate an
address that is different from the account's address of record after you have
opened your account, a signature guarantee must accompany your instructions.
Withdrawals under the SWP are redemptions that may have tax consequences for
you.
Purchases of Class A shares of the fund at a time when you have a SWP in effect
may result in the payment of unnecessary sales charges and may, therefore, be
disadvantageous. SWP redemptions reduce and may ultimately exhaust the number of
shares in your account. In addition, the amounts received by a shareholder
cannot be considered as yield or income on his or her investment because part of
such payments may be a return of his or her investment.
A SWP may be terminated at any time (1) by written notice to PSC or from PSC to
the shareholder; (2) upon receipt by PSC of appropriate evidence of the
shareholder's death; or (3) when all shares in the shareholder's account have
been redeemed.
You may obtain additional information by calling PSC at 1-800-225-6292.
REINSTATEMENT PRIVILEGE (CLASS A SHARES). If you redeem all or part of your
Class A shares of the fund, you may reinvest all or part of the redemption
proceeds without a sales charge in Class A shares of the fund if you send a
written request to PSC not more than 90 days after your shares were redeemed.
Your redemption proceeds will be reinvested at the next determined net asset
value of the Class A shares of the fund after receipt of the written request for
reinstatement. You may realize a gain or loss for federal income tax purposes as
a result of the redemption, and special tax rules may apply if a reinstatement
occurs. For example, if a redemption resulted in a loss and an investment is
made in shares of the fund within 30 days before or after the redemption, you
may not be able to recognize the loss for federal income tax purposes. Subject
to the provisions outlined in the prospectus, you may also reinvest
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in Class A shares of other Pioneer mutual funds; in this case you must meet
the minimum investment requirements for each fund you enter.
The 90-day reinstatement period may be extended by PFD for periods of up to one
year for shareholders living in areas that have experienced a natural disaster,
such as a flood, hurricane, tornado or earthquake.
13. TELEPHONE TRANSACTIONS
You may purchase, exchange or sell Class A, Class B or Class C shares by
telephone. Class Y shares may not be purchased by telephone. See the prospectus
for more information. For personal assistance, call 1-800-225-6292 between 8:00
a.m. and 9:00 p.m. (Class Y account holders should contact Pioneer's Group Plans
Department at 1-888-294-4480 between 9:00 a.m. and 6:00 p.m.) Eastern time on
weekdays. Computer-assisted transactions may be available to shareholders who
have prerecorded certain bank information (see "FactFoneSM"). YOU ARE STRONGLY
URGED TO CONSULT WITH YOUR INVESTMENT PROFESSIONAL PRIOR TO REQUESTING ANY
TELEPHONE TRANSACTION.
To confirm that each transaction instruction received by telephone is genuine,
the fund will record each telephone transaction, require the caller to provide
the personal identification number ("PIN") for the account and send you a
written confirmation of each telephone transaction. Different procedures may
apply to accounts that are registered to non-U.S. citizens or that are held in
the name of an institution or in the name of an investment broker-dealer or
other third party. If reasonable procedures, such as those described above, are
not followed, the fund may be liable for any loss due to unauthorized or
fraudulent instructions. The fund may implement other procedures from time to
time. In all other cases, neither the fund, PSC nor PFD will be responsible for
the authenticity of instructions received by telephone; therefore, you bear the
risk of loss for unauthorized or fraudulent telephone transactions.
During times of economic turmoil or market volatility or as a result of severe
weather or a natural disaster, it may be difficult to contact the fund by
telephone to institute a purchase, exchange or redemption. You should
communicate with the fund in writing if you are unable to reach the fund by
telephone.
FACTFONESM. FactFoneSM is an automated inquiry and telephone transaction system
available to Pioneer mutual fund shareholders by dialing 1-800-225-4321.
FactFoneSM allows shareholder access to current information on Pioneer mutual
fund accounts and to the prices and yields of all publicly available Pioneer
mutual funds. In addition, you may use FactFoneSM to make computer-assisted
telephone purchases, exchanges or redemptions from your Pioneer mutual fund
accounts, access your account balances and last three transactions and order a
duplicate statement if you have activated your PIN. Telephone purchases or
redemptions require the establishment of a bank account of record.
Computer-assisted Class Y share telephone purchases, exchanges and redemptions
and certain other FactFoneSM features for Class Y shareholders are not currently
available through FactFoneSM. YOU ARE STRONGLY URGED TO CONSULT WITH YOUR
INVESTMENT PROFESSIONAL PRIOR TO REQUESTING ANY TELEPHONE TRANSACTION.
Shareholders whose accounts are registered in the name of a broker-dealer or
other third party may not be able to use FactFoneSM. Call PSC for assistance.
FactFoneSM allows shareholders to hear the following recorded fund information:
o net asset value prices for all Pioneer mutual funds;
o annualized 30-day yields on Pioneer's fixed income funds;
o annualized 7-day yields and 7-day effective (compound) yields for
Pioneer's money market fund; and
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o dividends and capital gains distributions on all Pioneer mutual funds.
Yields are calculated in accordance with SEC mandated standard formulas.
All performance numbers communicated through FactFoneSM represent past
performance, and figures include the maximum applicable sales charge. A
shareholder's actual yield and total return will vary with changing market
conditions. The value of Class A, Class B, Class C and Class Y shares (except
for Pioneer Cash Reserves Fund, which seeks to maintain a stable $1.00 share
price) will also vary, and such shares may be worth more or less at redemption
than their original cost.
14. PRICING OF SHARES
The net asset value per share of each class of the fund is determined as of the
close of regular trading on the Exchange (normally 4:00 p.m. Eastern time) on
each day on which the Exchange is open for trading. As of the date of this
statement of additional information, the Exchange is open for trading every
weekday except for the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the fund is also determined on any other day on which the level of
trading in its portfolio securities is sufficiently high that the current net
asset value per share might be materially affected by changes in the value of
its portfolio securities. The fund is not required to determine its net asset
value per share on any day on which no purchase orders in good order for fund
shares are received and no shares are tendered and accepted for redemption.
Ordinarily, investments in debt securities are valued on the basis of
information furnished by a pricing service which utilizes primarily a matrix
system (which reflects such factors as security prices, yields, maturities and
ratings), supplemented by dealer and exchange quotations, to recommend
valuations for normal institutional-sized trading units of debt securities.
Securities are valued at the last sale price on the principal exchange or market
where they are traded. Securities which have not traded on the date of valuation
or securities for which sales prices are not generally reported are valued at
the mean between the current bid and asked prices. Securities quoted in foreign
currencies are converted to U.S. dollars utilizing foreign exchange rates
employed by the fund's independent pricing services. Generally, trading in
foreign securities is substantially completed each day at various times prior to
the close of regular trading on the Exchange. The values of such securities used
in computing the net asset value of the fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the close of regular trading on the Exchange. Occasionally, events which affect
the values of such securities and such exchange rates may occur between the
times at which they are determined and the close of regular trading on the
Exchange and will therefore not be reflected in the computation of the fund's
net asset value. If events materially affecting the value of such securities
occur during such period, then these securities may be valued at their fair
value as determined in good faith by the Trustees. All assets of the fund for
which there is no other readily available valuation method are valued at their
fair value as determined in good faith by the Trustees, although the actual
computations may be made by persons acting pursuant to the direction of the
Board of Trustees.
The net asset value per share of each class of the fund is computed by taking
the value of all of the fund's assets attributable to a class, less the fund's
liabilities attributable to that class, and dividing the result by the number of
outstanding shares of that class. For purposes of determining net asset value,
expenses of the classes of the fund are accrued daily and taken into account.
The fund's maximum offering price per Class A share is determined by adding the
maximum sales charge to the net asset value per Class A share. Class B, Class C
and Class Y shares are offered at net asset value without the imposition of an
initial sales charge (Class B and Class C shares may be subject to a CDSC).
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15. TAX STATUS
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 will not pay
federal income tax on income and capital gains distributed to shareholders as
required under the Code. If the fund did not qualify as a regulated investment
company, it would be treated as a U.S. corporation subject to federal income
tax. Under the Code, the fund will be subject to a nondeductible 4% federal
excise tax on a portion of its undistributed 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.
The fund declares a dividend from any net investment each business day.
Dividends are normally paid on the last business day of the month or shortly
thereafter. The fund distributes net short- and long-term capital gains, if any,
in November. Dividends from income and/or capital gains may also be paid at such
other times as may be necessary for the fund to avoid federal income or excise
tax.
In order to qualify as a regulated investment company under Subchapter M, the
fund must, among other things, derive at least 90% of its gross income for each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% income test") and satisfy certain annual
distribution and quarterly diversification requirements. For purposes of the 90%
income test, income the fund earns from equity interests in certain entities
that are not treated as corporations (e.g., are treated as partnerships or
trusts) for U.S. tax purposes will generally have the same character for the
fund as in the hands of such entities. Consequently, the fund may be required to
limit its equity investments in such entities that earn fee income, rental
income or other nonqualifying income.
Unless shareholders specify otherwise, all distributions will be automatically
reinvested in additional full and fractional shares of the fund. For federal
income tax purposes, all dividends are taxable as described below whether a
shareholder takes them in cash or reinvests them in additional shares of the
fund. Dividends from investment company taxable income, which includes net
investment income, net short-term capital gain in excess of net long-term
capital loss and certain net foreign exchange gains, are taxable as ordinary
income. Dividends from net long-term capital gain in excess of net short-term
capital loss ("net capital gain"), if any, are taxable to the fund's
shareholders as long-term capital gains for federal income tax purposes without
regard to the length of time shares of the fund have been held. The federal
income tax status of all distributions will be reported to shareholders
annually.
Any dividend declared by the fund in October, November or December as of a
record date in such a month and paid during the following January will be
treated for federal income tax purposes as received by shareholders on December
31 of the calendar year in which it is declared.
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 future regulations, any such transactions that are not
directly related to the fund's investments in stock or securities (or its
options contracts or futures contracts with respect to stock or securities) may
need 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
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(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.
If the fund acquires any equity interest (under proposed regulations, generally
including not only stock but also an option to acquire stock such as is inherent
in a convertible bond) in certain foreign corporations that receive at least 75%
of their annual gross income from passive sources (such as interest, dividends,
certain rents and royalties, or capital gains) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the fund could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the fund is timely distributed to its shareholders. The fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. An election may generally be available that would ameliorate these
adverse tax consequences, but any such election could require the fund to
recognize taxable income or gain (subject to tax distribution requirements)
without the concurrent receipt of cash. These investments could also result in
the treatment of associated capital gains as ordinary income. The fund may limit
and/or manage its holdings in passive foreign investment companies to limit its
tax liability or maximize its return from these investments.
The fund may invest to a significant extent 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 federal income or excise tax.
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 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 net income, including such accrued
income, to shareholders to qualify as a regulated investment company under the
Code and avoid 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 leverage itself by borrowing the cash, to satisfy
distribution requirements.
For federal income tax purposes, the fund is permitted to carry forward a net
capital loss for any year to offset its capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent capital gains are
offset by such losses, they would not result in federal income tax liability to
the fund and are not expected to be distributed as such to shareholders. See
Appendix A for the fund's available capital loss carryforwards.
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 on these shares from such appreciation or income may
be taxable to such investor even if the net asset 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.
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Redemptions and exchanges 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. Any loss realized by a shareholder upon the redemption,
exchange 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 gain with respect to such shares.
In addition, if Class A shares redeemed or exchanged have been held for less
than 91 days, (1) in the case of a reinvestment in the fund or another mutual
fund at net asset value pursuant to the reinstatment privilege, the sales charge
paid on such shares is not included in their tax basis under the Code, or (2) in
the case of an exchange, all or a portion of the sales charge paid on such
shares is not included in their tax basis under the Code, to the extent a sales
charge that would otherwise apply to the shares received is reduced pursuant to
the reinstatement or exchange privilege. In either case, the portion of the
sales charge not included in the tax basis of the shares redeemed or surrendered
in an exchange is included in the tax basis of the shares acquired in the
reinvestment or exchange. Losses on redemptions or other dispositions of shares
may be disallowed under "wash sale" rules in the event of other investments in
the fund (including those made pursuant to reinvestment of dividends and/or
capital gain 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 would be included in the federal tax
basis of the shares acquired in the other investments.
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 or forward contracts may not have been performed or
closed out. The tax rules applicable to these contracts may affect the
characterization as long-term or short-term of some capital gains and losses
realized by the fund. Certain options, futures and forward contracts relating to
foreign currency may be subject to Section 988, as described above, and
accordingly produce ordinary income or loss. Additionally, the fund may be
required to recognize gain if an option, futures contract, forward 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 no corresponding cash
amounts may concurrently be received, 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.
For purposes of the 70% dividends-received deduction generally available to
corporations under the Code, dividends received by the fund from U.S.
corporations in respect of any share of stock with a tax holding period of at
least 46 days (91 days in the case of certain preferred stock) extending before
and after each dividend held in an unleveraged position and distributed and
designated by the fund may be treated as qualifying dividends. Any corporate
shareholder should consult its tax adviser regarding the
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possibility that its tax basis in its shares may be reduced, for federal
income tax purposes, by reason of "extraordinary dividends" received with
respect to the shares and, to the extent such basis would be reduced below zero,
current recognition of income may be required. In order to qualify for the
deduction, corporate shareholders must meet the minimum holding period
requirement stated above with respect to their fund shares, taking into account
any holding period reductions from certain hedging or other transactions or
positions that diminish their risk of loss with respect to their fund shares,
and, if they borrow to acquire or otherwise incur debt attributable to fund
shares, they may be denied a portion of the dividends-received deduction. The
entire qualifying dividend, including the otherwise deductible amount, will be
included in determining the excess, if any, of a corporation's adjusted current
earnings over its alternative minimum taxable income, which may increase a
corporation's alternative minimum tax liability.
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 result
that shareholders will not include such taxes in their gross incomes and will
not be entitled to a tax deduction or credit for such taxes on their own tax
returns.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the fund's distributions are
derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the fund may in its sole discretion provide relevant
information to shareholders.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Federal law requires that the fund withhold (as "backup withholding") 31% of
reportable payments, including dividends, capital gain distributions and the
proceeds of redemptions (including 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.
If, as anticipated, the fund qualifies as a regulated investment company under
the Code, it will not be required to pay any Massachusetts income, corporate
excise or franchise taxes or any Delaware corporation income tax.
The description of certain 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. This description does
not address the special tax rules that may be applicable to particular types of
investors, such as financial
46
<PAGE>
institutions, insurance companies, securities dealers, or tax-exempt or
tax-deferred plans, accounts or entities. Investors other than U.S. persons may
be subject to different U.S. tax treatment, including a possible 30%
non-resident alien U.S. withholding tax (or non-resident alien withholding tax
at a lower treaty rate) on amounts treated as ordinary dividends from the fund
and, unless an effective IRS Form W-8, Form W-8BEN, or other authorized
withholding certificate is on file, to 31% backup withholding on certain other
payments from the fund. Shareholders should consult their own tax advisers on
these matters and on state, local and other applicable tax laws.
16. INVESTMENT RESULTS
QUOTATIONS, COMPARISONS AND GENERAL INFORMATION
From time to time, in advertisements, in sales literature or in reports to
shareholders, the past performance of the fund may be illustrated and/or
compared with that of other mutual funds with similar investment objectives and
to stock or other relevant indices. For example, total return of the fund's
classes may be compared to averages or rankings prepared by Lipper, Inc., a
widely recognized independent service which monitors mutual fund performance;
the Merrill Lynch High Yield Master II Index and the Merrill Lynch Index of all
Convertibles, Speculative Quality, recognized measures of the performance of
high yield securities; the S&P 500, an index of unmanaged groups of common
stock; or any other appropriate index.
In addition, the performance of the classes of the fund may be compared to
alternative investment or savings vehicles and/or to indices or indicators of
economic activity, e.g., inflation or interest rates. The fund may also include
securities industry or comparative performance information generally and in
advertising or materials marketing the fund's shares. Performance rankings and
listings reported in newspapers or national business and financial publications,
such as BARRON'S, BUSINESS WEEK, CONSUMERS DIGEST, CONSUMER REPORTS, FINANCIAL
WORLD, FORBES, FORTUNE, INVESTORS BUSINESS DAILY, KIPLINGER'S PERSONAL FINANCE
MAGAZINE, MONEY MAGAZINE, NEW YORK TIMES, SMART MONEY, USA TODAY, U.S. NEWS AND
WORLD REPORT, THE WALL STREET JOURNAL and WORTH may also be cited (if the fund
is listed in any such publication) or used for comparison, as well as
performance listings and rankings from various other sources including Bloomberg
Financial Markets, CDA/Wiesenberger, Donoghue's Mutual Fund Almanac, Ibbotson
Associates, Investment Company Data, Inc., Johnson's Charts, Kanon Bloch Carre
and Co., Lipper, Inc., Micropal, Inc., Morningstar, Inc., Schabacker Investment
Management and Towers Data Systems, Inc.
In addition, from time to time quotations from articles from financial
publications such as those listed above may be used in advertisements, in sales
literature or in reports to shareholders of the fund.
The fund may also present, from time to time, historical information depicting
the value of a hypothetical account in one of more classes of the fund since
inception.
In presenting investment results, the fund may also include references to
certain financial planning concepts, including (a) an investor's need to
evaluate his financial assets and obligations to determine how much to invest;
(b) his need to analyze the objectives of various investments to determine where
to invest; and (c) his need to analyze his time frame for future capital needs
to determine how long to invest. The investor controls these three factors, all
of which affect the use of investments in building assets.
47
<PAGE>
STANDARDIZED YIELD QUOTATIONS
The yield of a class is computed by dividing the class' net investment income
per share during a base period of 30 days, or one month, by the maximum offering
price per share of the class on the last day of such base period in accordance
with the following formula:
a-b
YIELD = 2[ ( ----- +1)6[superscript]-1]
cd
Where:
a = interest earned during the period
b = net expenses accrued for the period
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last day of the period
For purposes of calculating interest earned on debt obligations as provided in
item "a" above:
(i) The yield to maturity of each obligation held by the fund is
computed based on the market value of the obligation (including actual accrued
interest, if any) at the close of business each day during the 30-day base
period, or, with respect to obligations purchased during the month, the purchase
price (plus actual accrued interest, if any) on settlement date, and with
respect to obligations sold during the month the sale price (plus actual accrued
interest, if any) between the trade and settlement dates.
(ii) The yield to maturity of each obligation is then divided by 360
and the resulting quotient is multiplied by the market value of the obligation
(including actual accrued interest, if any) to determine the interest income on
the obligation for each day. The yield to maturity calculation has been made on
each obligation during the 30 day base period.
(iii) Interest earned on all debt obligations during the 30-day or one
month period is then totaled.
(iv) The maturity of an obligation with a call provision(s) is the next
call date on which the obligation reasonably may be expected to be called or, if
none, the maturity date.
With respect to the treatment of discount and premium on mortgage- or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), the fund accounts for gain or
loss attributable to actual monthly pay downs as an increase or decrease to
interest income during the period. In addition, the fund may elect (i) to
amortize the discount or premium remaining on a security, based on the cost of
the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if the weighted average
maturity date is not available, or (ii) not to amortize the remaining discount
or premium on a security.
For purposes of computing yield, interest income is recognized by accruing 1/360
of the stated interest rate of each obligation in the fund's portfolio each day
that the obligation is in the portfolio. Expenses of Class
48
<PAGE>
A and Class B accrued during any base period, if any, pursuant to the
respective Distribution Plans are included among the expenses accrued during the
base period.
See Appendix A for the standardized yield quotation for each class of fund
shares as of the most recently completed fiscal year.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS
One of the primary methods used to measure the performance of a class of the
fund is "total return." Total return will normally represent the percentage
change in value of an account, or of a hypothetical investment in a class of the
fund, over any period up to the lifetime of that class of the fund. Total return
calculations will usually assume the reinvestment of all dividends and capital
gain distributions and will be expressed as a percentage increase or decrease
from an initial value for the entire period or for one or more specified periods
within the entire period. Total return percentages for periods of less than one
year will usually be annualized; total return percentages for periods longer
than one year will usually be accompanied by total return percentages for each
year within the period and/or by the average annual compounded total return for
the period. The income and capital components of a given return may be separated
and portrayed in a variety of ways in order to illustrate their relative
significance. Performance may also be portrayed in terms of cash or investment
values without percentages. Past performance cannot guarantee any particular
future result.
The fund's average annual total return quotations for each of its classes as
that information may appear in the fund's prospectus, this statement of
additional information or in advertising are calculated by standard methods
prescribed by the SEC.
Average annual total return quotations for each class of
shares are computed by finding the average annual compounded rates of return
that would cause a hypothetical investment in the class made on the first day of
a designated period (assuming all dividends and distributions are reinvested) to
equal the ending redeemable value of such hypothetical investment on the last
day of the designated period in accordance with the following formula:
P(1+T)n[superscript] = ERV
Where:
P = a hypothetical initial payment of $1,000, less the
maximum sales load of $57.50 for Class A shares or
the deduction of the CDSC for Class B and Class C
shares at the end of the period; for Class Y shares,
no sales load or CDSC applies
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000
initial payment made at the beginning of the designated
period (or fractional portion thereof)
For purposes of the above computation, it is assumed that all dividends and
distributions made by the fund are reinvested at net asset value during the
designated period. The average annual total return quotation is determined to
the nearest 1/100 of 1%.
In determining the average annual total return (calculated as provided above),
recurring fees, if any, that are charged to all shareholder accounts of a
particular class of shares are taken into consideration. For any
49
<PAGE>
account fees that vary with the size of the account, the account fee used
for purposes of the above computation is assumed to be the fee that would be
charged to the class' mean account size.
See Appendix A for the annual total returns for each class of fund shares as of
the most recently completed fiscal year.
17. FINANCIAL STATEMENTS
Third Avenue High Yield Fund's audited financial statements for the period ended
October 31, 1998 and its unaudited financial statements for the six months ended
April 30, 1999 are included herein. The October 31 financial statements,
including the financial highlights in the prospectus, have been audited by
PricewaterhouseCoopers LLP, independent public accountants, as indicated in
their report with respect to those financial statements and are included in
reliance upon the authority of PricewaterhouseCoopers LLP as experts in
accounting and auditing in giving their report.
50
<PAGE>
18. APPENDIX A - ANNUAL FEE, EXPENSE AND OTHER INFORMATION
PORTFOLIO TURNOVER
The fund's annual portfolio turnover rate was __% for the fiscal period ended
October 31, 1999.
SHARE OWNERSHIP
Not applicable.
COMPENSATION OF OFFICERS AND TRUSTEES
The following table sets forth certain information with respect to the
compensation of each Trustee of the fund.
<TABLE>
<CAPTION>
PENSION OR RETIREMENT
BENEFITS ACCRUED AS TOTAL COMPENSATION FROM
AGGREGATE PART OF FUND EXPENSES OTHER PIONEER MUTUAL
COMPENSATION FROM FUNDS**
NAME OF TRUSTEE FUND* [UPDATE @ 12/31/99]
<S> <C> <C> <C>
John F. Cogan, Jr.*** $ 750.00 $0 $ 18,750.00
Mary K. Bush 1,806.00 0 77,125.00
Richard H. Egdahl, M.D. 1,806.00 0 79,125.00
Margaret B.W. Graham 1,812.00 0 81,750.00
John W. Kendrick 1,456.00 0 65,900.00
Marguerite A. Piret 1,906.00 0 98,750.00
David D. Tripple*** 750.00 0 18,750.00
Stephen K. West 1,731.00 0 85,050.00
John Winthrop 1,906.00 0 85,875.00
-------- - ---------
$13,923.00 $0 $611,075.00
- ------------------------
* Estimated for the fiscal year ended October 31, 2000.
** For the calendar year ended December 31, 1999.
*** Under the management contract, Pioneer reimburses the fund for any
Trustees fees paid by the fund.
</TABLE>
APPROXIMATE MANAGEMENT FEES THE FUND PAID OR OWED PIONEER (OR EQSF)
- ------------------------------------------------------------
FOR THE FISCAL PERIODS ENDED OCTOBER 31,
- ------------------------------------------------------------
- ------------------------------- ----------------------------
1999 1998*
- ------------------------------- ----------------------------
- ------------------------------- ----------------------------
$0** $0**
- ------------------------------- ----------------------------
* Period from February 12, 1998 (commencement of investment operations) to
October 31, 1998.
** Paid to EQSF. An expense limitation was in effect for these periods. In
the absence of the expense limitation, the fund would have paid $______ and
$50,472 in management fees for such periods.
51
<PAGE>
FEES THE FUND PAID TO PIONEER (OR INVESTOR SERVICES GROUP) UNDER THE
ADMINISTRATION AGREEMENTS
- ------------------------------------------------------------
FOR THE FISCAL PERIODS ENDED OCTOBER 31,
- ------------------------------------------------------------
- ------------------------------- ----------------------------
1999 1998
- ------------------------------- ----------------------------
- ------------------------------- ----------------------------
$______* $9,207*
- ------------------------------- ----------------------------
* Paid to Investor Services Group. An expense limitation was in effect for
these periods. In the absence of the expense limitation, the fund would have
paid $______ and $28,253 in administration fees for such periods.
CARRYOVER OF DISTRIBUTION PLAN EXPENSES
Not applicable.
APPROXIMATE NET UNDERWRITING COMMISSIONS RETAINED BY PFD
Not applicable.
APPROXIMATE COMMISSIONS REALLOWED TO DEALERS
Not applicable.
FUND EXPENSES UNDER THE DISTRIBUTION PLANS
Not applicable.
CDSCS
Not applicable.
APPROXIMATE BROKERAGE AND UNDERWRITING COMMISSIONS (PORTFOLIO TRANSACTIONS)
1999 1998
$600
CAPITAL LOSS CARRYFORWARDS
At October 31, 1998, the fund had a capital loss carryforward of $50,625 which
will expire in 2006 if not used.
AVERAGE ANNUAL TOTAL RETURNS (OCTOBER 31, 1999)
- ------------------------------------ -------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (%)
- ------------------------------------ -------------------------------------------
- ------------------------------------ ------------- -------------- --------------
SINCE INCEPTION
CLASS OF SHARES ONE YEAR INCEPTION DATE
- ------------------------------------ ------------- -------------- --------------
- ------------------------------------ ------------- -------------- --------------
Class A Shares __.__ __.__ 02/12/98
Class B Shares N/A N/A N/A
Class C Shares N/A N/A N/A
Class Y Shares N/A N/A N/A
- ------------------------------------ ------------- -------------- --------------
52
<PAGE>
STANDARDIZED 30-DAY YIELD (OCTOBER 31, 1999)
CLASS OF SHARES YIELD (%)
Class A Shares _.__
Class B Shares N/A
Class C Shares N/A
Class Y Shares N/A
53
<PAGE>
19. APPENDIX B - DESCRIPTION OF SHORT-TERM DEBT, CORPORATE BOND AND
PREFERRED STOCK RATINGS1[superscript]
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") PRIME RATING SYSTEM
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three 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 rated Prime-2 (or supporting institutions) have a strong
ability for repayment of 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. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuers rated Prime-3 (or supporting institutions) 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.
Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody's rating on
a bank's ability to repay senior obligations extends only to branches located in
countries which carry a Moody's Sovereign Rating for Bank Deposits. Such branch
obligations are rated at the lower of the bank's rating or Moody's Sovereign
Rating for Bank Deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings do
not incorporate an opinion as to whether payment of the obligation will be
affected by actions of the government controlling the currency of denomination.
In addition, risks associated with bilateral conflicts between an investor's
home country
- ----------------
1[superscript] 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.
54
<PAGE>
country and either the issuer's home country or the country where an
issuer's branch is located are not incorporated into Moody's short-term debt
ratings.
If an issuer represents to Moody's that its short-term debt obligations are
supported by the credit of another entity or entities, then the name or names of
such supporting entity or entities are listed within the parenthesis beneath the
name of the issuer, or there is a footnote referring the reader to another page
for the name or names of the supporting entity or entities. In assigning ratings
to such issuers, Moody's evaluates the financial strength of the affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment.
MOODY'S DEBT RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds 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 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 sometime in the future.
Baa: Bonds 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 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 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 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 which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
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<PAGE>
C: Bonds 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 bond ratings, where specified, are applicable to financial contracts,
senior bank obligations and insurance company senior policyholder and claims
obligations with an original maturity in excess of one year. Obligations relying
upon support mechanisms such as letters-of-credit and bonds of indemnity are
excluded unless explicitly rated. Obligations of a branch of a bank are
considered to be domiciled in the country in which the branch is located.
Unless noted as an exception, Moody's rating on a bank's ability to repay senior
obligations extends only to branches located in countries which carry a Moody's
Sovereign Rating for Bank Deposits. Such branch obligations are rated at the
lower of the bank's rating or Moody's Sovereign Rating for the Bank Deposits for
the country in which the branch is located. When the currency in which an
obligation is denominated is not the same as the currency of the country in
which the obligation is domiciled, Moody's ratings do not incorporate an opinion
as to whether payment of the obligation will be affected by the actions of the
government controlling the currency of denomination. In addition, risk
associated with bilateral conflicts between an investor's home country and
either the issuer's home country or the country where an issuer branch is
located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance company
obligations are exempt from registration under the 1933 Act or issued in
conformity with any other applicable law or regulation. Nor does Moody's
represent any specific bank or insurance company obligation is legally
enforceable or a valid senior obligation of a rated issuer.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicated that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicated
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and bonds, a
variation of Moody's familiar bond rating symbols is used in the quality ranking
of preferred stock. The symbols, presented below, are designed to avoid
comparison with bond quality in absolute terms. It should always be borne in
mind that preferred stock occupies a junior position to bonds within a
particular capital structure and that these securities are rated within the
universe of preferred stocks.
aaa: An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa: An issue which is rated aa is considered a high-grade preferred stock. This
rating indicates that there is a reasonable assurance the earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a: An issue which is rated a is considered to be an upper-medium grade preferred
stock. While risks are judged to be somewhat greater then in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
baa: An issue which is rated baa is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
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<PAGE>
ba: An issue which is rated ba is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b: An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
caa: An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca: An issue which is rated ca is speculative in a high degree and is likely to
be in arrears on dividends with little likelihood of eventual payments.
c: This is the lowest rated class of preferred or preference stock. Issues so
rated can thus be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
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
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<PAGE>
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
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<PAGE>
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 has been 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 are jeopardized.
Plus (+) or Minus (-): The rating from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major 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. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
59
<PAGE>
20. APPENDIX C - PERFORMANCE STATISTICS
<TABLE>
<CAPTION>
PIONEER HIGH YIELD FUND
CLASS A SHARES
- ----------------- -------------- --------------- -------------- --------------- -------------- --------------
SALES CHARGE NET ASSET INITIAL NET
INITIAL OFFERING PRICE INCLUDED SHARES VALUE PER ASSET VALUE
DATE INVESTMENT PURCHASED SHARE
- ----------------- -------------- --------------- -------------- --------------- -------------- --------------
- ----------------- -------------- --------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------- -------------- --------------- -------------- --------------- -------------- --------------
- ----------------- -------------- --------------- -------------- --------------- -------------- --------------
2/12/98 $10,000 $ 4.50% $ $
- ----------------- -------------- --------------- -------------- --------------- -------------- --------------
<CAPTION>
VALUE OF SHARES
(DIVIDENDS AND CAPITAL GAINS REINVESTED)
- ----------------------- ---------------- ----------------------- -------------------- -----------------------
FROM INVESTMENT FROM CAPITAL GAINS FROM DIVIDENDS
DATE REINVESTED REINVESTED TOTAL VALUE
- ----------------------- ---------------- ----------------------- -------------------- -----------------------
- ----------------------- ---------------- ----------------------- -------------------- -----------------------
<S> <C> <C> <C> <C>
- ----------------------- ---------------- ----------------------- -------------------- -----------------------
- ----------------------- ---------------- ----------------------- -------------------- -----------------------
12/31/98 $_____ $_____ $_____ $_____
- ----------------------- ---------------- ----------------------- -------------------- -----------------------
- ----------------------- ---------------- ----------------------- -------------------- -----------------------
12/31/99 $_____ $_____ $_____ $_____
- ----------------------- ---------------- ----------------------- -------------------- -----------------------
Past performance does not guarantee future results. Return and share price
fluctuate and your shares when redeemed may be worth more or less than your
original cost.
</TABLE>
60
<PAGE>
COMPARATIVE PERFORMANCE INDEX DESCRIPTIONS
The following securities indices are well known, unmanaged measures of market
performance. Advertisements and sales literature for the fund may refer to these
indices or may present comparisons between the performance of the fund and one
or more of the indices. Other indices may also be used, if appropriate. The
indices are not available for direct investment. The data presented are not
meant to be indicative of the performance of the fund, do not reflect past
performance and do not guarantee future results.
S&P 500. This index is a readily available, carefully constructed, market value
weighted benchmark of common stock performance. Currently, the S&P 500 includes
500 of the largest stocks (in terms of stock market value) in the U.S.
DOW JONES INDUSTRIAL AVERAGE. This is a total return index based on the
performance of stocks of 30 blue chip companies widely held by individuals and
institutional investors. The 30 stocks represent about a fifth of the $8
trillion-plus market value of all U.S. stocks and about a fourth of the value of
stocks listed on the New York Stock Exchange (NYSE).
U.S. SMALL STOCK INDEX. This index is a market value weighted index of the
ninth and tenth deciles of the NYSE, plus stocks listed on the American Stock
Exchange and over the counter with the same or less capitalization as the upper
bound of the NYSE ninth decile.
U.S. INFLATION. The Consumer Price Index for All Urban Consumers (CPI-U), not
seasonally adjusted, is used to measure inflation, which is the rate of change
of consumer goods prices. Unfortunately, the inflation rate as derived by the
CPI is not measured over the same period as the other asset returns. All of the
security returns are measured from one month-end to the next month-end. CPI
commodity prices are collected during the month. Thus, measured inflation rates
lag the other series by about one-half month. Prior to January 1978, the CPI (as
compared with CPI-U) was used. Both inflation measures are constructed by the
U.S. Department of Labor, Bureau of Labor Statistics, Washington, DC.
S&P/BARRA INDEXES. The S&P/BARRA Growth and Value Indexes are constructed by
dividing the stocks in the S&P 500 according to price-to-book ratios. The Growth
Index contains stocks with higher price-to-book ratios, and the Value Index
contains stocks with lower price-to-book ratios. Both indexes are market
capitalization weighted.
MERRILL LYNCH MICRO-CAP INDEX. The Merrill Lynch Micro-Cap Index represents the
performance of 1,980 stocks ranging in market capitalization from $50 million to
$125 million. Index returns are calculated monthly.
MERRILL LYNCH HIGH YIELD MASTER II INDEX. [Insert description]
MERRILL LYNCH INDEX OF ALL CONVERTIBLES, SPECULATIVE QUALITY [Insert
description]
LONG-TERM U.S. GOVERNMENT BONDS. The total returns on long-term government bonds
after 1977 are constructed with data from The Wall Street Journal and are
calculated as the change in the flat price or and-interest price. From 1926 to
1976, data are obtained from the government bond file at the Center for Research
in Security Prices (CRSP), Graduate School of Business, University of Chicago.
Each year, a one-bond portfolio with a term of approximately 20 years and a
reasonably current coupon was used and whose returns did not reflect potential
tax benefits, impaired negotiability or special redemption or call privileges.
Where callable bonds had to be used, the term of the bond was assumed to be a
simple average
61
<PAGE>
of the maturity and first call dates minus the current date. The bond was
"held" for the calendar year and returns were computed.
INTERMEDIATE-TERM U.S. GOVERNMENT BONDS. Total returns of intermediate-term
government bonds after 1987 are calculated from The Wall Street Journal prices,
using the change in flat price. Returns from 1934 to 1986 are obtained from the
CRSP government bond file.
Each year, one-bond portfolios are formed, the bond chosen is the shortest
noncallable bond with a maturity not less than five years, and this bond is
"held" for the calendar year. Monthly returns are computed. (Bonds with impaired
negotiability or special redemption privileges are omitted, as are partially or
fully tax-exempt bonds starting with 1943.) From 1934 to 1942, almost all bonds
with maturities near five years were partially or fully tax-exempt and were
selected using the rules described above. Personal tax rates were generally low
in that period, so that yields on tax-exempt bonds were similar to yields on
taxable bonds. From 1926 to 1933, there are few bonds suitable for construction
of a series with a five-year maturity. For this period, five-year bond yield
estimates are used.
MORGAN STANLEY CAPITAL INTERNATIONAL ("MSCI"). These indices are in U.S. dollar
terms with gross dividends reinvested and measure the performance of 45 stock
markets around the world. MSCI All Country indices represent both the developed
and the emerging markets for a particular region. These indices are unmanaged.
The free indices exclude shares which are not readily purchased by non-local
investors. MSCI covers over 1,700 securities in 28 emerging markets and 2,600
securities in 23 developed markets, totalling over $15 trillion in market
capitalization.
Countries in the MSCI EAFE Index are: Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and United
Kingdom.
Countries in the MSCI Emerging Markets Free Index are: Argentina, Brazil, Chile,
China Free, Colombia, Czech Republic, Greece, Hungary, India, Indonesia Free,
Israel, Jordan, Korea (at 50%), Malaysia Free, Mexico Free, Pakistan, Peru,
Philippines Free, Poland, Singapore, South Africa, Sri Lanka, Taiwan (at 50%),
Thailand Free, Turkey and Venezuela.
MSCI All Country (AC) Asia Free ex Japan: This index is made up of the following
12 countries: China Free, Hong Kong, India, Indonesia Free, Korea @50%, Malaysia
Free, Pakistan, Philippines Free, Singapore Free, Sri Lanka, Taiwan @50% and
Thailand Free.
MSCI All Country (AC) Asia Pacific Free ex Japan: This index is made up of the
following 14 countries: Australia, China Free, Hong Kong, India, Indonesia Free,
Korea @50%, Malaysia Free, New Zealand, Pakistan, Philippines Free, Singapore
Free, Sri Lanka, Taiwan @50% and Thailand Free.
6-MONTH CDS. Data sources include the Federal Reserve Bulletin and The Wall
Street Journal.
LONG-TERM U.S. CORPORATE BONDS. Since 1969, corporate bond total returns are
represented by the Salomon Brothers Long-Term High-Grade Corporate Bond Index.
As most large corporate bond transactions take place over the counter, a major
dealer is the natural source of these data. The index includes nearly all Aaa-
and Aa-rated bonds with at least 10 years to maturity. If a bond is downgraded
during a particular month, its return for the month is included in the index
before removing the bond from future portfolios.
From 1926 to 1968 the total returns were calculated by summing the capital
appreciation returns and the income returns. For the period 1946 to 1968,
Ibbotson and Sinquefield backdated the Salomon Brothers'
62
<PAGE>
index, using Salomon Brothers' monthly yield data with a methodology
similar to that used by Salomon Brothers for 1969 to 1995. Capital appreciation
returns were calculated from yields assuming (at the beginning of each monthly
holding period) a 20-year maturity, a bond price equal to par, and a coupon
equal to the beginning-of-period yield. For the period 1926 to 1945, Standard &
Poor's monthly high-grade corporate composite yield data were used, assuming a
4% coupon and a 20-year maturity. The conventional present-value formula for
bond price for the beginning and end-of-month prices was used. (This formula is
presented in Ross, Stephen A., and Westerfield, Randolph W., Corporate Finance,
Times Mirror/Mosby, St. Louis, 1990, p. 97 ["Level-Coupon Bonds"].) The monthly
income return was assumed to be one-twelfth the coupon.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX - INTERMEDIATE. This index is
comprised of securities with one to ten years to maturity. It includes Treasury
and government agency securities, investment-grade corporate bonds and Yankee
bonds.
U.S. (30-DAY) TREASURY BILLS. For the U.S. Treasury Bill Index, data from The
Wall Street Journal are used after 1977; the CRSP government bond file is the
source until 1976. Each month a one-bill portfolio containing the shortest-term
bill having not less than one month to maturity is constructed. (The bill's
original term to maturity is not relevant.) To measure holding period returns
for the one-bill portfolio, the bill is priced as of the last trading day of the
previous month-end and as of the last trading day of the current month.
NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS ("NAREIT") EQUITY REIT
INDEX. All of the data are based upon the last closing price of the month for
all tax-qualified REITs listed on the NYSE, AMEX and NASDAQ. The data are
market-value-weighted. Prior to 1987 REITs were added to the index the January
following their listing. Since 1987 newly formed or listed REITs are added to
the total shares outstanding figure in the month that the shares are issued.
Only common shares issued by the REIT are included in the index. The total
return calculation is based upon the weighting at the beginning of the period.
Only those REITs listed for the entire period are used in the total return
calculation. Dividends are included in the month based upon their payment date.
There is no smoothing of income.
Liquidating dividends, whether full or partial, are treated as income.
RUSSELL U.S. EQUITY INDEXES. The Russell 3000(R) Index (the "Russell 3000") is
comprised of the 3,000 largest U.S. companies as determined by market
capitalization representing approximately 98% of the U.S. equity market. The
average market capitalization is approximately $3.7 billion. The Russell 2500TM
Index measures performance of the 2,500 smallest companies in the Russell 3000.
The average market capitalization is approximately $931 million, and the largest
company in the index has an approximate market capitalization of $3.7 billion.
The Russell 2000(R) Index measures performance of the 2,000 smallest stocks in
the Russell 3000; the largest company in the index has a market capitalization
of approximately $1.4 billion. The Russell 1000(R) Index (the "Russell 1000")
measures the performance of the 1,000 largest companies in the Russell 3000. The
average market capitalization is approximately $9.9 billion. The smallest
company in the index has an approximate market capitalization of $1.4 billion.
The Russell MidcapTM Index measures performance of the 800 smallest companies in
the Russell 1000. The largest company in the index has an approximate market
capitalization of $10.3 billion.
The Russell indexes are reconstituted annually as of July 1, based on May 31
market capitalization rankings.
WILSHIRE REAL ESTATE SECURITIES INDEX. The Wilshire Real Estate Securities Index
is a market capitalization weighted index of 119 publicly traded real estate
securities, such as REITs, real estate operating companies ("REOCs") and
partnerships.
63
<PAGE>
The index contains performance data on five major categories of property:
office, retail, industrial, apartment and miscellaneous. The companies in the
index are 94.11% equity and hybrid REITs and 5.89% REOCs.
STANDARD & POOR'S MIDCAP 400 INDEX. The S&P 400 is a
market-capitalization-weighted index. The performance data for the index were
calculated by taking the stocks presently in the index and tracking them
backwards in time as long as there were prices reported. No attempt was made to
determine what stocks "might have been" in the S&P 400 five or ten years ago had
it existed. Dividends are reinvested on a monthly basis prior to June 30, 1991,
and are reinvested daily thereafter.
LIPPER BALANCED FUNDS INDEX. This index represents equally weighted performance,
adjusted for capital gains distributions and income dividends, of approximately
30 of the largest funds with a primary objective of conserving principal by
maintaining at all times a balanced portfolio of stocks and bonds.
Typically, the stock/bond ratio ranges around 60%/40%.
LEHMAN BROTHERS AGGREGATE BOND INDEX. The Lehman Brothers Aggregate Bond Index
is composed of the Lehman Brothers Government/Corporate Index, the Lehman
Brothers Mortgage-Backed Securities Index and the Lehman Brothers Asset-Backed
Securities Index. The index includes fixed rate debt issues rated investment
grade or higher by Moody's Investors Service, Standard & Poor's Corporation or
Fitch Investors Service, in that order. All issues have at least one year to
maturity with intermediate indices including bonds with maturities up to ten
years and long-term indices composed of bonds with maturities longer than ten
years. All returns are market value weighted inclusive of accrued interest.
BANK SAVINGS ACCOUNT. Data sources include the U.S. League of Savings
Institutions Sourcebook; average annual yield on savings deposits in FSLIC
[FDIC] insured savings institutions for the years 1963 to 1987; and The Wall
Street Journal thereafter.
Sources: Ibbotson Associates, Towers Data Systems, Lipper, Inc. and PGI
64
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
DOW S&P/ S&P/
JONES U.S. SMALL BARRA BARRA MERRILL LYNCH
S&P INDUSTRIAL STOCK U.S. 500 500 MICRO-CAP
500 AVERAGE INDEX INFLATION GROWTH VALUE INDEX
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1925 N/A N/A N/A N/A N/A N/A N/A
Dec 1926 11.62 N/A 0.28 -1.49 N/A N/A N/A
Dec 1927 37.49 N/A 22.10 -2.08 N/A N/A N/A
Dec 1928 43.61 55.38 39.69 -0.97 N/A N/A N/A
Dec 1929 -8.42 -13.64 -51.36 0.20 N/A N/A N/A
Dec 1930 -24.90 -30.22 -38.15 -6.03 N/A N/A N/A
Dec 1931 -43.34 -49.02 -49.75 -9.52 N/A N/A N/A
Dec 1932 -8.19 -16.88 -5.39 -10.30 N/A N/A N/A
Dec 1933 53.99 73.72 142.87 0.51 N/A N/A N/A
Dec 1934 -1.44 8.08 24.22 2.03 N/A N/A N/A
Dec 1935 47.67 43.77 40.19 2.99 N/A N/A N/A
Dec 1936 33.92 30.23 64.80 1.21 N/A N/A N/A
Dec 1937 -35.03 -28.88 -58.01 3.10 N/A N/A N/A
Dec 1938 31.12 33.16 32.80 -2.78 N/A N/A N/A
Dec 1939 -0.41 1.31 0.35 -0.48 N/A N/A N/A
Dec 1940 -9.78 -7.96 -5.16 0.96 N/A N/A N/A
Dec 1941 -11.59 -9.88 -9.00 9.72 N/A N/A N/A
Dec 1942 20.34 14.13 44.51 9.29 N/A N/A N/A
Dec 1943 25.90 19.06 88.37 3.16 N/A N/A N/A
Dec 1944 19.75 17.19 53.72 2.11 N/A N/A N/A
Dec 1945 36.44 31.60 73.61 2.25 N/A N/A N/A
Dec 1946 -8.07 -4.40 -11.63 18.16 N/A N/A N/A
Dec 1947 5.71 7.61 0.92 9.01 N/A N/A N/A
Dec 1948 5.50 4.27 -2.11 2.71 N/A N/A N/A
Dec 1949 18.79 20.92 19.75 -1.80 N/A N/A N/A
Dec 1950 31.71 26.40 38.75 5.79 N/A N/A N/A
Dec 1951 24.02 21.77 7.80 5.87 N/A N/A N/A
Dec 1952 18.37 14.58 3.03 0.88 N/A N/A N/A
Dec 1953 -0.99 2.02 -6.49 0.62 N/A N/A N/A
Dec 1954 52.62 51.25 60.58 -0.50 N/A N/A N/A
Dec 1955 31.56 26.58 20.44 0.37 N/A N/A N/A
Dec 1956 6.56 7.10 4.28 2.86 N/A N/A N/A
Dec 1957 -10.78 -8.63 -14.57 3.02 N/A N/A N/A
Dec 1958 43.36 39.31 64.89 1.76 N/A N/A N/A
Dec 1959 11.96 20.21 16.40 1.50 N/A N/A N/A
Dec 1960 0.47 -6.14 -3.29 1.48 N/A N/A N/A
Dec 1961 26.89 22.60 32.09 0.67 N/A N/A N/A
Dec 1962 -8.73 -7.43 -11.90 1.22 N/A N/A N/A
Dec 1963 22.80 20.83 23.57 1.65 N/A N/A N/A
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
DOW S&P/ S&P/
JONES U.S. SMALL BARRA 500 BARRA MERRILL LYNCH
S&P INDUSTRIAL STOCK U.S. GROWTH 500 MICRO-CAP
500 AVERAGE INDEX INFLATION VALUE INDEX
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1964 16.48 18.85 23.52 1.19 N/A N/A N/A
Dec 1965 12.45 14.39 41.75 1.92 N/A N/A N/A
Dec 1966 -10.06 -15.78 -7.01 3.35 N/A N/A N/A
Dec 1967 23.98 19.16 83.57 3.04 N/A N/A N/A
Dec 1968 11.06 7.93 35.97 4.72 N/A N/A N/A
Dec 1969 -8.50 -11.78 -25.05 6.11 N/A N/A N/A
Dec 1970 4.01 9.21 -17.43 5.49 N/A N/A N/A
Dec 1971 14.31 9.83 16.50 3.36 N/A N/A N/A
Dec 1972 18.98 18.48 4.43 3.41 N/A N/A N/A
Dec 1973 -14.66 -13.28 -30.90 8.80 N/A N/A N/A
Dec 1974 -26.47 -23.58 -19.95 12.20 N/A N/A N/A
Dec 1975 37.20 44.75 52.82 7.01 31.72 43.38 N/A
Dec 1976 23.84 22.82 57.38 4.81 13.84 34.93 N/A
Dec 1977 -7.18 -12.84 25.38 6.77 -11.82 -2.57 N/A
Dec 1978 6.56 2.79 23.46 9.03 6.78 6.16 27.76
Dec 1979 18.44 10.55 43.46 13.31 15.72 21.16 43.18
Dec 1980 32.42 22.17 39.88 12.40 39.40 23.59 32.32
Dec 1981 -4.91 -3.57 13.88 8.94 -9.81 0.02 9.18
Dec 1982 21.41 27.11 28.01 3.87 22.03 21.04 33.62
Dec 1983 22.51 25.97 39.67 3.80 16.24 28.89 42.44
Dec 1984 6.27 1.31 -6.67 3.95 2.33 10.52 -14.97
Dec 1985 32.16 33.55 24.66 3.77 33.31 29.68 22.89
Dec 1986 18.47 27.10 6.85 1.13 14.50 21.67 3.45
Dec 1987 5.23 5.48 -9.30 4.41 6.50 3.68 -13.84
Dec 1988 16.81 16.14 22.87 4.42 11.95 21.67 22.76
Dec 1989 31.49 32.19 10.18 4.65 36.40 26.13 8.06
Dec 1990 -3.17 -0.56 -21.56 6.11 0.20 -6.85 -29.55
Dec 1991 30.55 24.19 44.63 3.06 38.37 22.56 57.44
Dec 1992 7.67 7.41 23.35 2.90 5.07 10.53 36.62
Dec 1993 9.99 16.94 20.98 2.75 1.68 18.60 31.32
Dec 1994 1.31 5.06 3.11 2.67 3.13 -0.64 1.81
Dec 1995 37.43 36.84 34.46 2.54 38.13 36.99 30.70
Dec 1996 23.07 28.84 17.62 3.32 23.96 21.99 13.88
Dec 1997 33.36 24.88 22.78 1.70 36.52 29.98 24.61
Dec 1998 28.58 18.15 -7.31 1.80 42.16 14.67 -6.15
Dec 1999
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
LONG- INTERMEDIATE- MSCI LONG-
TERM TERM U.S. EAFE 6- TERM U.S. U.S.
U.S. GOV'T GOVERNMENT (NET OF MONTH CORPORATE LB IT T-BILL
BONDS BONDS TAXES) CDS BONDS GOV'T/CORP (30-DAY)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1925 N/A N/A N/A N/A N/A N/A N/A
Dec 1926 7.77 5.38 N/A N/A 7.37 N/A 3.27
Dec 1927 8.93 4.52 N/A N/A 7.44 N/A 3.12
Dec 1928 0.10 0.92 N/A N/A 2.84 N/A 3.56
Dec 1929 3.42 6.01 N/A N/A 3.27 N/A 4.75
Dec 1930 4.66 6.72 N/A N/A 7.98 N/A 2.41
Dec 1931 -5.31 -2.32 N/A N/A -1.85 N/A 1.07
Dec 1932 16.84 8.81 N/A N/A 10.82 N/A 0.96
Dec 1933 -0.07 1.83 N/A N/A 10.38 N/A 0.30
Dec 1934 10.03 9.00 N/A N/A 13.84 N/A 0.16
Dec 1935 4.98 7.01 N/A N/A 9.61 N/A 0.17
Dec 1936 7.52 3.06 N/A N/A 6.74 N/A 0.18
Dec 1937 0.23 1.56 N/A N/A 2.75 N/A 0.31
Dec 1938 5.53 6.23 N/A N/A 6.13 N/A -0.02
Dec 1939 5.94 4.52 N/A N/A 3.97 N/A 0.02
Dec 1940 6.09 2.96 N/A N/A 3.39 N/A 0.00
Dec 1941 0.93 0.50 N/A N/A 2.73 N/A 0.06
Dec 1942 3.22 1.94 N/A N/A 2.60 N/A 0.27
Dec 1943 2.08 2.81 N/A N/A 2.83 N/A 0.35
Dec 1944 2.81 1.80 N/A N/A 4.73 N/A 0.33
Dec 1945 10.73 2.22 N/A N/A 4.08 N/A 0.33
Dec 1946 -0.10 1.00 N/A N/A 1.72 N/A 0.35
Dec 1947 -2.62 0.91 N/A N/A -2.34 N/A 0.50
Dec 1948 3.40 1.85 N/A N/A 4.14 N/A 0.81
Dec 1949 6.45 2.32 N/A N/A 3.31 N/A 1.10
Dec 1950 0.06 0.70 N/A N/A 2.12 N/A 1.20
Dec 1951 -3.93 0.36 N/A N/A -2.69 N/A 1.49
Dec 1952 1.16 1.63 N/A N/A 3.52 N/A 1.66
Dec 1953 3.64 3.23 N/A N/A 3.41 N/A 1.82
Dec 1954 7.19 2.68 N/A N/A 5.39 N/A 0.86
Dec 1955 -1.29 -0.65 N/A N/A 0.48 N/A 1.57
Dec 1956 -5.59 -0.42 N/A N/A -6.81 N/A 2.46
Dec 1957 7.46 7.84 N/A N/A 8.71 N/A 3.14
Dec 1958 -6.09 -1.29 N/A N/A -2.22 N/A 1.54
Dec 1959 -2.26 -0.39 N/A N/A -0.97 N/A 2.95
Dec 1960 13.78 11.76 N/A N/A 9.07 N/A 2.66
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
LONG- INTERMEDIATE- MSCI LONG-
TERM TERM U.S. EAFE 6- TERM U.S. U.S.
U.S. GOV'T GOVERNMENT (NET OF MONTH CORPORATE LB IT T-BILL
BONDS BONDS TAXES) CDS BONDS GOV'T/CORP (30-DAY)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1961 0.97 1.85 N/A N/A 4.82 N/A 2.13
Dec 1962 6.89 5.56 N/A N/A 7.95 N/A 2.73
Dec 1963 1.21 1.64 N/A N/A 2.19 N/A 3.12
Dec 1964 3.51 4.04 N/A 4.17 4.77 N/A 3.54
Dec 1965 0.71 1.02 N/A 4.68 -0.46 N/A 3.93
Dec 1966 3.65 4.69 N/A 5.76 0.20 N/A 4.76
Dec 1967 -9.18 1.01 N/A 5.47 -4.95 N/A 4.21
Dec 1968 -0.26 4.54 N/A 6.45 2.57 N/A 5.21
Dec 1969 -5.07 -0.74 N/A 8.70 -8.09 N/A 6.58
Dec 1970 12.11 16.86 -11.66 7.06 18.37 N/A 6.52
Dec 1971 13.23 8.72 29.59 5.36 11.01 N/A 4.39
Dec 1972 5.69 5.16 36.35 5.39 7.26 N/A 3.84
Dec 1973 -1.11 4.61 -14.92 8.60 1.14 3.34 6.93
Dec 1974 4.35 5.69 -23.16 10.20 -3.06 5.58 8.00
Dec 1975 9.20 7.83 35.39 6.51 14.64 9.50 5.80
Dec 1976 16.75 12.87 2.54 5.22 18.65 12.34 5.08
Dec 1977 -0.69 1.41 18.06 6.11 1.71 3.31 5.12
Dec 1978 -1.18 3.49 32.62 10.21 -0.07 2.13 7.18
Dec 1979 -1.23 4.09 4.75 11.90 -4.18 6.00 10.38
Dec 1980 -3.95 3.91 22.58 12.33 -2.76 6.41 11.24
Dec 1981 1.86 9.45 -2.28 15.50 -1.24 10.50 14.71
Dec 1982 40.36 29.10 -1.86 12.18 42.56 26.10 10.54
Dec 1983 0.65 7.41 23.69 9.65 6.26 8.61 8.80
Dec 1984 15.48 14.02 7.38 10.65 16.86 14.38 9.85
Dec 1985 30.97 20.33 56.16 7.82 30.09 18.05 7.72
Dec 1986 24.53 15.14 69.44 6.30 19.85 13.12 6.16
Dec 1987 -2.71 2.90 24.63 6.59 -0.27 3.67 5.47
Dec 1988 9.67 6.10 28.27 8.15 10.70 6.78 6.35
Dec 1989 18.11 13.29 10.54 8.27 16.23 12.76 8.37
Dec 1990 6.18 9.73 -23.45 7.85 6.78 9.17 7.81
Dec 1991 19.30 15.46 12.13 4.95 19.89 14.63 5.60
Dec 1992 8.05 7.19 -12.17 3.27 9.39 7.17 3.51
Dec 1993 18.24 11.24 32.56 2.88 13.19 8.73 2.90
Dec 1994 -7.77 -5.14 7.78 5.40 -5.76 -1.95 3.90
Dec 1995 31.67 16.80 11.21 5.21 27.20 15.31 5.60
Dec 1996 -0.93 2.10 6.05 5.21 1.40 4.06 5.21
Dec 1997 15.85 8.38 1.78 5.71 12.95 7.87 5.26
Dec 1998 13.06 10.21 20.00 5.34 10.76 8.42 4.86
Dec 1999
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
NAREIT LIPPER MSCI
EQUITY RUSSELL WILSHIRE BALANCED EMERGING BANK
REIT 2000 REAL ESTATE S&P FUND MARKETS SAVINGS
INDEX INDEX SECURITIES 400 INDEX FREE INDEX ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1925 N/A N/A N/A N/A N/A N/A N/A
Dec 1926 N/A N/A N/A N/A N/A N/A N/A
Dec 1927 N/A N/A N/A N/A N/A N/A N/A
Dec 1928 N/A N/A N/A N/A N/A N/A N/A
Dec 1929 N/A N/A N/A N/A N/A N/A N/A
Dec 1930 N/A N/A N/A N/A N/A N/A 5.30
Dec 1931 N/A N/A N/A N/A N/A N/A 5.10
Dec 1932 N/A N/A N/A N/A N/A N/A 4.10
Dec 1933 N/A N/A N/A N/A N/A N/A 3.40
Dec 1934 N/A N/A N/A N/A N/A N/A 3.50
Dec 1935 N/A N/A N/A N/A N/A N/A 3.10
Dec 1936 N/A N/A N/A N/A N/A N/A 3.20
Dec 1937 N/A N/A N/A N/A N/A N/A 3.50
Dec 1938 N/A N/A N/A N/A N/A N/A 3.50
Dec 1939 N/A N/A N/A N/A N/A N/A 3.40
Dec 1940 N/A N/A N/A N/A N/A N/A 3.30
Dec 1941 N/A N/A N/A N/A N/A N/A 3.10
Dec 1942 N/A N/A N/A N/A N/A N/A 3.00
Dec 1943 N/A N/A N/A N/A N/A N/A 2.90
Dec 1944 N/A N/A N/A N/A N/A N/A 2.80
Dec 1945 N/A N/A N/A N/A N/A N/A 2.50
Dec 1946 N/A N/A N/A N/A N/A N/A 2.20
Dec 1947 N/A N/A N/A N/A N/A N/A 2.30
Dec 1948 N/A N/A N/A N/A N/A N/A 2.30
Dec 1949 N/A N/A N/A N/A N/A N/A 2.40
Dec 1950 N/A N/A N/A N/A N/A N/A 2.50
Dec 1951 N/A N/A N/A N/A N/A N/A 2.60
Dec 1952 N/A N/A N/A N/A N/A N/A 2.70
Dec 1953 N/A N/A N/A N/A N/A N/A 2.80
Dec 1954 N/A N/A N/A N/A N/A N/A 2.90
Dec 1955 N/A N/A N/A N/A N/A N/A 2.90
Dec 1956 N/A N/A N/A N/A N/A N/A 3.00
Dec 1957 N/A N/A N/A N/A N/A N/A 3.30
Dec 1958 N/A N/A N/A N/A N/A N/A 3.38
Dec 1959 N/A N/A N/A N/A N/A N/A 3.53
Dec 1960 N/A N/A N/A N/A 5.77 N/A 3.86
Dec 1961 N/A N/A N/A N/A 20.59 N/A 3.90
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
NAREIT LIPPER MSCI
EQUITY RUSSELL WILSHIRE BALANCED EMERGING BANK
REIT 2000 REAL ESTATE S&P FUND MARKETS SAVINGS
INDEX INDEX SECURITIES 400 INDEX FREE INDEX ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1962 N/A N/A N/A N/A -6.80 N/A 4.08
Dec 1963 N/A N/A N/A N/A 13.10 N/A 4.17
Dec 1964 N/A N/A N/A N/A 12.36 N/A 4.19
Dec 1965 N/A N/A N/A N/A 9.80 N/A 4.23
Dec 1966 N/A N/A N/A N/A -5.86 N/A 4.45
Dec 1967 N/A N/A N/A N/A 15.09 N/A 4.67
Dec 1968 N/A N/A N/A N/A 13.97 N/A 4.68
Dec 1969 N/A N/A N/A N/A -9.01 N/A 4.80
Dec 1970 N/A N/A N/A N/A 5.62 N/A 5.14
Dec 1971 N/A N/A N/A N/A 13.90 N/A 5.30
Dec 1972 8.01 N/A N/A N/A 11.13 N/A 5.37
Dec 1973 -15.52 N/A N/A N/A -12.24 N/A 5.51
Dec 1974 -21.40 N/A N/A N/A -18.71 N/A 5.96
Dec 1975 19.30 N/A N/A N/A 27.10 N/A 6.21
Dec 1976 47.59 N/A N/A N/A 26.03 N/A 6.23
Dec 1977 22.42 N/A N/A N/A -0.72 N/A 6.39
Dec 1978 10.34 N/A 13.04 N/A 4.80 N/A 6.56
Dec 1979 35.86 43.09 70.81 N/A 14.67 N/A 7.29
Dec 1980 24.37 38.58 22.08 N/A 19.70 N/A 8.78
Dec 1981 6.00 2.03 7.18 N/A 1.86 N/A 10.71
Dec 1982 21.60 24.95 24.47 22.68 30.63 N/A 11.19
Dec 1983 30.64 29.13 27.61 26.10 17.44 N/A 9.71
Dec 1984 20.93 -7.30 20.64 1.18 7.46 N/A 9.92
Dec 1985 19.10 31.05 22.20 35.58 29.83 N/A 9.02
Dec 1986 19.16 5.68 20.30 16.21 18.43 N/A 7.84
Dec 1987 -3.64 -8.77 -7.86 -2.03 4.13 N/A 6.92
Dec 1988 13.49 24.89 24.18 20.87 11.18 40.43 7.20
Dec 1989 8.84 16.24 2.37 35.54 19.70 64.96 7.91
Dec 1990 -15.35 -19.51 -33.46 -5.12 0.66 -10.55 7.80
Dec 1991 35.70 46.05 20.03 50.10 25.83 59.91 4.61
Dec 1992 14.59 18.41 7.36 11.91 7.46 11.40 2.89
Dec 1993 19.65 18.91 15.24 13.96 11.95 74.83 2.73
Dec 1994 3.17 -1.82 1.64 -3.57 -2.05 -7.32 4.96
Dec 1995 15.27 28.44 13.65 30.94 24.89 -5.21 5.24
Dec 1996 35.26 16.49 36.87 19.20 13.05 6.03 4.95
Dec 1997 20.29 22.36 19.80 32.26 20.30 -11.59 5.17
Dec 1998 -17.51 -2.55 -17.63 19.12 15.09 -25.34 4.63
Dec 1999
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
MERRILL LYNCH INDEX
MSCI ALL COUNTRY OF ALL CONVERTIBLES,
MSCI ALL COUNTRY (AC) (AC) ASIA PACIFIC LEHMAN BROTHERS MERRILL LYNCH HIGH SPECULATIVE QUALITY
ASIA FREE EX JAPAN FREE EX JAPAN AGGREGATE BOND INDEX YIELD MASTER II INDEX
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dec 1925 N/A N/A N/A
Dec 1926 N/A N/A N/A
Dec 1927 N/A N/A N/A
Dec 1928 N/A N/A N/A
Dec 1929 N/A N/A N/A
Dec 1930 N/A N/A N/A
Dec 1931 N/A N/A N/A
Dec 1932 N/A N/A N/A
Dec 1933 N/A N/A N/A
Dec 1934 N/A N/A N/A
Dec 1935 N/A N/A N/A
Dec 1936 N/A N/A N/A
Dec 1937 N/A N/A N/A
Dec 1938 N/A N/A N/A
Dec 1939 N/A N/A N/A
Dec 1940 N/A N/A N/A
Dec 1941 N/A N/A N/A
Dec 1942 N/A N/A N/A
Dec 1943 N/A N/A N/A
Dec 1944 N/A N/A N/A
Dec 1945 N/A N/A N/A
Dec 1946 N/A N/A N/A
Dec 1947 N/A N/A N/A
Dec 1948 N/A N/A N/A
Dec 1949 N/A N/A N/A
Dec 1950 N/A N/A N/A
Dec 1951 N/A N/A N/A
Dec 1952 N/A N/A N/A
Dec 1953 N/A N/A N/A
Dec 1954 N/A N/A N/A
Dec 1955 N/A N/A N/A
Dec 1956 N/A N/A N/A
Dec 1957 N/A N/A N/A
Dec 1958 N/A N/A N/A
Dec 1959 N/A N/A N/A
Dec 1960 N/A N/A N/A
Dec 1961 N/A N/A N/A
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
MERRILL LYNCH INDEX
MSCI ALL COUNTRY OF ALL CONVERTIBLES,
MSCI ALL COUNTRY (AC) (AC) ASIA PACIFIC LEHMAN BROTHERS MERRILL LYNCH HIGH SPECULATIVE QUALITY
ASIA FREE EX JAPAN FREE EX JAPAN AGGREGATE BOND INDEX YIELD MASTER II INDEX
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dec 1962 N/A N/A N/A
Dec 1963 N/A N/A N/A
Dec 1964 N/A N/A N/A
Dec 1965 N/A N/A N/A
Dec 1966 N/A N/A N/A
Dec 1967 N/A N/A N/A
Dec 1968 N/A N/A N/A
Dec 1969 N/A N/A N/A
Dec 1970 N/A N/A N/A
Dec 1971 N/A N/A N/A
Dec 1972 N/A N/A N/A
Dec 1973 N/A N/A N/A
Dec 1974 N/A N/A N/A
Dec 1975 N/A N/A N/A
Dec 1976 N/A N/A 15.62
Dec 1977 N/A N/A 3.05
Dec 1978 N/A N/A 1.39
Dec 1979 N/A N/A 1.94
Dec 1980 N/A N/A 2.70
Dec 1981 N/A N/A 6.23
Dec 1982 N/A N/A 32.62
Dec 1983 N/A N/A 8.37
Dec 1984 N/A N/A 15.14
Dec 1985 N/A N/A 22.11
Dec 1986 N/A N/A 15.29
Dec 1987 N/A N/A 2.75
Dec 1988 30.00 30.45 7.89
Dec 1989 32.13 21.43 14.53
Dec 1990 -6.54 -11.86 8.95
Dec 1991 30.98 32.40 16.00
Dec 1992 21.81 9.88 7.40
Dec 1993 103.39 84.94 9.75
Dec 1994 -16.94 -12.59 -2.92
Dec 1995 4.00 10.00 18.48
Dec 1996 10.05 8.08 3.61
Dec 1997 -40.31 -34.20 9.68
Dec 1998 -7.79 -4.42 8.67
Dec 1999
Source: Lipper, Inc.
</TABLE>
72
<PAGE>
21. APPENDIX D - OTHER PIONEER INFORMATION
The Pioneer group of mutual funds was established in 1928 with the creation of
Pioneer Fund. Pioneer is one of the oldest and most experienced money managers
in the U.S.
As of June 30, 1999, Pioneer employed a professional investment staff of __.
Total assets of all Pioneer mutual funds at December 31, 1999, were
approximately $__ billion representing ___________ shareholder accounts,
___________ non-retirement accounts and ___________ retirement accounts.
73
<PAGE>
THIRD AVENUE HIGH YIELD FUND
Dear Fellow Shareholders:
At October 31, 1998, the audited net asset value attributable to the 904,440
common shares outstanding of the Third Avenue High Yield Fund (the "Fund") was
$8.50 per share. This compares with an unaudited net asset value of $9.82 at
July 31, 1998, and a net asset value of $10.00 per share at February 12, 1998,
the date of the Fund's inception. At December 11, 1998, the unaudited net asset
value was $9.00 per share.
QUARTERLY ACTIVITY
During the fourth quarter of fiscal 1998, the Fund established one new position,
as new monies flowed into the Fund, and eliminated three positions in order to
raise cash to accommodate redemptions of shares by short-term investors on
several occasions.
Transactions made during the quarter are summarized below.
PAR VALUE NEW POSITION ACQUIRED
$500,000 CalEnergy Co., Inc 8.48%, due 9/15/28
POSITIONS ELIMINATED
$300,000 Alcatel SA 7.00%, due 8/01/04
$300,000 MascoTech 4.50%, due 12/15/03
$500,000 PSINet, Inc. 10.00%, due 2/15/05
PORTFOLIO ACTIVITY
The three months ending October 31 marked a once-in-a-decade chance for
investors in the high yield bond market, where the Fund has substantial
investments, to profit from disorderly market conditions. Because of lack of
liquidity and forced sales from leveraged investors, yields rose to levels which
on a relative basis were at least as attractive as in the 1990-1991 period, the
last such great unsettled period. Similarly, convertible bonds, where the bulk
of the Fund's assets is currently concentrated, dropped to levels seen only
fleetingly in 1990. Convertible bonds suffered from the combined effects of
lower stock prices and higher interest rates on below investment grade bonds in
general.
We believe the Fund's portfolio of securities offers both high current income
and the possibility of future capital appreciation. Further, our holdings are
concentrated in companies and industries whose profits, we think, will expand
faster than the economy as a whole, either through internal growth or in
combination with restructuring and consolidating among companies. Such asset
transfer activity can improve profits and return on investment even in
businesses with slow underlying growth rates.
Our largest concentration of holdings, comprising just over 14% of total assets,
is in the semiconductor capital equipment industry. Our companies hold leading
technological positions in this multifaceted area, and have the financial
flexibility to ride out the rest of the current industry
<PAGE>
consolidation. We believe they are well positioned for the next industry
upswing, which some industry analysts think is already underway.
Our second largest industry representation, about 13.5% of total assets,
consists of issues of corporations manufacturing a wide range of technology
products such as semiconductors, networking products and disks for computers.
Companies in these industries have just completed a period of relatively flat
demand, coupled with the worst excess inventory supply cycle seen in the
post-World War II period, causing sharp price erosion as inventories were worked
off. This process is nearly completed, and demand, especially for computer-based
products, seems to be moving up again at very healthy rates.
The third largest sector in the Fund, amounting to 11% of assets, is
telecommunications. This industry is undergoing dynamic change as a result of
the Telecommunications Act of 1996. This legislation provided for the
deregulation of the industry and has spawned a number of aggressive competitors
offering voice, data, and internet services using new technology to share in the
explosive growth in demand. We hold issues of several of these new entrants, and
think they will profit not only from new markets but also by taking market share
from existing incumbent service providers.
Healthcare makes up close to 11% of the Fund's total assets. Current industry
conditions are unsettled, as long-term care providers adjust their business
plans to new federal government regulations on reimbursement for care. The
number of people needing long-term care along with ancillary services is growing
much faster than the population as a whole. Once companies adapt to the new
reimbursement rules being phased into the system, we expect other investors will
recognize their bright future, as demand for both the quantity and quality of
healthcare expands faster than growth of the domestic economy.
The electric and gas utility industry is our fifth largest sector, amounting to
close to 10% of the Fund's total assets. While this industry should grow at
levels in line with overall economic growth in the U.S., massive changes are
just starting to be felt as states begin to deregulate the power industry.
Similar deregulation moves are also going on in industrialized countries
overseas, which in some cases, notably the United Kingdom (U.K.), are actually
ahead of the U.S. in opening their power markets to free competition. We think
smart managements will be able to take advantage of these changes to grow their
revenues and profits far above the growth of the power market as a whole.
Further, the electric utility industry in the U.S. and other industrialized
countries is relatively insensitive to the recent economic declines in less
industrialized, so-called emerging market countries, primarily in Asia and Latin
America. These countries have begun to reduce their demand for many products
manufactured in the U.S., and are attempting to increase their exports to
industrialized countries, in an effort to solve their economic troubles. As a
result of this lowered export demand and increased import supply, many domestic
companies, especially those in commodity-based industries like metals, energy,
chemicals, paper and forest products, and textiles, will experience revenue and
profit pressure next year.
NEW PURCHASE
CalEnergy is a diversified global energy company which has grown by acquisition
of electric and gas companies in the U.S., U.K., Australia, Canada, and New
Zealand. Its recent purchase of Iowa-based MidAmerican Energy will provide
access to an attractive and growing market for its low cost power. As the
electric utility industry begins to deregulate, both in the U.S. and abroad,
2
<PAGE>
CalEnergy should benefit from the knowledge it has gained since its 1997
acquisition of Northern Electric in the U.K.
POSITIONS ELIMINATED
Among the three positions which were eliminated in the quarter were bonds of
Alcatel, the large French telecommunications equipment company. Alcatel had
agreed in June, 1998, to take over DSC Communications, a Texas-based
telecommunications equipment company. The DSC bonds had a speculative grade
rating of "B" by the major rating services, and experienced substantial
appreciation in price due to Alcatel's higher investment grade credit rating of
"A" by the major rating agencies.
MascoTech convertible bonds were sold, although our fundamentally favorable
opinion of the company has not changed, because we felt other holdings in the
portfolio had a likelihood of greater capital appreciation. Similarly, we also
sold our holding of PSINet, an Internet access and Web hosting provider to
corporations and other Internet service providers, because we felt its
continuing need to tap the high yield bond market at future dates would provide
other opportunities to reestablish a position in this credit in the future.
THE MISFORTUNE OF MARKET TIMING
Notably, redemptions of the Fund in the quarter were concentrated during the
first half of October, the very period when financial markets were at their most
stressed condition in many years, and short-term downward pressure was most
intense on all securities prices. You may recall that at this time, prices of
virtually all securities, except for U.S. Treasury issues, declined sharply, due
to liquidity pressures arising from forced sales of securities by numerous
leveraged investment funds. In addition, credit concerns about so-called
emerging market bonds, such as those from Russia which defaulted in the quarter,
caused prices of all emerging market debt, as well as prices of domestic high
yield bonds, to drop significantly. The combination of all these events led to
extremely illiquid market conditions not seen in many years.
Of course, we recognize that in future periods of market turmoil, the net asset
value per share of the Fund may well drop again, reflecting short-term changes
in the prices of securities held in the Fund. We regard such times as great
opportunities to purchase, but certainly not to sell. Lower prices allow us to
buy more bonds or shares for the same amount of money. If our intensive research
evaluations are accurate, we can take advantage of short-term price declines to
create even greater opportunity to increase our shareholders' investment over
the long term.
1998 DISTRIBUTIONS
On November 18, 1998, the Fund declared a dividend from the Fund's estimated net
investment income through the period ending December 31, 1998. The amount is
estimated to be approximately $0.16 per Fund share. This distribution is payable
January 6, 1999 to Fund shareholders of record on December 30, 1998. The precise
amount of the distribution will be determined based on the total number of Fund
shares outstanding on the close of business on the record date, December 30,
1998. The distribution is payable in cash or, for those shareholders who have
elected the reinvestment option, in additional Fund shares at the Fund's net
asset value on December 31, 1998, the "ex" date, or valuation date, for
reinvestment.
3
<PAGE>
I look forward to writing to you again when the first quarter report for the
period ending January 31, 1999 is published.
Sincerely,
/s/ Margaret D. Patel
Margaret D. Patel
Portfolio Manager, Third Avenue High Yield Fund
4
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
AT OCTOBER 31, 1998
PRINCIPAL VALUE % OF NET
AMOUNT ($) ISSUES (NOTE 1) ASSETS
- ------------------------------ --------------- ---------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS - 58.07%
Capital Equipment - 450,000 Lam Research Corp. 5.00%,
Semiconductors due 9/1/02 $ 356,063 4.63%
--------------
Computers - Memory Devices 300,000 HMT Technology Corp. 5.75%,
due 1/15/04 178,125 2.32%
--------------
Electric Utility Services 400,000 Itron, Inc. 6.75%, due 3/31/04 285,500 3.71%
--------------
Electronic Components - 325,000 Atmel SA 144A 3.25%, due 6/1/02
Semiconductors 247,000
325,000 Cypress Semiconductors Corp.
6.00%, due 10/1/02 292,906
--------------
539,906 7.02%
--------------
Instrumentation - Electronic 600,000 Credence Systems Corp. 5.25%,
Testing due 9/15/02 444,000 5.77%
--------------
Lasers - Systems/Components 450,000 Cymer, Inc. 3.50%, due
8/6/04 300,937 3.91%
--------------
Medical - Generic Drugs 475,000 Alpharma, Inc. 144A 5.75%, due
4/1/05 511,812 6.65%
--------------
Medical - Hospitals 625,000 Columbia HCA Medical Care,
Int'l. 6.75%, due 10/1/06 530,469 6.90%
--------------
Medical Management Services 505,000 PhyMatrix Corp. 6.75%, due
6/15/03 202,631 2.63%
--------------
Networking 425,000 Adaptec, Inc. 4.75%, due 2/1/04 330,438 4.30%
--------------
Oil/Gas Exploration 300,000 Range Resources Corp. 6.00%, due
2/1/07 193,500
300,000 Pogo Producing Co. 5.50%, due
6/15/06 208,500
--------------
402,000 5.23%
--------------
Oil Field Services 300,000 Key Energy Group, Inc. 5.00%,
due 9/15/04 190,875 2.48%
--------------
Telecommunications - Wireless 500,000 P-Com, Inc 4.25%, due 11/1/02 193,125 2.51%
--------------
TOTAL CONVERTIBLE BONDS
(Cost $5,617,360) 4,465,881
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT OCTOBER 31, 1998
VALUE % OF NET
SHARES ISSUES (NOTE 1) ASSETS
- ------------------------------ --------------- ---------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
CONVERTIBLE PREFERRED STOCK - 19.24%
Auto Parts Original 7,000 Breed Technologies, Inc. 6.50%,
due 11/15/27 $ 137,374 1.79%
--------------
Diversified Manufacturing 5,000 Coltec Capital Trust 144A 5.25%,
due 4/15/28 182,500 2.37%
--------------
Electric Utility Services 4,000 Texas Utilities 9.25%, due
8/16/01 225,500 2.93%
--------------
Insurance 5,000 Conseco Finance Trust IV 7.00%,
due 2/16/01 212,813 2.77%
--------------
Medical - Long Term/Subacute 9,000 Sun Financing I 144A 7.00%, due
5/1/28 102,375 1.33%
--------------
Rental Auto Equipment 6,000 Budget Group Capital Trust 144A
6.25%, due 6/15/05 246,000 3.20%
--------------
Telecommunications - Wireless 5,000 Winstar Communications, Inc.
144A 7.00% due 3/15/10 143,750 1.87%
--------------
Telephone Services 6,000 Nextlink Communications, Inc.
144A 6.50%, due 3/31/10 229,500 2.98%
--------------
TOTAL CONVERTIBLE PREFERRED
Stock (Cost $2,164,353) 1,479,813
--------------
<CAPTION>
PRINCIPAL
AMOUNT ($)
- ------------------------------ --------------- ---------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 18.32%
Electric Utility Services 500,000 CalEnergy Co., Inc. 8.48%, due
9/15/28 520,625 6.77%
--------------
Real Estate - Commercial 500,000 BF Saul REIT 144A 9.75%, due
4/1/08 416,250 5.41%
--------------
Telephone Services 500,000 Level 3 Communications, Inc.
144A 9.125%, due 5/1/08 472,500 6.14%
--------------
TOTAL CORPORATE BONDS
(Cost $1,497,971) 1,409,375
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT OCTOBER 31, 1998
VALUE % OF NET
SHARES ISSUES (NOTE 1) ASSETS
- ------------------------------ --------------- ---------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
COMMON STOCKS - 0.14%
Telecommunications - Wireless 399 Winstar Communications, Inc (a)
$ 10,773 0.14%
--------------
TOTAL COMMON STOCK
(Cost $8,653) 10,773
--------------
TOTAL INVESTMENT
PORTFOLIO - 95.77%
(Cost $9,288,337) 7,365,842
--------------
CASH AND OTHER ASSETS LESS
LIABILITIES - 4.23% 325,394
--------------
NET ASSETS - 100.00%
(Applicable to 904,440 shares
outstanding) $7,691,236
==============
Notes:
(a) Non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<S> <C>
ASSETS:
Investments at value (Notes 1 and 4):
Unaffiliated issuers (identified cost of $9,288,337) $7,365,842
Cash (Note 1) 220,256
Receivable for fund shares sold 58,710
Interest receivable 106,000
Deferred organizational costs (Note 1) 12,865
Other assets 8,002
----------
Total assets 7,771,675
----------
LIABILITIES:
Payable for fund shares redeemed 15,031
Payable to investment adviser 5,610
Accounts payable and accrued expenses 59,798
----------
Total liabilities 80,439
----------
Net assets $7,691,236
==========
SUMMARY OF NET ASSETS:
Common stock, unlimited shares authorized, no par value,
904,440 shares outstanding $9,609,490
Accumulated undistributed net investment income 54,866
Accumulated net realized losses from investment transactions (Note 8) (50,625)
Net unrealized depreciation of investments (1,922,495)
----------
Net assets applicable to capital shares outstanding $7,691,236
==========
Net asset value, offering and redemption price per share $8.50
=====
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 31, 1998*
<S> <C>
INVESTMENT INCOME:
Interest $ 400,869
Dividends 54,379
-----------
Total investment income 455,248
-----------
EXPENSES:
Investment advisory fees (Note 3) 50,472
Directors' fees and expenses 43,204
Administration fees (Note 3) 28,253
Registration and filing fees 23,756
Auditing and tax consulting fees 20,500
Transfer agent fees 18,939
Accounting services 18,622
Reports to shareholders 10,554
Custodian fees 5,138
Amortization of organizational expenses (Note 1) 2,135
Miscellaneous expenses 2,104
-----------
Total operating expenses 223,677
-----------
Expenses waived and reimbursed (Note 3) (117,110)
-----------
Net expenses 106,567
-----------
Net investment income 348,681
-----------
REALIZED AND UNREALIZED LOSSES ON INVESTMENTS:
Net realized losses on investments (50,625)
Net change in unrealized depreciation on investments (1,922,495)
-----------
Net realized and unrealized losses on investments (1,973,120)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,624,439)
===========
* The Fund commenced investment operations on February 12, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
ENDED 10/31/98*
<S> <C>
OPERATIONS:
Net investment income $ 348,681
Net realized losses on investments (50,625)
Net change in unrealized depreciation on investments (1,922,495)
-----------
Net decrease in net assets resulting from operations (1,624,439)
-----------
DISTRIBUTIONS:
Dividends to shareholders from net investment income (295,950)
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 12,705,359
Net asset value of shares issued in reinvestment of
dividends and distributions 266,886
Cost of shares redeemed (3,360,620)
-----------
Net increase in net assets resulting from capital share transactions 9,611,625
-----------
Net increase in net assets 7,691,236
Net assets at beginning of period 0
-----------
Net assets at end of period (including undistributed net investment
income of $54,866) $7,691,236
==========
* The Fund commenced investment operations February 12, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
FINANCIAL HIGHLIGHTS
Selected data (for a share outstanding throughout the period) and ratios are as
follows:
FOR THE
PERIOD
ENDED
10/31/98*
<S> <C>
Net Asset Value, Beginning of Period $10.00
------
Income (losses) from Investment Operations:
Net investment income .34
Net loss on securities (both realized and unrealized) (1.56)
------
Total from Investment Operations (1.22)
------
Less Distributions:
Dividends from net investment income (.28)
------
Net Asset Value, End of Period $ 8.50
======
Total Return (since inception) (12.39%)1
Ratios/Supplemental Data:
Net Assets, End of period (in thousands) $7,691
Ratio of Expenses to Average Net Assets
Before expense reimbursement 3.99%2
After expense reimbursement 1.90%2
Ratio of Net Income to Average Net Assets
Before expense reimbursement 4.13%2
After expense reimbursement 6.22%2
Portfolio Turnover Rate 38%1
1 Not Annualized
2 Annualized
* The Fund commenced investment operations February 12, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
11
<PAGE>
PERFORMANCE INFORMATION
(Unaudited)
PERFORMANCE ILLUSTRATIONS
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THIRD AVENUE HIGH YIELD FUND AND THE MERRILL LYNCH HIGH YIELD
MASTER II INDEX AND THE MERRILL LYNCH INDEX OF
ALL CONVERTIBLES, SPECULATIVE QUALITY
Total Return Since Inception
-12.39%
[The following table represents a chart in the printed piece.]
TAHYF Merrill Lynch Merrill Lynch
High Yield Index of all Convertibles,
Master II Index Speculative Quality
2/12/98 $10,000.00 $10,000.00 $10,000.00
10/31/98 8,761.00 9,621.00 9,293.00
- --------------------------------------------------------------------------------
* Period beginning February 12, 1998 (Third Avenue High Yield Fund's
commencement of operations)
As with all mutual funds, past performance does not indicate future results.
12
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Third Avenue Trust (the "Trust") is an open-end, non-diversified management
investment company organized as a Delaware business trust pursuant to a Trust
Instrument dated October 31, 1996. The Trust currently consists of four separate
investment series: Third Avenue Value Fund, Third Avenue Small-Cap Value Fund,
Third Avenue High Yield Fund and Third Avenue Real Estate Value Fund (each a
"Fund" and, collectively, the "Funds"). At the close of business on March 31,
1997, shareholders of Third Avenue Value Fund, Inc., a Maryland corporation
which was incorporated on November 27, 1989 and began operations on October 9,
1990, became shareholders of Third Avenue Value Fund. Third Avenue Small-Cap
Value Fund commenced investment operations on April 1, 1997. Third Avenue High
Yield Fund commenced investment operations on February 12, 1998. Third Avenue
Real Estate Value Fund commenced investment operations on September 17, 1998.
Third Avenue Value Fund, Third Avenue Small-Cap Value Fund and Third Avenue Real
Estate Value Fund seek to achieve their investment objectives of long-term
capital appreciation by adhering to a strict value discipline when selecting
securities. While Third Avenue Value Fund, Third Avenue Small-Cap Value Fund and
Third Avenue Real Estate Value Fund pursue a capital appreciation objective,
each Fund has a distinct investment approach. Third Avenue High Yield Fund seeks
to achieve its objective of maximizing total return through a combination of
income and capital appreciation by adhering to a similar value discipline in
selecting securities.
Third Avenue Value Fund seeks to achieve its objective by investing in a
portfolio of equity securities of well-financed companies believed to be priced
below their private market values and debt securities providing strong,
protective covenants and high, effective yields.
Third Avenue Small-Cap Value Fund seeks to achieve its objective by investing at
least 65% of its assets in a portfolio of equity securities of well-financed
companies having market capitalizations of below $1 billion at the time of
investment and believed to be priced below their private market values.
Third Avenue High Yield Fund seeks to achieve its objective by investing at
least 65% of its assets in a portfolio of non-investment grade fixed income or
other debt securities of companies whose capital structures, in the opinion of
EQSF Advisers, Inc., the Fund's investment adviser, have a market value priced
below their private market values.
Third Avenue Real Estate Value Fund seeks to achieve its objective by investing
at least 65% of its total assets in a portfolio of equity and debt securities of
well-financed companies in the real estate industry or related industries or
that own significant real estate assets at the time of investment.
ACCOUNTING POLICIES:
The policies described below are followed consistently by the Funds in the
preparation of their financial statements in conformity with generally accepted
accounting principles.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures.
Actual results could differ from those estimates.
SECURITY VALUATION:
Securities traded on a principal stock exchange or the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") are valued at the last
quoted sales price or, in the absence of closing sales prices on that day,
securities are valued at the mean between the closing bid and asked price.
Temporary cash investments are valued at cost, plus accrued interest, which
approximates market.
Short-
13
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
term securities with original or remaining maturities in excess of 60 days are
valued at the mean of their quoted bid and asked prices. Short-term securities
with 60 days or less to maturity are amortized to maturity based on their cost
if acquired within 60 days of maturity, or if already held by a Fund on that
day, based on the value determined on that day.
The Funds may invest up to 15% of their total assets in securities which are not
readily marketable, including those which are restricted as to disposition under
applicable securities laws ("restricted securities"). Restricted securities and
other securities and assets for which market quotations are not readily
available are valued at "fair value", as determined in good faith by the Board
of Trustees of the Funds, although actual evaluations may be made by personnel
acting under procedures established by the Board of Trustees. At October 31,
1998, such securities had a total fair value of $114,574,191 or 7.44% of net
assets of Third Avenue Value Fund and $4,268,404 or 3.06% of net assets of Third
Avenue Small-Cap Value Fund. Among the factors considered by the Board of
Trustees in determining fair value are the type of security, trading in
unrestricted securities of the same issuer, the financial condition of the
issuer, the Fund's cost at the date of purchase, a percentage of the Fund's
beneficial ownership of the issuer's common stock and debt securities, the
operating results of the issuer, the discount from market value of any similar
unrestricted securities of the issuer at the time of purchase and liquidation
values of the issuer. The fair values determined in accordance with these
procedures may differ significantly from the amounts which would be realized
upon disposition of the securities. Restricted securities often have costs
associated with subsequent registration. The restricted securities currently
held by the Funds are not expected to incur any future registration costs.
SECURITY TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date and interest income, including, where
applicable, amortization of premium and accretion of discount on investments, is
accrued daily, except when collection is not expected. Realized gains and losses
from securities transactions are reported on an identified cost basis.
FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS:
The books and records of the Funds are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars as follows:
o Investments: At the prevailing rates of exchange on the valuation date.
o Investment transactions and investment income: At the prevailing rates of
exchange on the date of such transactions.
Although the net assets of the Funds are presented at the foreign exchange rates
and market values at the close of the period, the Funds do not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Funds do not isolate
the effect of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) are
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances.
FOREIGN CURRENCY SWAP CONTRACTS:
Third Avenue Value Fund has entered into foreign currency swaps to exchange
Japanese yen for U.S. dollars. A swap is an agreement that obligates two parties
to exchange a series of cash flows at specified intervals based upon or
calculated by reference to changes in specified prices or rates for a specified
amount of an underlying asset. These swaps are used to hedge the Fund's exposure
to Japanese yen denominated securities and the Japanese market. The payment
flows are usually netted against each other, with the difference being paid by
one party to the other.
Fluctuations in the value of open swap contracts are recorded daily as net
unrealized gains or losses. The Fund realizes a gain or loss upon termination or
reset of the contracts. The statement of operations reflects
14
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
net realized and unrealized gains (losses) on these contracts. At October
31, 1998, the Fund had an outstanding foreign currency swap contract with Bear
Stearns that commits the Fund to pay 5.9 billion yen in exchange for 50 million
U.S. dollars on October 26, 1999. The Fund will pay 0.14% interest on the 5.9
billion yen and Bear Stearns will pay 4.63% interest on the 50 million U.S.
dollars.
FORWARD FOREIGN CURRENCY CONTRACTS:
Third Avenue Value Fund and Third Avenue Small-Cap Value Fund engage in
portfolio hedging with respect to changes in currency exchange rates by entering
into forward foreign currency contracts to sell currencies. A forward currency
contract is a commitment to purchase or sell a foreign currency at a future date
at a negotiated forward rate. Fluctuations in the value of forward foreign
currency contracts are recorded daily as net unrealized gains or losses. The
Funds realize a gain or loss upon settlement of contracts.
FOREIGN CURRENCY OPTION CONTRACTS:
An option contract gives the buyer the right, but not the obligation to buy
(call) or sell (put) an underlying item at a fixed exercise price on a certain
date or during a specified period. The use of foreign currency put option
strategies provide the Funds with protection against a rally in the U.S. dollar
versus the foreign currency while retaining the benefits (net of the option
cost) of appreciation in foreign currency on equity holdings.
LOANS OF PORTFOLIO SECURITIES:
Third Avenue Small-Cap Value Fund, Third Avenue High Yield Fund and Third Avenue
Real Estate Value Fund loaned securities during the period to certain brokers,
with the Funds' custodian acting as lending agent. Upon such loans, the Funds
receive collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees, which are included in interest income in the
Statements of Operations. On a daily basis it is the Funds' policy to monitor
the market value of securities loaned and maintain collateral against the
securities loaned in an amount not less than the value of the securities loaned.
The Funds may receive collateral in the form of cash or other eligible
securities. Risks may arise upon entering into securities lending to the extent
that the value of the collateral is less than the value of the securities loaned
due to changes in the value of collateral or the loaned securities.
During the period ending October 31, 1998, the following Funds had securities
lending income included in interest income totaling:
FUND
Third Avenue Small-Cap Value Fund $24,645
Third Avenue High Yield Fund 2,203
Third Avenue Real Estate Value Fund 33
The value of loaned securities and related collateral outstanding at October 31,
1998, was as follows:
VALUE OF SECURITIES VALUE OF
FUND LOANED COLLATERAL
Third Avenue Small-Cap Value Fund $7,934,718 $8,735,664
The collateral consisted of cash which was invested in repurchase agreements
with Bear Stearns due November 2, 1998 collateralized by Nomura Asset Securities
Corp. Commercial Paper.
REPURCHASE AGREEMENTS:
Securities pledged as collateral for repurchase agreements are held by the
Funds' custodian bank until maturity of the repurchase agreement. Provisions in
the agreements ensure that the market value of the collateral is at least equal
to the repurchase value in the event of default. In the event of default, the
Funds have the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under
15
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
certain circumstances, in the event of default or bankruptcy by the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
ORGANIZATIONAL COSTS:
Organizational costs of $56,000 for Third Avenue Small-Cap Value Fund, and
$15,000 for Third Avenue High Yield Fund are being amortized on a straight line
basis over five years from commencement of operations.
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income paid to shareholders and distributions from
realized gains on sales of securities paid to shareholders are recorded on the
ex-dividend date. The amount of dividends and distributions from net investment
income and net realized capital gains are determined in accordance with Federal
income tax regulations which may differ from generally accepted accounting
principals. These "book/tax" differences are either temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their tax-basis treatment.
Temporary differences do not require reclassification.
For the year ended October 31, 1998, permanent differences were reclassified as
shown below:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
TO ACCUMULATED
INCREASE (DECREASE) UNDISTRIBUTED
TO ACCUMULATED NET REALIZED INCREASE
UNDISTRIBUTED GAIN (LOSS) ON (DECREASE) TO
NET INVESTMENT INVESTMENTS AND ADDITIONAL
INCOME (LOSS) FOREIGN CURRENCY PAID-IN-CAPITAL
<S> <C> <C> <C>
Third Avenue Value Fund $403,155 $(376,815) $(26,340)
Third Avenue Small-Cap Value Fund (5,424) 5,424 --
Third Avenue High Yield Fund 2,135 -- (2,135)
Third Avenue Real Estate Value Fund 5,000 -- (5,000)
</TABLE>
FEDERAL INCOME TAXES:
The Funds have complied and intend to continue to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies.
Therefore, no Federal income tax provision is required.
CASH AND CASH EQUIVALENTS:
The Funds have defined cash and cash equivalents as cash in interest bearing and
non-interest bearing accounts.
EXPENSE ALLOCATION:
Expenses attributable to a specific Fund are charged to that Fund. Expenses
attributable to the Trust are allocated using the ratio of each Fund's net
assets relative to the total net assets of the Trust, unless otherwise
specified.
TRUSTEES FEES:
The Trust does not pay any fees to its officers for their services as such, but
does pay Trustees who are not affiliated with the Investment Adviser a fee of
$1,500 per Fund for each meeting of the Board of Trustees that they attend, in
addition to reimbursing all Trustees for travel and incidental expenses incurred
by them in connection with their attendance at Board meetings. The Trust also
pays the non-interested Trustees an annual stipend of $2,000 per Fund in January
of each year for the previous year's service.
16
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
2. SECURITIES TRANSACTIONS
PURCHASES AND SALES/CONVERSIONS:
The aggregate cost of purchases, and aggregate proceeds from sales and
conversions of investments, excluding short-term investments, from unaffiliated
and affiliated issuers (as defined in the Investment Company Act of 1940, as
amended, ownership of 5% or more of the outstanding common stock of the issuer)
for the period ended October 31, 1998 were as follows:
PURCHASES SALES
Third Avenue Value Fund:
Affiliated $212,839,617 $28,886,241
Unaffiliated 887,357,535 326,424,420
Third Avenue Small-Cap Value Fund:
Affiliated 10,989,156 --
Unaffiliated 73,378,406 6,824,247
Third Avenue High Yield Fund:
Unaffiliated 12,101,863 2,835,350
Third Avenue Real Estate Value Fund:
Unaffiliated 411,942 --
At October 31, 1998, cost and gross unrealized appreciation and gross unrealized
depreciation, for Federal income tax purposes were as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS APPRECIATION/
COST APPRECIATION DEPRECIATION DEPRECIATION
<S> <C> <C> <C> <C>
Third Avenue Value Fund $1,285,195,721 $385,506,479 $(127,751,143) $257,755,336
Third Avenue Small-Cap Value Fund 153,120,656 13,402,776 (32,761,556) (19,358,780)
Third Avenue High Yield Fund 9,288,337 78,460 (2,000,955) (1,922,495)
Third Avenue Real Estate Value Fund 410,411 25,014 (5,608) 19,406
</TABLE>
3. INVESTMENT ADVISORY SERVICES AND SERVICE FEE AGREEMENT
The Funds have an Investment Advisory Agreement with EQSF Advisers, Inc. (the
"Adviser") for investment advice and certain management functions. The terms of
the Investment Advisory Agreement provide for a monthly fee of 1/12 of 0.90% (an
annual fee of 0.90%) of the total average daily net assets of each Fund, payable
each month. Additionally, under the terms of the Investment Advisory Agreement,
the Adviser pays certain expenses on behalf of the Funds, which are reimbursable
by the Funds, including salaries of non-officer employees and other
miscellaneous expenses. Amounts reimbursed with respect to non-officer salaries
are included under the caption Administration fees. At October 31, 1998, Third
Avenue Value Fund, Third Avenue Small-Cap Value Fund, Third Avenue High Yield
Fund and Third Avenue Real Estate Value Fund had payables to affiliates of
$14,917, $3,809, $1,728 and $1,711, respectively, for reimbursement of expenses
paid by such affiliates. Whenever, in any fiscal year, a Fund's normal operating
expenses, including the investment advisory fee, but excluding brokerage
commissions and interest and taxes, exceeds 1.90% of the first $100 million of
the Funds' average daily net assets, and 1.50% of average daily net assets in
excess of $100 million, the Adviser is obligated to waive investment advisory
fees or reimburse the Fund in an amount equal to that excess. Such waived and
reimbursed expenses may be paid to the Adviser during the following three year
period to the extent that the payment of such expenses would not cause the Funds
to exceed the preceding limitations. No expense reimbursement was required for
Third Avenue Value Fund or Third Avenue Small-Cap Value Fund for the year ended
October 31, 1998. The Adviser waived fees of $50,472 and $568, and reimbursed
$66,638 and $49,905, for Third Avenue High Yield Fund and Third Avenue Real
Estate Value Fund, respectively, for the period ended October 31, 1998.
17
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
The Trust has entered into shareholder servicing agreements with certain service
agents for which the service agents receive a fee of up to 0.10% of the average
daily net assets invested into the Trust by the agent's customers in an omnibus
account. In exchange for these fees, the service agents render to such customers
various administrative services which the Trust would otherwise be obligated to
provide at its own expense.
4. RELATED PARTY TRANSACTIONS
BROKERAGE COMMISSIONS:
Martin J. Whitman, the Chairman and a director of the Funds, is the Chairman and
Chief Executive Officer of M.J. Whitman Holding Corp., which is the parent of
both M.J. Whitman, Inc., a registered broker-dealer and M.J. Whitman Senior Debt
Corp., a dealer in the trading of bank debt and other private claims. For the
period ended October 31, 1998, the Funds incurred total brokerage commissions,
which includes commissions earned by M.J. Whitman and M.J. Whitman Senior Debt
Corp. as follows:
<TABLE>
<CAPTION>
M.J. WHITMAN
FUND TOTAL COMMISSIONS M.J. WHITMAN SR. DEBT CORP.
- ---- ----------------- ------------ --------------
<S> <C> <C> <C>
Third Avenue Value Fund $1,261,197 $1,026,034 $38,637
Third Avenue Small-Cap Value Fund 205,990 113,016 --
Third Avenue Real Estate Value Fund 1,670 1,470 --
</TABLE>
INVESTMENTS IN AFFILIATES:
A summary of the Funds' transactions in securities of affiliated issuers for the
year ended October 31, 1998 is set forth below:
<TABLE>
<CAPTION>
THIRD AVENUE VALUE FUND
SHARES/ SHARES/ DIVIDEND/INTEREST
PRINCIPAL SHARES/ PRINCIPAL INCOME
HELD AT PRINCIPAL SHARES HELD AT VALUE AT NOV. 1, 1997 -
NAME OF ISSUER: OCT. 31, 1997 PURCHASED SOLD OCT. 31, 1998 OCT. 31, 1998 OCT. 31, 1998
- --------------- ------------- --------- ---- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ACMAT Corp. Class A 189,978 10,700 -- 200,678 $3,085,424 --
ADE Corp. -- 728,900 -- 728,900 7,289,000 --
American Physicians
Service Group, Inc. 200,000 909,900 -- 1,109,900 5,688,238 --
Avatar Holdings, Inc. -- 474,300 -- 474,300 8,596,687 --
Carver Bancorp, Inc. 218,500 -- -- 218,500 1,966,500 $ 10,925
CGA Group, Ltd. 838,710 -- -- 838,710 -- --
CGA Group, Ltd., Series A 207,969 30,888 -- 238,857 5,971,427 772,200
CGA Group, Ltd., Series B 171,429 -- -- 171,429 2,507,999 --
CGA Special Account
Trust $ 6,428,575 -- -- $6,428,575 6,428,575 350,780
C.P. Clare Corp. -- 1,004,500 -- 1,004,500 5,022,500 --
Danielson Holding Corp. 803,669 -- -- 803,669 3,164,447 --
Electro Scientific
Industries, Inc. 555,700 1,044,600 -- 1,600,300 40,207,537 --
Electroglas, Inc. 1,070,000 776,200 -- 1,846,200 23,192,887 --
First American Financial
Corp. 814,700 3,666,150* 666,150 3,000,000 93,937,500 709,555
FSI International, Inc. 1,534,250 1,286,650 -- 2,820,900 18,335,850 --
Interphase Corp. 300,000 -- -- 300,000 1,893,750 --
Mountbatten, Inc. 293,000 -- 293,000 -- -- --
Piper Jaffray Companies
Inc. 146,300 -- 146,300 -- -- --
Protocol Systems, Inc. -- 912,900 -- 912,900 7,246,144 --
Ryan, Beck & Co., Inc. 161,941 -- 161,941 -- -- 3,239
Silicon Valley Group, 551,900 3,682,900 -- 4,234,800 54,258,375 --
Inc.
SpeedFam International,
Inc. -- 1,605,000 -- 1,605,000 25,880,625 --
18
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
<CAPTION>
SHARES/ SHARES/ DIVIDEND/INTEREST
PRINCIPAL SHARES/ PRINCIPAL INCOME
HELD AT PRINCIPAL SHARES HELD AT VALUE AT NOV. 1, 1997 -
NAME OF ISSUER: OCT. 31, 1997 PURCHASED SOLD OCT. 31, 1998 OCT. 31, 1998 OCT. 31, 1998
- --------------- ------------- --------- ---- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stewart Information
Services Corp. 975,700 -- -- 975,700 48,906,963 273,196
St. George Holdings, Ltd.
Class A 912,442 -- -- 912,442 91,244 920
St. George Holdings, Ltd.
Class B 7,549 -- -- 7,549 755 --
Tecumseh Products Co.
Class A 33,200 92,200 -- 125,400 6,520,800 137,820
Tecumseh Products Co.
Class B 358,500 58,800 -- 417,300 21,699,600 483,120
Tejon Ranch Co. 3,045,508 -- -- 3,045,508 60,856,925 152,275
Veeco Instruments, Inc. 218,700 444,500 -- 663,200 19,688,750 --
Vertex Communications
Corp. 306,900 -- -- 306,900 4,948,763 --
------------ ----------
Total Affiliates $477,387,264 $2,894,030
============ ==========
* Increase due to a 3:2 stock split on 1/15/98, and a 3:1 stock split on
7/17/98.
</TABLE>
<TABLE><CAPTION>
THIRD AVENUE SMALL-CAP VALUE FUND
SHARES/ SHARES/ DIVIDEND/INTEREST
PRINCIPAL SHARES/ PRINCIPAL INCOME
HELD AT PRINCIPAL SHARES HELD AT VALUE AT NOV. 1, 1997 -
NAME OF ISSUER: OCT. 31, 1997 PURCHASED SOLD OCT. 31, 1998 OCT. 31, 1998 OCT. 31, 1998
- --------------- ------------- --------- ---- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
C.P. Clare Corp. -- 520,000 -- 520,000 $2,600,000 --
SpecTran Corp. 88,800 401,800 -- 490,600 2,361,012 --
---------- --
Total Affiliates $4,961,012 $0
========== ==
</TABLE>
5. CAPITAL SHARE TRANSACTIONS
Each Fund is authorized to issue an unlimited number of shares of beneficial
interest with no par value.
Transactions in capital stock were as follows:
<TABLE><CAPTION>
THIRD THIRD AVENUE
THIRD AVENUE AVENUE HIGH REAL ESTATE
THIRD AVENUE VALUE FUND SMALL-CAP VALUE FUND YIELD FUND VALUE FUND
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE FOR THE PERIOD FOR THE
ENDED ENDED ENDED PERIOD ENDED ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1998 1998 1998 1998 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Increase in Fund shares:
Shares outstanding at
beginning of period 51,537,358 23,364,688 8,670,943 -- -- --
Shares sold 19,502,035 34,497,303 11,057,081 9,845,798 1,266,191 69,355
Shares reinvested
from dividends and
distributions 877,124 584,725 46,997 -- 29,079 --
Shares redeemed (20,835,346) (6,909,358) (6,678,615) (1,174,855) (390,830) --
----------- ---------- ---------- ---------- --------- ------
Net increase (decrease)
in Fund shares (456,187) 28,172,670 4,425,463 8,670,943 904,440 69,355
----------- ---------- ---------- ---------- --------- ------
Shares outstanding at
end of period 51,081,171 51,537,358 13,096,406 8,670,943 904,440 69,355
=========== ========== ========== ========== ========= ======
</TABLE>
6. COMMITMENTS
Third Avenue Value Fund has committed a $5,000,000 capital investment to Head
Insurance Investors LP of which $3,126,204 has been funded as of October 31,
1998. Securities valued at $1,938,795 have been
19
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
segregated to meet the requirements of this commitment. This commitment may
be payable upon demand of Head Insurance Investors LP.
7. RISKS RELATING TO CERTAIN INVESTMENTS
FOREIGN SECURITIES:
The Funds intend to limit their investments in foreign securities to companies
issuing U.S. dollar-denominated American Depository Receipts or who otherwise
comply with Securities & Exchange Commission ("SEC") disclosure requirements.
Investments in the securities of foreign issuers may involve investment risks
different from those of U.S. issuers including possible political or economic
instability of the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of currency exchange controls, the
possible imposition of foreign withholding tax on the dividend income and
interest income payable on such instruments, the possible establishment of
foreign controls, the possible seizure or nationalization of foreign deposits or
assets, or the adoption of other foreign government restrictions that might
adversely affect the foreign securities held by the Funds. Foreign securities
may also be subject to greater fluctuations in price than securities of domestic
corporations or the U.S. Government.
FOREIGN CURRENCY CONTRACTS
The Funds may enter into foreign currency swap contracts, forward foreign
currency contracts and foreign currency option contracts. Such contracts are
over the counter contracts negotiated between two parties. There are both market
risks and credit risks associated with such contracts. Market risks are
generally limited to the movement in the value of the foreign currency relative
to the U.S. dollar. Credit risks typically involve the risk that the
counterparty to the transaction will be unable to meet the terms of the
contract. Foreign currency swap contracts and forward foreign currency contracts
may have risk which exceeds the amounts reflected on the statements of assets
and liabilities.
HIGH YIELD DEBT:
Third Avenue Value Fund and Third Avenue High Yield Fund currently invest in
high yield lower grade debt. The market values of these higher yielding debt
securities tend to be more sensitive to economic conditions and individual
corporate developments than those of higher rated securities. In addition, the
secondary market for these bonds is generally less liquid.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS:
Third Avenue Value Fund and Third Avenue High Yield Fund invest in loans and
other direct debt instruments issued by a corporate borrower to another party.
These loans represent amounts owed to lenders or lending syndicates (loans and
loan participations) or to other parties. Direct debt instruments may involve a
risk of loss in case of default or insolvency of the borrower and may offer less
legal protection to the Funds in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. The markets in loans are not regulated by
federal securities laws or the SEC.
TRADE CLAIMS:
Third Avenue Value Fund invests in trade claims. Trade claims are interests in
amounts owed to suppliers of goods or services and are purchased from creditors
of companies in financial difficulty. An investment in trade claims is
speculative and carries a high degree of risk. Trade claims are illiquid
securities which generally do not pay interest and there can be no guarantee
that the debtor will ever be able to satisfy the obligation on the trade claim.
The markets in trade claims are not regulated by federal securities laws or the
SEC. Because trade claims are unsecured, holders of trade claims may have a
lower priority in terms of payment than certain other creditors in a bankruptcy
proceeding.
8. CAPITAL LOSS CARRYFORWARDS
At October 31, 1998, the following Funds had available capital loss
carryforwards to offset future net capital gains, to the extent provided by
regulations, through October 31, 2006:
20
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
FUND
Third Avenue Value Fund $15,833,338
Third Avenue Small-Cap Value Fund 592,923
Third Avenue High Yield Fund 50,625
Third Avenue Real Estate Fund 1,531
To the extent that capital loss carryforwards are used to offset any future
capital gains realized during the carryover period as provided by U.S. Federal
income tax regulations, no capital gains tax liability will be incurred by a
Fund for gains realized and not distributed. To the extent that capital gains
are offset, such gains will not be distributed to the shareholders.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDERS OF
THIRD AVENUE TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Third Avenue Value Fund, Third
Avenue Small-Cap Value Fund, Third Avenue High Yield Fund, and Third Avenue Real
Estate Value Fund (together the "Funds," four series comprising Third Avenue
Trust) at October 31, 1998 and the results of each of their operations, the
changes in each of their net assets and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodians and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 14, 1998
22
<PAGE>
THIRD AVENUE TRUST
FEDERAL TAX STATUS OF DIVIDENDS (UNAUDITED)
The following information represents the tax status of dividends and
distributions paid by the Funds during the fiscal year ended October 31, 1998.
This information is presented to meet regulatory requirements and no current
action on your part is required.
THIRD AVENUE VALUE FUND
Of the $0.572 per share paid to you in cash or reinvested into your account for
the fiscal year ended October 31, 1998, $0.411 was derived from net investment
income, $0.049 from short-term capital gains which are taxed as ordinary income
and $0.112 from long term capital gains. 30.15% of the ordinary income
distributed qualifies for the Corporate Dividends Received Deduction.
THIRD AVENUE SMALL-CAP VALUE FUND
Of the $0.062 per share paid to you in cash or reinvested into your account for
the fiscal year ended October 31, 1998, the entire amount was derived from net
investment income. 42.46% of the ordinary income distributed qualifies for the
Corporate Dividends Received Deduction.
THIRD AVENUE HIGH YIELD FUND
Of the $0.280 per share paid to you in cash or reinvested into your account for
the fiscal period ended October 31, 1998, the entire amount was derived from net
investment income. 15.50% of the ordinary income distributed qualifies for the
Corporate Dividends Received Deduction.
23
<PAGE>
BOARD OF TRUSTEES
Phyllis W. Beck
Lucinda Franks
Gerald Hellerman
Marvin Moser
Myron M. Sheinfeld
Martin Shubik
Charles C. Walden
Barbara Whitman
Martin J. Whitman
OFFICERS
Martin J. Whitman
Chairman, Chief Executive Officer
David M. Barse
President, Chief Operating Officer
Michael Carney
Chief Financial Officer, Treasurer
Kerri Weltz, Assistant Treasurer
Ian M. Kirschner, General Counsel and Secretary
TRANSFER AGENT
First Data Investor Services Group, Inc.
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-4600
(800) 443-1021 (toll-free)
INVESTMENT ADVISER
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
CUSTODIANS
THIRD AVENUE VALUE FUND THIRD AVENUE SMALL-CAP VALUE FUND
North American Trust Company THIRD AVENUE HIGH YIELD FUND
225 Broadway THIRD AVENUE REAL ESTATE VALUE FUND
San Diego, CA 92101-4492 Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
THIRD AVENUE FUNDS
767 THIRD AVENUE
NEW YORK, NY 10017-2023
Phone (212) 888-5222
Toll Free (800) 443-1021
Fax (212) 888-6757
www.thirdavenuefunds.com
24
<PAGE>
THIRD AVENUE HIGH YIELD FUND
Dear Fellow Shareholders:
At April 30, 1999, the unaudited net asset value attributable to the 916,197
common shares outstanding of the Third Avenue High Yield Fund (the "Fund") was
$9.41 per share. On March 31, 1999, the most recent dividend date, the Fund paid
$0.167 per share in dividends, representing income received from the Fund's
holdings of fixed income securities. Since the end of the Fund's last fiscal
year, ending on October 31, 1998, when the Fund's net asset value was $8.50, a
total of $0.35 per share has been paid in dividends. On January 31, 1999, the
last day of the Fund's first fiscal quarter, the net asset value per share was
$9.58. At May 20, 1999, the net asset value per share was $9.64.
QUARTERLY ACTIVITY
During the second quarter of fiscal 1999, the Fund made small reductions in
three holdings, and established three new positions, as shown below.
PAR VALUE
OR NUMBER OF SHARES REDUCTIONS IN EXISTING POSITIONS
$100,000 Alpharma, Inc. 144A 5.75% due 4/01/05
$100,00 Credence Systems Corp. 5.25% due 9/15/02
1,000 shares Nextlink Communications, Inc. 144A 6.50%,
due 3/31/10
These reductions were made in order to better reflect what we thought were
appropriate weightings for these holdings, given their substantial appreciation
at the time of their sales in the fiscal year. We continue to regard the
business prospects of these companies favorably, and expect to retain our still
significant positions.
Alpharma is a generic pharmaceutical company which develops and sells a wide
range of human and animal health products worldwide, and has grown steadily
through development of new products and selected acquisitions.
Credence Systems makes automatic test equipment and software used in the
production of semiconductors. It sells its products worldwide to semiconductor
makers, and after some delays in the introduction of new products, should have a
good increase in sales as these products have been received quite favorably by
its customers. Its equipment is increasingly focused on the most rapidly growing
segments of the semiconductor market: those used in telecommunications, internet
applications, media and consumer devices.
NEXTLINK is a new telecommunications company established in 1996 to provide
local, long distance and data communication services. The company was formed to
take advantage of the many growth opportunities in the industry following the
federal telecommunication act of 1996 which opened competition in
telecommunication services to new entrants.
<PAGE>
PAR VALUE
OR NUMBER OF SHARES NEW POSITIONS ACQUIRED
$500,000 Webb (Del E.) Corp. 10.25% due 2/15/10
4,000 shares KN Energy, Inc. 8.25% due 11/30/01
$250,000 NCI Building Systems, Inc. 144A 9.25% due 5/01/09
Del Webb is one of the US's biggest residential real estate developers, and the
nation's largest developer of planned age-restricted retirement communities,
with operations primarily in the sunbelt states of Nevada, Arizona, California,
Florida, and South Carolina, as well as in Illinois. Recently, the company has
expanded its development activities to include communities without the age
restrictions. It has an excellent track record, diversified locations, and is
well positioned for the move-up buyer, as well as the active adult market
segment.
KN Energy gathers, processes, stores and transports natural gas, and operates
pipelines in the central and western US. It is the nation's sixth largest
integrated natural gas company. Above-normal winter temperatures have reduced
demand for natural gas, and the resulting depressed prices for gas, along with
low oil prices, have recently caused financial results to decline. However, the
company is well run, has diversified operations, and earnings are expected to
recover with more normal seasonal temperatures and higher energy prices in
general. Recently, Sempra Energy offered to acquire KN Energy. San Diego-based
Sempra has started the process of restructuring, as California begins to
deregulate the retail power market, and has sold some assets, while expanding
further into the gas industry, through its offer to purchase KN Energy. The
credit quality of KN Energy would be improved if the acquisition were made,
since Sempra's corporate debt is A-rated, or one level above that of KN Energy.
NCI Building Systems was substantially expanded a year ago with the acquisition
of a major competitor. The company is one of the largest integrated
manufacturers of metal products for the nonresidential building industry. It
operates in 17 states and Mexico. NCI makes and sells metal components and
engineered building systems such as metal roof and wall systems; overhead,
interior and exterior doors; and related accessories, both to the new
construction and renovation markets. With its recent acquisition, it is now
twice as large as its next competitor, has substantial purchasing power because
of its size in a fragmented market, and has proprietary techniques for producing
higher margin coated metal products. Metal roofing products comprise only 6% of
the $21 billion roofing market, but this segment is growing faster than the
industry as a whole due to low cost, flexibility of use, and improvements in
function and appearance.
PORTFOLIO STRUCTURE
The table below lists our largest sector concentrations for the portfolio as of
April 30, 1999, reflecting our emphasis on industries which we feel represent
attractive value.
INDUSTRY PERCENTAGE OF TOTAL ASSETS
Telecommunications 14.54%
Semiconductor capital equipment 13.66%
Diversified technology 12.33%
Real estate 11.56%
Electric and gas utilities 10.58%
We think the telecommunications industry remains an excellent investment, and
have made a substantial commitment. Lower prices, faster transmission speed, and
greater functionality have dramatically changed the nature of telecommunications
in the last few years, and these trends
2
<PAGE>
should continue into the future. Usage of traditional voice services has
expanded much faster than growth of the general economy, as falling prices have
stimulated demand. In addition, increasing amounts of data are being transported
as information needs grow. New demand for an enlarged range of data, video and
voice services, spawned by ever growing internet usage, has also dramatically
multiplied.
Increased uses of semiconductors in a widening array of products continue to
drive the revenues of technology companies, for both SEMICONDUCTOR CAPITAL
EQUIPMENT issuers, and in other TECHNOLOGY based companies. The capital
equipment sector has bottomed out from a two year cyclical decline in new
capacity, but early indications are that an upswing in new investment is
underway. Technology demand is growing not only from augmenting computer sales,
but also from telecommunications' increased utilization of complex chips, as
discussed above. In addition, industrial processes and consumer products
continue to incorporate more intelligence on chips to increase efficiency and
performance characteristics, and always at continuously declining prices.
We believe increasing use of intelligent silicon has been a big contributor to
the higher productivity of the American worker over the past few years.
Technology comprises an ever larger share of our economic activity, with
constantly falling prices, yet offering much higher functionality. So we think
the Fund should reflect these positive trends through the industries in which we
invest.
We regard the REAL ESTATE sector as undervalued, and therefore we have
moderately increased our exposure to this area, as discussed in the new
purchases section above. Our positive view of real estate is shared by our other
Third Avenue funds, which have also increased their commitments.
Our investment in the ELECTRIC AND GAS UTILITY industry has grown in the
quarter. We consider this sector to be under-appreciated by many investors. We
think that deregulation of the retail market, now proceeding on a state by state
basis, will create opportunities for well-run companies to restructure by
selling under-performing assets, and to increase their investment in activities
which will expand their operations and improve their efficiency.
We want to keep the portfolio positioned in front of these high growth trends,
as well as to emphasize those areas that are undervalued in today's often fickle
and short-term oriented marketplace.
Sincerely,
/s/ Margaret D. Patel
Margaret D. Patel
Portfolio Manager, Third Avenue High Yield Fund
3
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS
AT APRIL 30, 1999
(UNAUDITED)
PRINCIPAL VALUE % OF NET
AMOUNT ($) ISSUES (NOTE 1) ASSETS
- ------------------------------ --------------- ---------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS - 52.46%
Capital Equipment - 450,000 Lam Research Corp. 5.00%,
Semiconductors due 9/1/02 $ 387,000 4.49%
--------------
Computers - Memory Devices 300,000 HMT Technology Corp. 5.75%,
due 1/15/04 111,000 1.29%
--------------
Electric Utility Services 400,000 Itron, Inc. 6.75%, due 3/31/04 286,000 3.32%
--------------
Electronic Components - 325,000 Atmel SA 144A 3.25%, due 6/1/02
Semiconductors 289,656
325,000 Cypress Semiconductors Corp.
6.00%, due 10/1/02 297,781
--------------
587,437 6.81%
--------------
Instrumentation - Electronic 500,000 Credence Systems Corp. 5.25%,
Testing due 9/15/02 418,125 4.85%
--------------
Lasers - Systems/Components 450,000 Cymer, Inc. 3.50%, due
8/6/04 372,375 4.32%
--------------
Medical - Generic Drugs 275,000 Alpharma, Inc. 144A 5.75%, due
4/1/05 335,156 3.89%
--------------
Medical - Hospitals 625,000 Columbia\HCA Medical Care,
Int'l. 6.75%, due 10/1/06 532,813 6.18%
--------------
Medical Management Services 505,000 PhyMatrix Corp. 6.75%, due
6/15/03 238,613 2.77%
--------------
Networking 425,000 Adaptec, Inc. 4.75%, due 2/1/04 364,437 4.23%
--------------
Oil/Gas Exploration 300,000 Range Resources Corp. 6.00%, due
2/1/07 140,250
300,000 Pogo Producing Co. 5.50%, due
6/15/06 240,000
--------------
380,250 4.41%
--------------
Oil Field Services 300,000 Key Energy Group, Inc. 5.00%,
due 9/15/04 175,875 2.04%
--------------
Telecommunications - Wireless 500,000 P-Com, Inc 4.25%, due
11/1/02 (b) 333,125 3.86%
--------------
TOTAL CONVERTIBLE BONDS
(Cost $5,386,485) 4,522,206
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 1999
(UNAUDITED)
VALUE % OF NET
SHARES ISSUES (NOTE 1) ASSETS
- ------------------------------ --------------- ---------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
CONVERTIBLE PREFERRED STOCK - 21.04%
Auto Parts Original 7,000 Breed Technologies, Inc. 6.50%,
due 11/15/27 $ 73,500 0.85%
--------------
Diversified Manufacturing 5,000 Coltec Capital Trust 144A 5.25%,
due 4/15/28 236,250 2.74%
--------------
Electric Utility Services 4,000 KN Energy, Inc. 8.25%, due
11/30/01 137,000
4,000 Texas Utilities 9.25%, due
8/16/01 205,750
--------------
342,750 3.98%
--------------
Insurance 5,000 Conseco Finance Trust IV 7.00%,
due 2/16/01 210,313 2.44%
--------------
Medical - Long Term/Subacute 9,000 Sun Financing I 144A 7.00%, due
5/1/28 16,875 0.20%
--------------
Rental Auto Equipment 6,000 Budget Group Capital Trust 144A
6.25%, due 6/15/05 223,500 2.59%
--------------
Telecommunications - Wireless 5,000 Winstar Communications, Inc.
144A 7.00% due 3/15/10 283,125 3.28%
--------------
Telephone Services 5,000 NEXTLINK Communications, Inc.
144A 6.50%, due 3/31/10 427,500 4.96%
--------------
TOTAL CONVERTIBLE PREFERRED
Stock (Cost $2,248,256) 1,813,813
--------------
<CAPTION>
PRINCIPAL
AMOUNT ($)
- ------------------------------ --------------- ---------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 26.99%
Building and Construction 250,000 NCI Building Systems, Inc.
Products 9.25%, due 5/1/09 250,000 2.90%
--------------
Electric Utility Services 500,000 MidAmerican Energy Holdings Co.
8.48%, due 09/15/28 568,750 6.60%
--------------
Real Estate - Commercial 500,000 BF Saul REIT 144A 9.75%, due
4/1/08 477,500
500,000 Webb (Del E.) Corp. 10/25%, due
02/15/10 518,750
--------------
996,250 11.56%
--------------
Telephone Services 500,000 Level 3 Communications, Inc.
144A 9.125%, due 5/1/08 511,250 5.93%
--------------
TOTAL CORPORATE BONDS
(Cost $2,240,075) 2,326,250
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AT APRIL 30, 1999
(UNAUDITED)
VALUE % OF NET
SHARES ISSUES (NOTE 1) ASSETS
- ------------------------------ --------------- ---------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
COMMON STOCKS - 0.37%
Telecommunications - Wireless 663 Winstar Communications, Inc (a)
$ 32,321 0.37%
--------------
TOTAL COMMON STOCK
(Cost $17,403) 32,321
--------------
TOTAL INVESTMENT
PORTFOLIO - 100.86%
(Cost $9,892,219) 8,694,590
--------------
LIABILITIES NET OF CASH AND
OTHER ASSETS - (0.86%) (74,328)
--------------
NET ASSETS - 100.00%
(Applicable to 916,197 shares
outstanding) $8,620,262
==============
NET ASSET VALUE PER SHARE $9.41
==============
Notes:
(a) Non-income producing security.
(b) Securities in whole or in part on loan (See Note 1).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999
(UNAUDITED)
<S> <C>
ASSETS:
Investments at value (Notes 1 and 4):
Unaffiliated issuers (identified cost of $9,892,219) $8,694,590
Cash and cash equivalents (Note 1) 134,400
Receivable for fund shares sold 54,841
Receivable from investment adviser 18,762
Interest receivable 112,840
Collateral on loaned securities (Note 1) 345,325
Deferred organizational costs (Note 1) 11,379
Other assets 417
----------
Total assets 9,372,554
----------
LIABILITIES:
Payable for fund shares purchased 250,000
Payable for fund shares redeemed 114,195
Accounts payable and accrued expenses 42,772
Collateral on loaned securities (Note 1) 345,325
----------
Total liabilities 752,292
----------
Net assets $8,620,262
==========
SUMMARY OF NET ASSETS:
Common stock, unlimited shares authorized, no par value,
916,197 shares outstanding $9,735,622
Accumulated undistributed net investment income 43,103
Accumulated undistributed net realized gains from investment transactions 39,166
Net unrealized depreciation of investments (1,197,629)
----------
Net assets applicable to capital shares outstanding $8,620,262
==========
Net asset value, offering and redemption price per share $9.41
=====
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
<S> <C>
INVESTMENT INCOME:
Interest $ 301,878
Dividends 72,359
----------
Total investment income 374,237
----------
EXPENSES:
Investment advisory fees (Note 3) 37,096
Administration fees (Note 3) 33,784
Directors' fees and expenses 24,453
Registration and filing fees 20,356
Transfer agent fees 13,759
Accounting services 13,528
Auditing and tax consulting fees 9,872
Reports to shareholders 8,183
Custodian fees 3,571
Legal fees 2,474
Amortization of organizational expenses (Note 1) 1,486
Miscellaneous expenses 1,331
----------
Total operating expenses 169,893
----------
Expenses waived and reimbursed (Note 3) (91,578)
----------
Net expenses 78,315
----------
Net investment income 295,922
----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments 89,791
Net change in unrealized appreciation on investments 724,866
----------
Net realized and unrealized gains on investments 814,657
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,110,579
==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
4/30/99 ENDED
(UNAUDITED) 10/31/98*
<S> <C> <C>
OPERATIONS:
Net investment income $ 295,922 $ 348,681
Net realized gains (losses) on investments 89,791 (50,625)
Net change in unrealized appreciation (depreciation) on
investments 724,866 (1,922,495)
---------- ----------
Net increase (decrease) in net assets resulting from operations 1,110,579 (1,624,439)
---------- ----------
DISTRIBUTIONS:
Dividends to shareholders from net investment income (307,685) (295,950)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 1,635,584 12,705,359
Net asset value of shares issued in reinvestment of
dividends and distributions 269,624 266,886
Cost of shares redeemed (1,779,076) (3,360,620)
---------- ----------
Net increase in net assets resulting from capital
share transactions 126,132 9,611,625
---------- ----------
Net increase in net assets 929,026 7,691,236
Net assets at beginning of period 7,691,236 0
---------- ----------
Net assets at end of period (including undistributed net
investment income of $43,103 and $54,866, respectively) $8,620,262 $7,691,236
========== ==========
* The Fund commenced investment operations on February 12, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
THIRD AVENUE TRUST
THIRD AVENUE HIGH YIELD FUND
FINANCIAL HIGHLIGHTS
Selected data (for a share outstanding throughout each period) and ratios are as
follows:
FOR THE SIX
MONTHS FOR THE
ENDED PERIOD
4/30/99 ENDED
(UNAUDITED) 10/31/98*
<S> <C> <C>
Net Asset Value, Beginning of Period $8.50 $10.00
----- ------
Income (loss) from Investment Operations:
Net investment income .34 .34
Net gain (loss) on securities (both realized and unrealized) .92 (1.56)
----- ------
Total from Investment Operations 1.26 (1.22)
----- ------
Less Distributions:
Dividends from net investment income (.35) (.28)
----- ------
Net Asset Value, End of Period $9.41 $ 8.50
===== ======
Total Return 15.02%1 (12.39%)1
Ratios/Supplemental Data:
Net Assets, End of period (in thousands) $8,620 $7,691
Ratio of Expenses to Average Net Assets
Before expense reimbursement 4.12%2 3.99%2
After expense reimbursement 1.90%2 1.90%2
Ratio of Net Income to Average Net Assets
Before expense reimbursement 4.96%2 4.13%2
After expense reimbursement 7.18%2 6.22%2
Portfolio Turnover Rate 5%1 38%1
1 Not Annualized
2 Annualized
* The Fund commenced investment operations February 12, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
10
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
(UNAUDITED)
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Third Avenue Trust (the "Trust") is an open-end, non-diversified management
investment company organized as a Delaware business trust pursuant to a Trust
Instrument dated October 31, 1996. The Trust currently consists of four separate
investment series: Third Avenue Value Fund, Third Avenue Small-Cap Value Fund,
Third Avenue High Yield Fund and Third Avenue Real Estate Value Fund (each a
"Fund" and, collectively, the "Funds"). At the close of business on March 31,
1997, shareholders of Third Avenue Value Fund, Inc., a Maryland corporation
which was incorporated on November 27, 1989 and began operations on October 9,
1990, became shareholders of Third Avenue Value Fund. Third Avenue Small-Cap
Value Fund commenced investment operations on April 1, 1997. Third Avenue High
Yield Fund commenced investment operations on February 12, 1998. Third Avenue
Real Estate Value Fund commenced investment operations on September 17, 1998.
Third Avenue Value Fund, Third Avenue Small-Cap Value Fund and Third Avenue Real
Estate Value Fund seek to achieve their investment objectives of long-term
capital appreciation by adhering to a strict value discipline when selecting
securities. While Third Avenue Value Fund, Third Avenue Small-Cap Value Fund and
Third Avenue Real Estate Value Fund pursue a capital appreciation objective,
each Fund has a distinct investment approach. Third Avenue High Yield Fund seeks
to achieve its objective of maximizing total return through a combination of
income and capital appreciation by adhering to a similar value discipline in
selecting securities.
Third Avenue Value Fund seeks to achieve its objective by investing in a
portfolio of equity securities of well-financed companies believed to be priced
below their private market values and debt securities providing strong
protective covenants and high effective yields.
Third Avenue Small-Cap Value Fund seeks to achieve its objective by investing at
least 65% of its assets in a portfolio of equity securities of well-financed
companies having market capitalization of below $1 billion at the time of
investment and believed to be priced below their private market values.
Third Avenue High Yield Fund seeks to achieve its objective by investing at
least 65% of its assets in a portfolio of non-investment grade fixed income or
other debt securities of companies whose capital structures, in the opinion of
EQSF Advisers, Inc., the Fund's investment adviser, have a market value priced
below their private market values.
Third Avenue Real Estate Value Fund seeks to achieve its objective by investing
at least 65% of its total assets in a portfolio of equity and debt securities of
well-financed companies in the real estate industry or related industries or
that own significant real estate assets at the time of investment.
ACCOUNTING POLICIES:
The policies described below are followed consistently by the Funds in the
preparation of their financial statements in conformity with generally accepted
accounting principles.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures.
Actual results could differ from those estimates.
SECURITY VALUATION:
Securities traded on a principal stock exchange or the National Association of
Securities Dealers' Automated Quotation system ("NASDAQ") are valued at the last
quoted sales price or, in the absence of closing sales prices on that day,
securities are valued at the mean between the closing bid and asked price.
11
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
(UNAUDITED)
Temporary cash investments are valued at cost, plus accrued interest, which
approximates market. Short-term securities with original or remaining maturities
in excess of 60 days are valued at the mean of their quoted bid and asked
prices. Short-term securities with 60 days or less to maturity are amortized to
maturity based on their cost if acquired within 60 days of maturity, or if
already held by a Fund on that day, based on the value determined on that day.
The Funds may invest up to 15% of their total assets in securities which are not
readily marketable, including those which are restricted as to disposition under
applicable securities laws ("restricted securities"). Restricted securities and
other securities and assets for which market quotations are not readily
available are valued at "fair value" as determined in good faith by the Board of
Trustees of the Funds, although actual evaluations may be made by personnel
acting under procedures established by the Board of Trustees. At April 30, 1999,
such securities had a total fair value of $141,497,764 or 10.53% of net assets
of Third Avenue Value Fund and $4,125,327 or 3.09% of net assets of Third Avenue
Small-Cap Value Fund. Among the factors considered by the Board of Trustees in
determining fair value are the type of security, trading in unrestricted
securities of the same issuer, the financial condition of the issuer, the Fund's
cost at the date of purchase, a percentage of the Fund's beneficial ownership of
the issuer's common stock and debt securities, the operating results of the
issuer, the discount from market value of any similar unrestricted securities of
the issuer at the time of purchase and liquidation values of the issuer. The
fair values determined in accordance with these procedures may differ
significantly from the amounts which would be realized upon disposition of the
securities. Restricted securities often have costs associated with subsequent
registration. The restricted securities currently held by the Funds are not
expected to incur any future registration costs.
SECURITY TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date and interest income, including, where
applicable, amortization of premium and accretion of discount on investments, is
accrued daily, except when collection is not expected. Realized gains and losses
from securities transactions are reported on an identified cost basis.
FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS:
The books and records of the Funds are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars as follows:
o Investments: At the prevailing rates of exchange on the valuation date.
o Investment transactions and investment income: At the prevailing rates
of exchange on the date of such transactions.
Although the net assets of the Funds are presented at the foreign exchange rates
and market values at the close of the period, the Funds do not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Funds do not isolate
the effect of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) are
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances.
FOREIGN CURRENCY SWAP CONTRACTS:
Third Avenue Value Fund has entered into foreign currency swaps to exchange
Japanese yen for U.S. dollars. A swap is an agreement that obligates two parties
to exchange a series of cash flows at specified intervals based upon or
calculated by reference to changes in specified prices or rates for a specified
amount of an underlying asset. These swaps are used to hedge the Fund's exposure
to Japanese yen denominated securities and the Japanese market. The payment
flows are usually netted against each other, with the difference being paid by
one party to the other.
12
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
(UNAUDITED)
Fluctuations in the value of open swap contracts are recorded daily as net
unrealized gains or losses. The Fund realizes a gain or loss upon termination or
reset of the contracts. The statement of operations reflects net unrealized
gains (losses) on these contracts. At April 30, 1999, the Fund had two
outstanding foreign currency swap contracts with Bear Stearns. The first swap
commits the Fund to pay 5.9 billion yen in exchange for 50 million U.S. dollars
on October 26, 1999. The Fund will pay 0.14% interest on the 5.9 billion yen and
Bear Stearns will pay 4.63% interest on the 50 million U.S. dollars. The second
swap commits the Fund to pay 10.8 billion yen in exchange for 90 million U.S.
dollars on April 22, 2000. The Fund will pay 0.22% interest on the 10.8 billion
yen and Bear Stearns will pay 5.18% interest on the 90 million U.S. dollars.
FORWARD FOREIGN CURRENCY CONTRACTS:
Third Avenue Value Fund and Third Avenue Small-Cap Value Fund engage in
portfolio hedging with respect to changes in currency exchange rates by entering
into forward foreign currency contracts to sell currencies. A forward currency
contract is a commitment to purchase or sell a foreign currency at a future date
at a negotiated forward rate. Fluctuations in the value of forward foreign
currency contracts are recorded daily as net unrealized gains or losses. The
Funds realize a gain or loss upon settlement of contracts.
FOREIGN CURRENCY OPTION CONTRACTS:
An option contract gives the buyer the right, but not the obligation to buy
(call) or sell (put) an underlying item at a fixed exercise price on a certain
date or during a specified period. The use of foreign currency put option
strategies provide the Funds with protection against a rally in the U.S. dollar
versus the foreign currency while retaining the benefits (net of option cost) of
appreciation in foreign currency on equity holdings.
LOANS OF PORTFOLIO SECURITIES:
Third Avenue Small-Cap Value Fund, Third Avenue High Yield Fund and Third Avenue
Real Estate Value Fund loaned securities during the period to certain brokers,
with the Funds' custodian acting as lending agent. Upon such loans, the Funds
receive collateral which is maintained by the custodian and earns income in the
form of negotiated lenders' fees, which are included in interest income in the
Statements of Operations. On a daily basis, the Funds monitor the market value
of securities loaned and maintain collateral against the securities loaned in an
amount not less than the value of the securities loaned. The Funds may receive
collateral in the form of cash or other eligible securities. Risks may arise
upon entering into securities lending to the extent that the value of the
collateral is less than the value of the securities loaned due to changes in the
value of collateral or the loaned securities.
During the period ending April 30, 1999, the following Funds had securities
lending income included in interest income totaling:
FUND
Third Avenue Small-Cap Value Fund $10,512
Third Avenue High Yield Fund 1,461
Third Avenue Real Estate Value Fund 190
The value of loaned securities and related collateral outstanding at April 30,
1999, was as follows:
VALUE OF SECURITIES VALUE OF
FUND LOANED COLLATERAL
Third Avenue Small-Cap Value Fund $8,306,575 $8,875,129
Third Avenue High Yield Fund 345,325 345,325
Third Avenue Real Estate Value Fund 182,500 192,500
13
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
(UNAUDITED)
The collateral for all Funds consisted of cash which was invested in repurchase
agreements with Bear Stearns due May 3, 1999 collateralized by U.S. Treasury
securities.
REPURCHASE AGREEMENTS:
The Funds may enter into repurchase agreements whereby the Funds purchase
securities (which are maintained as collateral) with an agreement to resell such
securities upon maturity of the repurchase agreement. Securities pledged as
collateral for repurchase agreements are held by the Funds' custodian bank until
maturity of the repurchase agreement.
Provisions in the agreements ensure that the market value of the collateral is
at least equal to the repurchase value in the event of default. In the event of
default, the Funds have the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances, in the
event of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings.
ORGANIZATIONAL COSTS:
Organizational costs of $56,000 for Third Avenue Small-Cap Value Fund, and
$15,000 for Third Avenue High Yield Fund are being amortized on a straight line
basis over five years from commencement of operations.
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income paid to shareholders and distributions from
realized gains on sales of securities paid to shareholders are recorded on the
ex-dividend date.
FEDERAL INCOME TAXES:
The Funds have complied and intend to continue to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies.
Therefore, no Federal income tax provision is required.
CASH AND CASH EQUIVALENTS:
The Funds have defined cash and cash equivalents as cash in interest bearing and
non-interest bearing accounts.
EXPENSE ALLOCATION:
Expenses attributable to a specific Fund are charged to that Fund. Expenses
attributable to the Trust are allocated using the ratio of each Fund's net
assets relative to the total net assets of the Trust, unless otherwise
specified.
TRUSTEES FEES:
The Trust does not pay any fees to its officers for their services as such, but
does pay Trustees who are not affiliated with the Investment Adviser, a fee of
$1,500 per Fund for each meeting of the Board of Trustees that they attend, in
addition to reimbursing all Trustees for travel and incidental expenses incurred
by them in connection with their attendance at Board meetings. The Trust also
pays non-interested Trustees an annual stipend of $2,000 per Fund in January of
each year for the previous year's service.
2. SECURITIES TRANSACTIONS
PURCHASES AND SALES/CONVERSIONS:
The aggregate cost of purchases, and aggregate proceeds from sales and
conversions of investments, excluding short-term investments, from unaffiliated
and affiliated issuers (as defined in the Investment Company Act of 1940, as
amended, ownership of 5% or more of the outstanding common stock of the issuer)
for the period ended April 30, 1999 were as follows:
14
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
(UNAUDITED)
PURCHASES SALES
Third Avenue Value Fund:
Affiliated $35,368,172 $ 9,482,753
Unaffiliated 23,891,121 288,530,371
Third Avenue Small-Cap Value Fund:
Unaffiliated 10,004,245 12,797,221
Third Avenue High Yield Fund:
Unaffiliated 884,725 428,250
Third Avenue Real Estate Value Fund:
Unaffiliated 3,543,718 --
3. INVESTMENT ADVISORY SERVICES AND SERVICE FEE AGREEMENT
The Funds have an Investment Advisory Agreement with EQSF Advisers, Inc. (the
"Adviser") for investment advice and certain management functions. The terms of
the Investment Advisory Agreement provide for a monthly fee of 1/12 of 0.90% (an
annual fee of 0.90%) of the total average daily net assets of each Fund, payable
each month. Additionally, under the terms of the Investment Advisory Agreement,
the Adviser pays certain expenses on behalf of the Funds, which are reimbursable
by the Funds, including salaries of non-officer employees and other
miscellaneous expenses. Amounts reimbursed with respect to non-officer salaries
are included under the caption Administration fees. At April 30, 1999, Third
Avenue Value Fund, Third Avenue Small-Cap Value Fund, Third Avenue High Yield
Fund and Third Avenue Real Estate Value Fund had payables to affiliates of
$5,226, $2,770, $2,516 and $2,511, respectively, for reimbursement of expenses
paid by such affiliates. Whenever, in any fiscal year, a Fund's normal operating
expenses, including the investment advisory fee, but excluding brokerage
commissions and interest and taxes, exceeds 1.90% of the first $100 million of
the Funds' average daily net assets, and 1.50% of average daily net assets in
excess of $100 million, the Adviser is obligated to waive investment advisory
fees or reimburse the Fund in an amount equal to that excess. Such waived and
reimbursed expenses may be paid to the Adviser during the following three year
period to the extent that the payment of such expenses would not cause the Funds
to exceed the preceding limitations. No expense reimbursement was required for
Third Avenue Value Fund or Third Avenue Small-Cap Value Fund for the period
ended April 30, 1999. The adviser waived fees of $37,096 and $14,139, and
reimbursed $54,482 and $107,704, for Third Avenue High Yield Fund and Third
Avenue Real Estate Value Fund, respectively, for the period ended April 30,
1999.
The Trust has entered into shareholder servicing agreements with certain service
agents for which the service agents receive a fee of up to 0.10% of the average
daily net assets invested into the Trust by the agent's customers in an omnibus
account. In exchange for these fees, the service agents render to such customers
various administrative services which the Trust would otherwise be obligated to
provide at its own expense.
4. RELATED PARTY TRANSACTIONS
BROKERAGE COMMISSIONS:
Martin J. Whitman, the Chairman and a director of the Funds, is the Chairman and
Chief Executive Officer of M.J. Whitman Holding Corp., which is the parent of
both M.J. Whitman, Inc., a registered broker-dealer and M.J. Whitman Senior Debt
Corp., a dealer in the trading of bank debt and other private claims. For the
period ended April 30, 1999, the Funds incurred total brokerage commissions,
which includes commissions earned by M.J. Whitman as follows:
15
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
(UNAUDITED)
FUND TOTAL COMMISSIONS M.J. WHITMAN
- ---- ----------------- ------------
Third Avenue Value Fund $465,280 $425,490
Third Avenue Small-Cap Value Fund 52,869 44,716
Third Avenue High Yield Fund 400 --
Third Avenue Real Estate Value Fund 15,937 14,924
INVESTMENTS IN FUNDS' AFFILIATES:
A summary of the transactions in securities of affiliated issuers for the period
ended April 30, 1999 is set forth below:
<TABLE>
<CAPTION>
THIRD AVENUE VALUE FUND
SHARES/ SHARES/ DIVIDEND/INTEREST
PRINCIPAL SHARES/ PRINCIPAL INCOME
HELD AT PRINCIPAL SHARES HELD AT VALUE AT NOV. 1, 1998 -
NAME OF ISSUER: OCT. 31, 1998 PURCHASED SOLD APR. 30, 1999 APR. 30, 1999 APR. 30, 1999
- --------------- ------------- --------- ---- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ACMAT Corp. Class A 200,678 -- -- 200,678 $ 2,985,085 --
ADE Corp. 728,900 -- 372,100 356,800 + --
American Physicians
Service Group, Inc. 1,109,900 -- 1,109,900* -- -- --
Avatar Holdings, Inc. 474,300 -- 143,100 331,200 + --
Carver Bancorp, Inc. 218,500 -- -- 218,500 2,021,125 --
CGA Group, Ltd. 838,710 2,502,993 -- 3,341,703 2,925,991 --
CGA Group, Ltd., Series A 238,857 323,379** -- 562,236 14,055,902 $672,400
CGA Group, Ltd., Series B 171,429 28,571 200,000* -- -- --
CGA Group, Ltd., Series C -- 6,045,667 -- 6,045,667 7,039,179 --
CGA Special Account
Trust $6,428,575 $1,071,425 -- $7,500,000 7,500,000 152,847
C.P. Clare Corp. 1,004,500 -- -- 1,004,500 4,018,000 --
Cummins Engine Co., Inc. 250,000 -- -- 250,000 13,375,000 137,500
Danielson Holding Corp. 803,669 -- -- 803,669 3,968,116 --
Electro Scientific
Industries, Inc. 1,600,300 -- -- 1,600,300 61,011,438 --
Electroglas, Inc. 1,846,200 36,300 -- 1,882,500 25,766,719 --
First American Financial
Corp. 3,000,000 75,000 -- 3,075,000 54,965,625 363,000
FSI International, Inc. 2,820,900 -- -- 2,820,900 19,569,994 --
Hologic, Inc. 1,125,000 -- 131,000 994,000 6,771,625 --
Interphase Corp. 300,000 -- 300,000 -- + --
Protocol Systems, Inc. 912,900 1,000 -- 913,900 5,940,350 --
Repap Enterprises Inc. -- 126,605,679 -- 126,605,679 8,862,398 --
Silicon Valley Group, 4,234,800 -- -- 4,234,800 56,111,100 --
Inc.
SpeedFam International,
Inc. 1,605,000 -- -- 1,605,000 18,457,500 --
Stewart Information
Services Corp. 975,700 -- -- 975,700 38,967,019 $146,355
St. George Holdings, Ltd.
Class A 912,442 152,074 -- 1,064,516 106,451 --
St. George Holdings, Ltd.
Class B 7,549 1,495 -- 9,044 905 --
Tecumseh Products Co.
Class A 125,400 -- -- 125,400 7,665,075 75,240
Tecumseh Products Co.
Class B 417,300 -- -- 417,300 23,733,938 250,380
Tejon Ranch Co. 3,045,508 -- -- 3,045,508 61,584,192 76,138
Veeco Instruments, Inc. 663,200 -- -- 663,200 + --
Vertex Communications
Corp. 306,900 -- -- 306,900 4,795,312 --
------------ ----------
Total Affiliates $452,198,039 $1,873,860
============ ==========
* Sold due to merger
** 28,896 share increase due to pay-in-kind dividends.
+ as of April 30, 1999, no longer an affiliate.
</TABLE>
16
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THIRD AVENUE SMALL-CAP VALUE FUND
SHARES/ SHARES/ DIVIDEND/INTEREST
PRINCIPAL SHARES/ PRINCIPAL INCOME
HELD AT PRINCIPAL SHARES HELD AT VALUE AT NOV. 1, 1998 -
NAME OF ISSUER: OCT. 31, 1998 PURCHASED SOLD APR. 30, 1999 APR. 30, 1999 APR. 30, 1999
- --------------- ------------- --------- ---- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Centigram
Communications Corp. 326,900 -- -- 326,900 $2,942,100 --
C.P. Clare Corp. 520,000 -- -- 520,000 2,080,000 --
SpecTran Corp. 490,600 -- -- 490,600 2,820,950 --
---------- --
Total Affiliates $7,843,050 $0
========== ==
</TABLE>
5. CAPITAL SHARE TRANSACTIONS
Each Fund is authorized to issue an unlimited number of shares of beneficial
interest with no par value.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
THIRD AVENUE
THIRD AVENUE VALUE FUND SMALL-CAP VALUE FUND
FOR THE FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
APRIL 30 1999 OCTOBER 31, APRIL 30, 1999 OCTOBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
<S> <C> <C> <C> <C>
Increase (decrease) in Fund shares:
Shares outstanding at beginning
of period 51,081,171 51,537,358 13,096,406 8,670,943
Shares sold 4,160,194 19,502,035 3,169,623 11,057,081
Shares reinvested from dividends
and distributions 578,492 877,124 96,740 46,997
Shares redeemed (13,209,018) (20,835,346) (4,284,849) (6,678,615)
----------- ----------- ---------- ----------
Net increase (decrease) in Fund shares (8,470,332) (456,187) (1,018,486) 4,425,463
----------- ----------- ---------- ----------
Shares outstanding at end of period 42,610,839 51,081,171 12,077,920 13,096,406
========== ========== ========== ==========
<CAPTION>
THIRD AVENUE
THIRD AVENUE HIGH YIELD FUND REAL ESTATE VALUE FUND
FOR THE FOR THE FOR THE FOR THE
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
APRIL 30 1999 OCTOBER 31, APRIL 30, 1999 OCTOBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
<S> <C> <C> <C> <C>
Increase in Fund shares:
Shares outstanding at beginning
of period 904,440 -- 69,355 --
Shares sold 177,654 1,266,191 569,411 69,355
Shares reinvested from dividends
and distributions 29,744 29,079 2,473 --
Shares redeemed (195,641) (390,830) (92,204) --
-------- --------- ------- --
Net increase in Fund shares 11,757 904,440 479,680 69,355
-------- --------- ------- ------
Shares outstanding at end of period 916,197 904,440 549,035 69,355
======== ========= ======= ======
</TABLE>
6. COMMITMENTS
Third Avenue Value Fund has committed a $1,900,000 capital investment to
Insurance Partners II Equity Fund, LP of which $380,000 has been funded as of
April 30, 1999. Securities valued at $1,545,234 have been segregated to meet the
requirements of this commitment. This commitment may be payable upon demand of
Insurance Partners II Equity Fund, LP.
17
<PAGE>
THIRD AVENUE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999
(UNAUDITED)
7. RISKS RELATING TO CERTAIN INVESTMENTS
FOREIGN SECURITIES:
The Funds intend to limit their investments in foreign securities to companies
issuing U.S. dollar-denominated American Depository Receipts or which, in the
judgment of the Funds' Adviser, otherwise provide financial information which
provides the Adviser with substantially similar financial information as
Securities & Exchange Commission ("SEC") disclosure requirements. Investments in
the securities of foreign issuers may involve investment risks different from
those of U.S. issuers including possible political or economic instability of
the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of currency exchange controls, the possible imposition
of foreign withholding tax on the dividend income and interest income payable on
such instruments, the possible establishment of foreign controls, the possible
seizure or nationalization of foreign deposits or assets, or the adoption of
other foreign government restrictions that might adversely affect the foreign
securities held by the Funds. Foreign securities may also be subject to greater
fluctuations in price than securities of domestic corporations or the U.S.
Government.
FOREIGN CURRENCY CONTRACTS:
The Funds may enter into foreign currency swap contracts, forward foreign
currency contracts and foreign currency option contracts. Such contracts are
over the counter contracts negotiated between two parties. There are both market
risks and credit risks associated with such contracts. Market risks are
generally limited to the movement in value of the foreign currency relative to
the U.S. dollar. Credit risks typically involve the risk that the counterparty
to the transaction will be unable to meet the terms of the contract. Foreign
currency swap contracts and forward foreign currency contracts may have risk
which exceeds the amounts reflected on the statements of assets and liabilities.
HIGH YIELD DEBT:
Third Avenue Value Fund and Third Avenue High Yield Fund currently invest in
high yield lower grade debt. The market values of these higher yielding debt
securities tend to be more sensitive to economic conditions and individual
corporate developments than those of higher rated securities. In addition, the
secondary market for these bonds is generally less liquid.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS:
Third Avenue Value Fund and Third Avenue High Yield Fund invest in loans and
other direct debt instruments issued by a corporate borrower to another party.
These loans represent amounts owed to lenders or lending syndicates (loans and
loan participations) or to other parties. Direct debt instruments may involve a
risk of loss in case of default or insolvency of the borrower and may offer less
legal protection to the Funds in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. The markets in loans are not regulated by
federal securities laws or the SEC.
TRADE CLAIMS:
Third Avenue Value Fund invests in trade claims. Trade claims are interests in
amounts owed to suppliers of goods or services and are purchased from creditors
of companies in financial difficulty. An investment in trade claims is
speculative and carries a high degree of risk. Trade claims are illiquid
securities which generally do not pay interest and there can be no guarantee
that the debtor will ever be able to satisfy the obligation on the trade claim.
The markets in trade claims are not regulated by federal securities laws or the
SEC. Because trade claims are unsecured, holders of trade claims may have a
lower priority in terms of payment than certain other creditors in a bankruptcy
proceeding.
18
<PAGE>
BOARD OF TRUSTEES
Phyllis W. Beck
Lucinda Franks
Gerald Hellerman
Marvin Moser
Myron M. Sheinfeld
Martin Shubik
Charles C. Walden
Barbara Whitman
Martin J. Whitman
OFFICERS
Martin J. Whitman
Chairman, Chief Executive Officer
David M. Barse
President, Chief Operating Officer
Michael Carney
Chief Financial Officer, Treasurer
Kerri Weltz, Assistant Treasurer
Ian M. Kirschner, General Counsel and Secretary
TRANSFER AGENT
First Data Investor Services Group, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-4600
(800) 443-1021 (toll-free)
INVESTMENT ADVISER
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
THIRD AVENUE FUNDS
767 THIRD AVENUE
NEW YORK, NY 10017-2023
Phone (212) 888-5222
Toll Free (800) 443-1021
Fax (212) 888-6757
www.thirdavenuefunds.com
19
<PAGE>
PART C
OTHER INFORMATION
Item 15. Indemnification
Except for the Agreement and Declaration of Trust (the "Declaration"),
dated August 3, 1999, establishing the Registrant as a business trust under
Delaware law, there is no contract, arrangement or statute under which any
Trustee, officer, underwriter or affiliated person of the Registrant is insured
or indemnified. The Declaration provides that no Trustee or officer will be
indemnified against any liability to which the Registrant would otherwise be
subject by reason of or for willful misfeasance, bad faith, gross negligence or
reckless disregard of such person's duties.
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be available to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "SEC") such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
Item 16. Exhibits
(1) Agreement and Declaration of Trust and Certificate of Trust
(2) By-Laws
(3) Not applicable
(4) Form of Agreement and Plan of Reorganization with Third Avenue
High Yield Fund
(5) Not applicable
(6) Form of Management Contract with Pioneer Investment Management,
Inc.
(7) Form of Underwriting Agreement with Pioneer Funds Distributor,
Inc.
(8) Not applicable
(9) Form of Custodian Agreement with Brown Brothers Harriman & Co.
(10)(a) Class A 12b-1 Distribution Plan
(10)(b) Form of Dealer Sales Agreement
(10)(c) Multiple Class Plan Pursuant to Rule 18f-3
(11) Opinion of Counsel (legality of securities being registered)
C-1
<PAGE>
(12) Form of Opinion of Counsel (supporting tax matters discussed in the
prospectus)
(13)(a) Form of Investment Company Service Agreement with Pioneering Services
Corporation
(13)(b) Form of Administration Agreement with Pioneer Investment Management,
Inc.
(14) Consent of Independent Public Accountants
(15) Not applicable
(16) Powers of Attorney
(17) Not applicable
- ------------------------
Item 17. Undertakings
(1) The Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Exchange Act of 1934, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has been
signed on behalf of the registrant, in the City of Boston, and the Commonwealth
of Massachusetts on the 1st day of November 1999.
PIONEER HIGH YIELD FUND
By: /s/ John F. Cogan, Jr.
John F. Cogan, Jr.
Chairman and President
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the date
indicated:
Signature Title
/s/ John F. Cogan, Jr. Chairman of the Board )
John F. Cogan, Jr. and President )
(Principal Executive )
Officer) )
)
)
/s/ Eric W. Reckard Chief Financial Officer )
Eric W. Reckard and Treasurer (Principal )
Financial and Accounting )
Officer) )
)
)
Trustees: )
)
)
Mary K. Bush* )
Mary K. Bush )
)
)
/s/ John F. Cogan, Jr. )
John F. Cogan, Jr. )
)
)
)
Richard H. Egdahl* )
Richard H. Egdahl )
)
)
Margaret BW Graham* )
Margaret B. W. Graham )
)
)
John W. Kendrick* )
John W. Kendrick )
)
)
Marguerite A. Piret* )
Marguerite A. Piret )
)
)
David D. Tripple* )
David D. Tripple )
)
)
Stephen K. West* )
Stephen K. West )
)
)
John Winthrop* )
John Winthrop )
)
)
*By: /s/ John F. Cogan, Jr. Dated: November 1, 1999)
John F. Cogan, Jr.
Attorney-in-fact
<PAGE>
Exhibit Index
Exhibit
Number Document Title
(1) Agreement and Declaration of Trust and Certificate of Trust
(2) By-Laws
(4) Form of Agreement and Plan of Reorganization with Third Avenue
High Yield Fund
(6) Form of Management Contract with Pioneer Investment Management,
Inc.
(7) Form of Underwriting Agreement with Pioneer Funds Distributor,
Inc.
(9) Form of Custodian Agreement with Brown Brothers Harriman & Co.
(10)(a) Class A 12b-1 Distribution Plan
(10)(b) Form of Dealer Sales Agreement
(10)(c) Multiple Class Plan Pursuant to Rule 18f-3
(11) Opinion of Counsel (legality of securities being registered)
(12) Form of Opinion of Counsel (supporting tax matters discussed in the
prospectus)
(13)(a) Form of Investment Company Service Agreement with Pioneering Services
Corporation
(13)(b) Form of Administration Agreement with Pioneer Investment Management,
Inc.
(14) Consent of Independent Public Accountants
(16) Powers of Attorney
PINONEER HIGH YIELD FUND
AGREEMENT AND
DECLARATION OF TRUST
This AGREEMENT AND DECLARATION OF TRUST is made on August 3, 1999 by
the undersigned trustees (together with all other persons from time to time duly
elected, qualified and serving as Trustees in accordance with the provisions of
Article II hereof, the "Trustees");
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the Trust shall be held and managed in trust pursuant to this
Agreement and Declaration of Trust.
ARTICLE I
NAME AND DEFINITIONS
Section 1. NAME. The name of the Trust created by this Agreement and
Declaration of Trust is "Pioneer High Yield Fund."
Section 2. DEFINITIONS. Unless otherwise provided or required by the context:
(a) "ADMINISTRATOR" means the party, other than the Trust, to the
contract described in Article III, Section 3 hereof.
(b) "BY-LAWS" means the By-laws of the Trust adopted by the Trustees,
as amended from time to time, which By-laws are expressly herein incorporated by
reference as part of the "governing instrument" within the meaning of the
Delaware Act.
(c) "CLASS" means the class of Shares of a Series established pursuant
to Article V.
(d) "COMMISSION," "INTERESTED PERSON" and "PRINCIPAL UNDERWRITER" have
the meanings provided in the 1940 Act. Except as such term may be otherwise
defined by the Trustees in conjunction with the establishment of any Series of
Shares, the term "VOTE OF A MAJORITY OF THE SHARES OUTSTANDING AND ENTITLED TO
VOTE" SHALL HAVE THE SAME MEANING AS IS ASSIGNED TO THE TERM "VOTE OF A MAJORITY
OF THE OUTSTANDING VOTING SECURITIES" in the 1940 Act.
(e) "COVERED PERSON" means a person so defined in Article IV, Section
2.
<PAGE>
(f) "CUSTODIAN" means any Person other than the Trust who has custody
of any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(g) "DECLARATION" shall mean this Agreement and Declaration of Trust,
as amended or restated from time to time. Reference in this Declaration of Trust
to "Declaration," "hereof," "herein," and "hereunder" shall be deemed to refer
to this Declaration rather than exclusively to the article or section in which
such words appear.
(h) "DELAWARE ACT" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time.
(i) "DISTRIBUTOR" means the party, other than the Trust, to the
contract described in Article III, Section 1 hereof.
(j) "HIS" shall include the feminine and neuter, as well as the
masculine, genders.
(k) "INVESTMENT ADVISER" means the party, other than the Trust, to the
contract described in Article III, Section 2 hereof.
(l) "NET ASSET VALUE" means the net asset value of each Series of the
Trust, determined as provided in Article VI, Section 3.
(m) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates and other entities,
and governments and agencies and political subdivisions, thereof, whether
domestic or foreign.
(n) "SERIES" means a series of Shares established pursuant to Article
V.
(o) "SHAREHOLDER" means a record owner of Outstanding Shares;
(p) "SHARES" means the equal proportionate transferable units of
interest into which the beneficial interest of each Series or Class is divided
from time to time (including whole Shares and fractions of Shares). "Outstanding
Shares" means Shares shown in the books of the Trust or its transfer agent as
then issued and outstanding, but does not include Shares which have been
repurchased or redeemed by the Trust and which are held in the treasury of the
Trust.
(q) "TRANSFER AGENT" means any Person other than the Trust who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
2
<PAGE>
(r) "TRUST" means Pioneer Strategic Income Fund established hereby, and
reference to the Trust, when applicable to one or more Series, refers to that
Series.
(s) "TRUSTEES" means the person who has signed this Declaration of
Trust, so long as he shall continue in office in accordance with the terms
hereof, and all other persons who may from time to time be duly qualified and
serving as Trustees in accordance with Article II, in all cases in their
capacities as Trustees hereunder.
(t) "TRUST PROPERTY" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the Trust or any Series
or the Trustees on behalf of the Trust or any Series.
(u) The "1940 ACT" means the Investment Company Act of 1940, as amended
from time to time.
ARTICLE II
THE TRUSTEES
Section 1. MANAGEMENT OF THE TRUST. The business and affairs of the
Trust shall be managed by or under the direction of the Trustees, and they shall
have all powers necessary or desirable to carry out that responsibility. The
Trustees may execute all instruments and take all action they deem necessary or
desirable to promote the interests of the Trust. Any determination made by the
Trustees in good faith as to what is in the interests of the Trust shall be
conclusive. In construing the provisions of this Declaration, the presumption
shall be in favor of a grant of power to the Trustees.
Section 2. POWERS. The Trustees in all instances shall act as
principals, free of the control of the Shareholders. The Trustees shall have
full power and authority to take or refrain from taking any action and to
execute any contracts and instruments that they may consider necessary or
desirable in the management of the Trust. The Trustees shall not in any way be
bound or limited by current or future laws or customs applicable to trust
investments, but shall have full power and authority to make any investments
which they, in their sole discretion, deem proper to accomplish the purposes of
the Trust. The Trustees may exercise all of their powers without recourse to any
court or other authority. Subject to any applicable limitation herein or in the
By-laws or resolutions of the Trust, the Trustees shall have power and
authority, without limitation:
(a) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, cash;
securities, including common, preferred and preference stocks; warrants;
subscription rights; profit-sharing
3
<PAGE>
interests or participations and all other contracts for or evidence of
equity interests; bonds, debentures, bills, time notes and all other evidences
of indebtedness; negotiable or non-negotiable instruments; government
securities, including securities of any state, municipality or other political
subdivision thereof, or any governmental or quasi-governmental agency or
instrumentality; and money market instruments including bank certificates of
deposit, finance paper, commercial paper, bankers' acceptances and all kinds of
repurchase agreements, of any corporation, company, trust, association, firm or
other business organization however established, and of any country, state,
municipality or other political subdivision, or any governmental or
quasi-governmental agency or instrumentality; or any other security, property or
instrument in which the Trust or any of its Series shall be authorized to
invest.
(c) To acquire (by purchase, subscription or otherwise), to hold, to
trade in and deal in, to acquire any rights or options to purchase or sell, to
sell or otherwise dispose of, to lend and to pledge any such securities, to
enter into repurchase agreements, reverse repurchase agreements, firm commitment
agreements and forward foreign currency exchange contracts, to purchase and sell
options on securities, securities indices, currency and other financial assets,
futures contracts and options on futures contracts of all descriptions and to
engage in all types of hedging and risk-management transactions.
(d) To exercise all rights, powers and privileges of ownership or
interest in all securities and repurchase agreements included in the Trust
Property, including the right to vote thereon and otherwise act with respect
thereto and to do all acts for the preservation, protection, improvement and
enhancement in value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash or foreign currency, and any interest therein.
(f) To borrow money or other property in the name of the Trust
exclusively for Trust purposes and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; and to endorse, guarantee,
or undertake the performance of any obligation or engagement of any other Person
and to lend Trust Property.
(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
4
<PAGE>
(h) To adopt By-laws not inconsistent with this Declaration providing
for the conduct of the business of the Trust and to amend and repeal them to the
extent such right is not reserved to the Shareholders.
(i) To elect and remove such officers and appoint and terminate such
agents as they deem appropriate.
(j) To employ as custodian of any assets of the Trust, subject to any
provisions herein or in the By-laws, one or more banks, trust companies or
companies that are members of a national securities exchange, or other entities
permitted by the Commission to serve as such.
(k) To retain one or more transfer agents and shareholder servicing
agents, or both.
(l) To provide for the distribution of Shares either through a
Principal Underwriter as provided herein or by the Trust itself, or both, or
pursuant to a distribution plan of any kind.
(m) To set record dates in the manner provided for herein or in the
By-laws.
(n) To delegate such authority as they consider desirable to any
officers of the Trust and to any agent, independent contractor, manager,
investment adviser, custodian or underwriter.
(o) To hold any security or other property (i) in a form not indicating
any trust, whether in bearer, book entry, unregistered or other negotiable form,
or (ii) either in the Trust's or Trustees' own name or in the name of a
custodian or a nominee or nominees, subject to safeguards according to the usual
practice of business trusts or investment companies.
(p) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article V.
(q) To the full extent permitted by Section 3804 of the Delaware Act,
to allocate assets, liabilities and expenses of the Trust to a particular Series
and assets, liabilities and expenses to a particular Class or to apportion the
same between or among two or more Series or Classes, provided that any
liabilities or expenses incurred by a particular Series or Class shall be
payable solely out of the assets belonging to that Series or Class as provided
for in Article V, Section 4.
(r) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern whose securities are held
by the
5
<PAGE>
Trust; to consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern; and to pay calls or subscriptions with
respect to any security held in the Trust.
(s) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes.
(t) To make distributions of income, capital gains, returns of capital
(if any) and redemption proceeds to Shareholders in the manner hereinafter
provided for.
(u) To establish committees for such purposes, with such membership,
and with such responsibilities as the Trustees may consider proper, including a
committee consisting of fewer than all of the Trustees then in office, which may
act for and bind the Trustees and the Trust with respect to the institution,
prosecution, dismissal, settlement, review or investigation of any legal action,
suit or proceeding, pending or threatened.
(v) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles V and VI, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust or of the particular Series with respect to which such
Shares are issued.
(w) To invest part or all of the Trust Property (or part or all of the
assets of any Series), or to dispose of part or all of the Trust Property (or
part or all of the assets of any Series) and invest the proceeds of such
disposition, in securities issued by one or more other investment companies
registered under the 1940 Act all without any requirement of approval by
Shareholders. Any such other investment company may (but need not) be a trust
(formed under the laws of the State of New York or of any other state) which is
classified as a partnership for federal income tax purposes.
(x) To carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary or desirable to
accomplish any purpose or to further any of the foregoing powers, and to take
every other action incidental to the foregoing business or purposes, objects or
powers.
(y) To sell or exchange any or all of the assets of the Trust, subject
to Article IX, Section 4.
(z) To enter into joint ventures, partnerships and other combinations
and associations.
6
<PAGE>
(aa) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such Committee, depositary or trustee as the Trustees shall deem
proper;
(bb) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and, subject to applicable law and any restrictions set forth in
the By-laws, insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, Principal Underwriters, or independent
contractors of the Trust, individually, against all claims and liabilities of
every nature arising by reason of holding Shares, holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such Person as Trustee, officer, employee, agent,
investment adviser, Principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such Person against
liability;
(cc) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans and trusts, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any or
all of the Trustees, officers, employees and agents of the Trust;
(dd) To enter into contracts of any kind and description;
(ee) To interpret the investment policies, practices or limitations
of any Series or Class; and
(ff) To guarantee indebtedness and contractual obligations of
others.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the Trustees or upon their order. In construing this
Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
7
<PAGE>
Section 3. CERTAIN TRANSACTIONS. Except as prohibited by applicable
law, the Trustees may, on behalf of the Trust, buy any securities from or sell
any securities to, or lend any assets of the Trust to, any Trustee or officer of
the Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, administrator,
distributor or transfer agent for the Trust or with any Interested Person of
such person. The Trust may employ any such person or entity in which such person
is an Interested Person, as broker, legal counsel, registrar, investment
adviser, administrator, distributor, transfer agent, dividend disbursing agent,
custodian or in any other capacity upon customary terms.
Section 4. INITIAL TRUSTEES; ELECTION AND NUMBER OF TRUSTEES. The
initial Trustees shall be the persons initially signing this Declaration. The
number of Trustees (other than the initial Trustees) shall be fixed from time to
time by a majority of the Trustees; provided, that there shall be at least one
(1) Trustee and no more than fifteen (15). The Shareholders shall elect the
Trustees (other than the initial Trustees) on such dates as the Trustees may fix
from time to time.
Section 5. TERM OF OFFICE OF TRUSTEES. Each Trustee shall hold office
for life or until his successor is elected or the Trust terminates; except that
(a) any Trustee may resign by delivering to the other Trustees or to any Trust
officer a written resignation effective upon such delivery or a later date
specified therein; (b) any Trustee may be removed with or without cause at any
time by a written instrument signed by at least a majority of the then Trustees,
specifying the effective date of removal; (c) any Trustee who requests to be
retired, or who is declared bankrupt or has become physically or mentally
incapacitated or is otherwise unable to serve, may be retired by a written
instrument signed by a majority of the other Trustees, specifying the effective
date of retirement; and (d) any Trustee may be removed at any meeting of the
Shareholders by a vote of at least two-thirds of the Outstanding Shares.
Section 6. VACANCIES; APPOINTMENT OF TRUSTEES. Whenever a vacancy shall
exist in the Board of Trustees, regardless of the reason for such vacancy, the
remaining Trustees shall appoint any person as they determine in their sole
discretion to fill that vacancy, consistent with the limitations under the 1940
Act. Such appointment shall be made by a written instrument signed by a majority
of the Trustees or by a resolution of the Trustees, duly adopted and recorded in
the records of the Trust, specifying the effective date of the appointment. The
Trustees may appoint a new Trustee as provided above in anticipation of a
vacancy expected to occur because of the retirement, resignation or removal of a
Trustee, or an increase in number of Trustees, provided that such appointment
shall become effective only at or after the expected vacancy occurs. As soon as
any such Trustee has accepted his appointment in writing, the trust estate shall
vest in the new Trustee, together with the continuing Trustees, without any
further act or conveyance, and he shall be deemed a Trustee hereunder. The
Trustees' power of appointment is subject to Section 16(a) of the 1940 Act.
Whenever a vacancy in the number of Trustees shall occur, until such vacancy is
filled as provided in this Article II, the Trustees in office, regardless of
their number, shall
8
<PAGE>
have all the powers granted to the Trustees and shall discharge all the
duties imposed upon the Trustees by the Declaration. The death, declination to
serve, resignation, retirement, removal or incapacity of one or more Trustees,
or all of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust.
Section 7. TEMPORARY VACANCY OR ABSENCE. Whenever a vacancy in the
Board of Trustees shall occur, until such vacancy is filled, or while any
Trustee is absent from his domicile (unless that Trustee has made arrangements
to be informed about, and to participate in, the affairs of the Trust during
such absence), or is physically or mentally incapacitated, the remaining
Trustees shall have all the powers hereunder and their certificate as to such
vacancy, absence, or incapacity shall be conclusive. Any Trustee may, by power
of attorney, delegate his powers as Trustee for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees.
Section 8. CHAIRMAN. The Trustees shall appoint one of their number to
be Chairman of the Board of Trustees. The Chairman shall preside at all meetings
of the Trustees, shall be responsible for the execution of policies established
by the Trustees and the administration of the Trust, and may be the chief
executive, financial and/or accounting officer of the Trust.
Section 9. ACTION BY THE TRUSTEES. (a) The Trustees shall act by
majority vote at a meeting duly called at which a quorum is present, including a
meeting held by conference telephone, teleconference or other electronic media
or communication equipment by means of which all persons participating in the
meeting can communicate with each other; or by written consent of a majority of
Trustees (or such greater number as may be required by applicable law) without a
meeting. A majority of the Trustees shall constitute a quorum at any meeting.
Meetings of the Trustees may be called orally or in writing by the President or
by any one of the Trustees. Notice of the time, date and place of all Trustees'
meetings shall be given to each Trustee as set forth in the By-laws; provided,
however, that no notice is required if the Trustees provide for regular or
stated meetings. Notice need not be given to any Trustee who attends the meeting
without objecting to the lack of notice or who signs a waiver of notice either
before or after the meeting. The Trustees by majority vote may delegate to any
Trustee or Trustees or committee authority to approve particular matters or take
particular actions on behalf of the Trust. Any written consent or waiver may be
provided and delivered to the Trust by facsimile or other similar electronic
mechanism.
(b) A Trustee who with respect to the Trust is not an Interested Person
shall be deemed to be independent and disinterested when making any
determinations or taking any action as a Trustee, whether pursuant to the 1940
Act, the Delaware Act or otherwise.
Section 10. OWNERSHIP OF TRUST PROPERTY. The Trust Property of the
Trust and of each Series shall be held separate and apart from any assets now or
hereafter held in
9
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any capacity other than as Trustee hereunder by the Trustees or any
successor Trustees. Legal title in and beneficial ownership of all of the assets
of the Trust shall at all times be considered as vested in the Trust, except
that the Trustees may cause legal title in and beneficial ownership of any Trust
Property to be held by, or in the name of one or more of the Trustees acting for
and on behalf of the Trust, or in the name of any person as nominee acting for
and on behalf of the Trust. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof, but each Shareholder shall have, as provided in
Article V, a proportionate undivided beneficial interest in the Trust or Series
or Class thereof represented by Shares. The Shares shall be personal property
giving only the rights specifically set forth in this Trust Instrument. The
Trust, or at the determination of the Trustees one or more of the Trustees or a
nominee acting for and on behalf of the Trust, shall be deemed to hold legal
title and beneficial ownership of any income earned on securities of the Trust
issued by any business entities formed, organized, or existing under the laws of
any jurisdiction, including the laws of any foreign country. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Trust or the remaining Trustees any
Trust Property held in the name of the resigning or removed Trustee. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence.
Section 11. EFFECT OF TRUSTEES NOT SERVING. The death, resignation,
retirement, removal, incapacity or inability or refusal to serve of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration.
Section 12. TRUSTEES, ETC. AS SHAREHOLDERS. Subject to any restrictions
in the By-laws, any Trustee, officer, agent or independent contractor of the
Trust may acquire, own and dispose of Shares to the same extent as any other
Shareholder; the Trustees may issue and sell Shares to and buy Shares from any
such person or any firm or company in which such person is interested, subject
only to any general limitations herein.
Section 13. SERIES TRUSTEES. In connection with the establishment of
one or more Series or Classes, the Trustees establishing such Series or Class
may appoint, to the extent permitted by the Delaware Act, separate Trustees with
respect to such Series or Classes (the "Series Trustees"). Series Trustees may,
but are not required to, serve as Trustees of the Trust or any other Series or
Class of the Trust. The Series Trustees shall have, to the exclusion of any
other Trustee of the Trust, all the powers and authorities of Trustees hereunder
with respect to such Series or Class, but shall have no power or authority with
respect to any other Series or Class. Any provision of this Declaration relating
to election of Trustees by Shareholders only shall entitle the Shareholders of a
Series or Class for which Series Trustees have been appointed to vote with
respect to
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the election of such Series Trustees and the Shareholders of any other
Series or Class shall not be entitled to participate in such vote. In the event
that Series Trustees are appointed, the Trustees initially appointing such
Series Trustees shall, without the approval of any Outstanding Shares, amend
either the Declaration or the By-laws to provide for the respective
responsibilities of the Trustees and the Series Trustees in circumstances where
an action of the Trustees or Series Trustees affects all Series of the Trust or
two or more Series represented by different Trustees.
ARTICLE III
CONTRACTS WITH SERVICE PROVIDERS
Section 1. UNDERWRITING CONTRACT. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive distribution contract
or contracts providing for the sale of the Shares whereby the Trustees may
either agree to sell the Shares to the other party to the contract or appoint
such other party as their sales agent for the Shares, and in either case on such
terms and conditions, if any, as may be prescribed in the By-laws, and such
further terms and conditions as the Trustees may in their discretion determine
not inconsistent with the provisions of this Article III or of the By-laws; and
such contract may also provide for the repurchase of the Shares by such other
party as agent of the Trustees.
Section 2. ADVISORY OR MANAGEMENT CONTRACT. The Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts or, if the Trustees establish multiple Series, separate
investment advisory or management contracts with respect to one or more Series
whereby the other party or parties to any such contracts shall undertake to
furnish the Trust or such Series management, investment advisory,
administration, accounting, legal, statistical and research facilities and
services, promotional or marketing activities, and such other facilities and
services, if any, as the Trustees shall from time to time consider desirable and
all upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provisions of the Declaration, the Trustees may
authorize the Investment Advisers or persons to whom the Investment Adviser
delegates certain or all of their duties, or any of them, under any such
contracts (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
portfolio securities and other investments of the Trust on behalf of the
Trustees or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of such
Investment Advisers, or any of them (and all without further action by the
Trustees). Any such purchases, sales, loans and exchanges shall be deemed to
have been authorized by all of the Trustees.
Section 3. ADMINISTRATION AGREEMENT. The Trustees may in their
discretion from time to time enter into an administration agreement or, if the
Trustees establish multiple Series or Classes, separate administration
agreements with respect to each
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Series or Class, whereby the other party to such agreement shall undertake
to manage the business affairs of the Trust or of a Series or Class thereof of
the Trust and furnish the Trust or a Series or a Class thereof with office
facilities, and shall be responsible for the ordinary clerical, bookkeeping and
recordkeeping services at such office facilities, and other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine.
Section 4. SERVICE AGREEMENT. The Trustees may in their discretion from
time to time enter into service agreements with respect to one or more Series or
Classes of Shares whereby the other parties to such Service Agreements will
provide administration and/or support services pursuant to administration plans
and service plans, and all upon such terms and conditions as the Trustees in
their discretion may determine.
Section 5. TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such terms
and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration. Such services may be provided by one or more
Persons.
Section 6. CUSTODIAN. The Trustees may appoint or otherwise engage one
or more banks or trust companies, each having aggregate capital, surplus and
undivided profits (as shown in its last published report) of at least two
million dollars ($2,000,000), or any other entity satisfying the requirements of
the 1940 Act, to serve as Custodian with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in the By-laws of the Trust. The Trustees may also authorize the
Custodian to employ one or more sub-custodians, including such foreign banks and
securities depositories as meet the requirements of applicable provisions of the
1940 Act, and upon such terms and conditions as may be agreed upon between the
Custodian and such sub-custodian, to hold securities and other assets of the
Trust and to perform the acts and services of the Custodian, subject to
applicable provisions of law and resolutions adopted by the Trustees.
Section 7. AFFILIATIONS OF TRUSTEES OR OFFICERS, ETC. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
or any Series thereof is a shareholder, director, officer, partner,
trustee, employee, manager, adviser or distributor of or for any
partnership, corporation, trust, association or other organization or
of or for any parent or affiliate of any organization, with which a
contract of the character described in this Article III or for services
as Custodian, Transfer Agent or disbursing agent or for related
services may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder of
or has an interest in the Trust, or that
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(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in
Sections 1, 2, 3 or 4 of this Article III or for services as Custodian,
Transfer Agent or disbursing agent or for related services may have
been or may hereafter be made also has any one or more of such
contracts with one or more other partnerships, corporations, trusts,
associations or other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE IV
COMPENSATION, LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. COMPENSATION. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. LIMITATION OF LIABILITY. All persons contracting with or
having any claim against the Trust or a particular Series shall look only to the
assets of all Series or such particular Series for payment under such contract
or claim; and neither the Trustees nor, when acting in such capacity, any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Every written instrument or obligation on behalf of
the Trust or any Series shall contain a statement to the foregoing effect, but
the absence of such statement shall not operate to make any Trustee or officer
of the Trust liable thereunder. Provided they have exercised reasonable care and
have acted under the reasonable belief that their actions are in the best
interest of the Trust, the Trustees and officers of the Trust shall not be
responsible or liable for any act or omission or for neglect or wrongdoing of
them or any officer, agent, employee, investment adviser or independent
contractor of the Trust, but nothing contained in this Declaration or in the
Delaware Act shall protect any Trustee or officer of the Trust against liability
to the Trust or to Shareholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 3. INDEMNIFICATION. (a) Subject to the exceptions and
limitations contained in subsection (b) below:
(i) every person who is, or has been, a Trustee or an officer, employee
or agent of the Trust (including any individual who serves at its
request as director,
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officer, partner, trustee or the like of another
organization in which it has any interest as a shareholder, creditor or
otherwise) ("Covered Person") shall be indemnified by the Trust or the
appropriate Series to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Covered Person and against amounts paid or incurred by
him in the settlement thereof; and
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal or other, including appeals), actual or threatened,
and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office, or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office; (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); (C) by written opinion of
independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry) or (D) by a vote of a
majority of the Outstanding Shares entitled to vote (excluding any
Outstanding Shares owned of record or beneficially by such individual).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, and shall inure to the benefit of the heirs, executors
and administrators of a Covered Person.
(d) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon
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receipt of an undertaking by or on behalf of such Covered Person that such
amount will be paid over by him to the Trust or applicable Series if it is
ultimately determined that he is not entitled to indemnification under this
Section; provided, however, that either (i) such Covered Person shall have
provided appropriate security for such undertaking, (ii) the Trust is insured
against losses arising out of any such advance payments or (iii) either a
majority of the Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial-type inquiry) that there is reason to believe that such Covered
Person will not be disqualified from indemnification under this Section.
(e) Any repeal or modification of this Article IV by the Shareholders,
or adoption or modification of any other provision of the Declaration or By-laws
inconsistent with this Article, shall be prospective only, to the extent that
such repeal, or modification would, if applied retrospectively, adversely affect
any limitation on the liability of any Covered Person or indemnification
available to any Covered Person with respect to any act or omission which
occurred prior to such repeal, modification or adoption.
Section 3. INDEMNIFICATION OF SHAREHOLDERS. If any Shareholder or
former Shareholder of any Series shall be held personally liable solely by
reason of his being or having been a Shareholder and not because of his acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his heirs, executors, administrators or other legal representatives or in the
case of any entity, its general successor) shall be entitled out of the assets
belonging to the applicable Series to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust, on behalf
of the affected Series, shall, upon request by such Shareholder, assume the
defense of any claim made against such Shareholder for any act or obligation of
the Series and satisfy any judgment thereon from the assets of the Series.
Section 4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC.
No purchaser, lender, transfer agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust or a Series thereof shall be
bound to make any inquiry concerning the validity of any transaction purporting
to be made by the Trustees or by said officer, employee or agent or be liable
for the application of money or property paid, loaned, or delivered to or on the
order of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
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the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust or a Series thereof under any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the Trust Property or the Trust Property of the applicable Series, and may
contain any further recital which they may deem appropriate, but the omission of
such recital shall not operate to bind the Trustees individually. The Trustees
shall at all times maintain insurance for the protection of the Trust Property
or the Trust Property of the applicable Series, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
Section 6. RELIANCE ON EXPERTS, ETC. Each Trustee, officer or employee
of the Trust or a Series thereof shall, in the performance of his duties, powers
and discretions hereunder be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust or a Series thereof,
upon an opinion of counsel, or upon reports made to the Trust or a Series
thereof by any of its officers or employees or by the Investment Adviser, the
Administrator, the Distributor, Transfer Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
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ARTICLE V
SERIES; CLASSES; SHARES
Section 1. ESTABLISHMENT OF SERIES OR CLASS. The Trust shall consist of
one or more Series. Without limiting the authority of the Trustees to establish
and designate any further Series, the Trustees hereby establish a single Series
which shall be designated Pioneer High Yield Fund. Each additional Series
shall be established and is effective upon the adoption of a resolution of a
majority of the Trustees or any alternative date specified in such resolution.
The Trustees may designate the relative rights and preferences of the Shares of
each Series. The Trustees may divide the Shares of any Series into Classes.
Without limiting the authority of the Trustees to establish and designate any
further Classes, the Trustees hereby establish four Classes of Shares which
shall be designated Class A, Class B, Class C and Class Y Shares. The Classes of
Shares of the existing Series herein established and designated and any Shares
of any further Series and Classes that may from time to time be established and
designated by the Trustees shall be established and designated, and the
variations in the relative rights and preferences as between the different
Series shall be fixed and determined, by the Trustees; provided, that all Shares
shall be identical except for such variations as shall be fixed and determined
between different Series or Classes by the Trustees in establishing and
designating such Class or Series. In connection therewith with respect to the
existing Classes, the purchase price, the method of determining the net asset
value, and the relative dividend rights of holders shall be as set forth in the
Trust's Registration Statement on Form N-1A under the Securities Act of 1933
and/or the 1940 Act and as in effect at the time of issuing Shares of the
existing Classes.
All references to Shares in this Declaration shall be deemed to be
Shares of any or all Series or Classes as the context may require. The Trust
shall maintain separate and distinct records for each Series and hold and
account for the assets thereof separately from the other assets of the Trust or
of any other Series. A Series may issue any number of Shares or any Class
thereof and need not issue Shares. Each Share of a Series shall represent an
equal beneficial interest in the net assets of such Series. Each holder of
Shares of a Series or a Class thereof shall be entitled to receive his pro rata
share of all distributions made with respect to such Series or Class. Upon
redemption of his Shares, such Shareholder shall be paid solely out of the funds
and property of such Series. The Trustees may adopt and change the name of any
Series or Class.
Section 2. SHARES. The beneficial interest in the Trust shall be
divided into transferable Shares of one or more separate and distinct Series or
Classes established by the Trustees. The number of Shares of each Series and
Class is unlimited and each Share shall have no par value per Share or such
other amount as the Trustees may establish. All Shares issued hereunder shall be
fully paid and nonassessable. Shareholders shall have no preemptive or other
right to subscribe to any additional Shares or other securities issued by the
Trust. The Trustees shall have full power and authority, in their sole
discretion and without obtaining Shareholder approval, to issue
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original or additional Shares at such times and on such terms and conditions
as they deem appropriate; to issue fractional Shares and Shares held
in the treasury; to establish and to change in any manner Shares of any Series
or Classes with such preferences, terms of conversion, voting powers, rights and
privileges as the Trustees may determine (but the Trustees may not change
Outstanding Shares in a manner materially adverse to the Shareholders of such
Shares); to divide or combine the Shares of any Series or Classes into a greater
or lesser number; to classify or reclassify any unissued Shares of any Series or
Classes into one or more Series or Classes of Shares; to abolish any one or more
Series or Classes of Shares; to issue Shares to acquire other assets (including
assets subject to, and in connection with, the assumption of liabilities) and
businesses; and to take such other action with respect to the Shares as the
Trustees may deem desirable. Shares held in the treasury shall not confer any
voting rights on the Trustees and shall not be entitled to any dividends or
other distributions declared with respect to the Shares.
Section 3. INVESTMENT IN THE TRUST. The Trustees shall accept
investments in any Series or Class from such persons and on such terms as they
may from time to time authorize. At the Trustees' discretion, such investments,
subject to applicable law, may be in the form of cash or securities in which
that Series is authorized to invest, valued as provided in Article VI, Section
3. Investments in a Series shall be credited to each Shareholder's account in
the form of full Shares at the Net Asset Value per Share next determined after
the investment is received or accepted as may be determined by the Trustees;
provided, however, that the Trustees may, in their sole discretion, (a) impose a
sales charge upon investments in any Series or Class, (b) issue fractional
Shares, (c) determine the Net Asset Value per Share of the initial capital
contribution or (d) authorize the issuance of Shares at a price other than Net
Asset Value to the extent permitted by the 1940 Act or any rule, order or
interpretation of the Commission thereunder. The Trustees shall have the right
to refuse to accept investments in any Series at any time without any cause or
reason therefor whatsoever.
Section 4. ASSETS AND LIABILITIES OF SERIES. All consideration received
by the Trust for the issue or sale of Shares of a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof (including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be), shall be held and accounted for separately from the assets of every other
Series and are referred to as "assets belonging to" that Series. The assets
belonging to a Series shall belong only to that Series for all purposes, and to
no other Series, subject only to the rights of creditors of that Series. Any
assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Series shall
be allocated by the Trustees between and among one or more Series as the
Trustees deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series for all purposes, and such assets,
earnings, income, profits or funds, or payments and proceeds thereof shall be
referred to as assets belonging to that Series.
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The assets belonging to a Series shall be so recorded upon the books of the
Trust, and shall be held by the Trustees in trust for the benefit of the
Shareholders of that Series. The assets belonging to a Series shall be charged
with the liabilities of that Series and all expenses, costs, charges and
reserves attributable to that Series, except that liabilities and expenses
allocated solely to a particular Class shall be borne by that Class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated and charged by the Trustees between or among any one or more of the
Series or Classes in such manner as the Trustees deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets of such Series only, and not against the
assets of any other Series. Notice of this contractual limitation on liabilities
among Series may, in the Trustees' discretion, be set forth in the certificate
of trust of the Trust (whether originally or by amendment) as filed or to be
filed in the Office of the Secretary of State of the State of Delaware pursuant
to the Delaware Act, and upon the giving of such notice in the certificate of
trust, the statutory provisions of Section 3804 of the Delaware Act relating to
limitations on liabilities among Series (and the statutory effect under Section
3804 of setting forth such notice in the certificate of trust) shall become
applicable to the Trust and each Series. Any person extending credit to,
contracting with or having any claim against any Series may look only to the
assets of that Series to satisfy or enforce any debt, with respect to that
Series. No Shareholder or former Shareholder of any Series shall have a claim on
or any right to any assets allocated or belonging to any other Series.
Section 5. OWNERSHIP AND TRANSFER OF SHARES. The Trust or a transfer or
similar agent for the Trust shall maintain a register containing the names and
addresses of the Shareholders of each Series and Class thereof, the number of
Shares of each Series and Class held by such Shareholders, and a record of all
Share transfers. The register shall be conclusive as to the identity of
Shareholders of record and the number of Shares held by them from time to time.
The Trustees may authorize the issuance of certificates representing Shares and
adopt rules governing their use. The Trustees may make rules governing the
transfer of Shares, whether or not represented by certificates. Except as
otherwise provided by the Trustees, Shares shall be transferable on the books of
the Trust only by the record holder thereof or by his duly authorized agent upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer, together with a Share certificate if one is outstanding,
and such evidence or the genuineness of each such execution and authorization
and of such other matters as may be required by the Trustees. Upon such
delivery, and subject to any further requirements specified by the Trustees or
contained in the By-laws, the transfer shall be recorded on the books of the
Trust. Until a transfer is so recorded, the Shareholder of record of Shares
shall be deemed to be the holder of such Shares for all purposes
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hereunder and neither the Trustees nor the Trust, nor any transfer agent or
registrar or any officer, employee or agent of the Trust, shall be affected by
any notice of a proposed transfer.
Section 6. STATUS OF SHARES; LIMITATION OF SHAREHOLDER LIABILITY.
Shares shall be deemed to be personal property giving Shareholders only the
rights provided in this Declaration. Every Shareholder, by virtue of having
acquired a Share, shall be held expressly to have assented to and agreed to be
bound by the terms of this Declaration and to have become a party hereto. No
Shareholder shall be personally liable for the debts, liabilities, obligations
and expenses incurred by, contracted for, or otherwise existing with respect to,
the Trust or any Series. The death, incapacity, dissolution, termination or
bankruptcy of a Shareholder during the existence of the Trust shall not operate
to terminate the Trust, nor entitle the representative of any such Shareholder
to an accounting or to take any action in court or elsewhere against the Trust
or the Trustees, but entitles such representative only to the rights of such
Shareholder under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust Property or
right to call for a partition or division of the same or for an accounting, nor
shall the ownership of Shares constitute the Shareholders as partners. Neither
the Trust nor the Trustees shall have any power to bind any Shareholder
personally or to demand payment from any Shareholder for anything, other than as
agreed by the Shareholder. Shareholders shall have the same limitation of
personal liability as is extended to shareholders of a private corporation for
profit incorporated in the State of Delaware. Every written obligation of the
Trust or any Series shall contain a statement to the effect that such obligation
may only be enforced against the assets of the appropriate Series or all Series;
however, the omission of such statement shall not operate to bind or create
personal liability for any Shareholder or Trustee.
ARTICLE VI
DISTRIBUTIONS AND REDEMPTIONS
Section 1. DISTRIBUTIONS. The Trustees or a committee of one or more
Trustees and one or more officers may declare and pay dividends and other
distributions, including dividends on Shares of a particular Series and other
distributions from the assets belonging to that Series. No dividend or
distribution, including, without limitation, any distribution paid upon
termination of the Trust or of any Series (or Class) with respect to, nor any
redemption or repurchase of, the Shares of any Series (or Class) shall be
effected by the Trust other than from the assets held with respect to such
Series, nor shall any Shareholder of any particular Series otherwise have any
right or claim against the assets held with respect to any other Series except
to the extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Trustees shall have full discretion to
determine which items shall be treated as income and which items as capital; and
each such determination and allocation shall
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be conclusive and binding upon the Shareholders. The amount and payment of
dividends or distributions and their form, whether they are in cash, Shares or
other Trust Property, shall be determined by the Trustees. Dividends and other
distributions may be paid pursuant to a standing resolution adopted once or more
often as the Trustees determine. All dividends and other distributions on Shares
of a particular Series shall be distributed pro rata to the Shareholders of that
Series in proportion to the number of Shares of that Series they held on the
record date established for such payment, except that such dividends and
distributions shall appropriately reflect expenses allocated to a particular
Class of such Series. The Trustees may adopt and offer to Shareholders such
dividend reinvestment plans, cash dividend payout plans or similar plans as the
Trustees deem appropriate.
Section 2. REDEMPTIONS. Each Shareholder of a Series shall have the
right at such times as may be permitted by the Trustees to require the Series to
redeem all or any part of his Shares at a redemption price per Share equal to
the Net Asset Value per Share at such time as the Trustees shall have prescribed
by resolution, or, to the extent permitted by the 1940 Act, at such other
redemption price and at such times as the Trustees shall prescribe by
resolution. In the absence of such resolution, the redemption price per Share
shall be the Net Asset Value next determined after receipt by the Series of a
request for redemption in proper form less such charges as are determined by the
Trustees and described in the Trust's Registration Statement for that Series
under the Securities Act of 1933. The Trustees may specify conditions, prices,
and places of redemption, may specify binding requirements for the proper form
or forms of requests for redemption and may specify the amount of any deferred
sales charge to be withheld from redemption proceeds. Payment of the redemption
price may be wholly or partly in securities or other assets at the value of such
securities or assets used in such determination of Net Asset Value, or may be in
cash. Upon redemption, Shares may be reissued from time to time. The Trustees
may require Shareholders to redeem Shares for any reason under terms set by the
Trustees, including, but not limited to, the failure of a Shareholder to supply
a taxpayer identification number if required to do so, or to have the minimum
investment required, or to pay when due for the purchase of Shares issued to
him. To the extent permitted by law, the Trustees may retain the proceeds of any
redemption of Shares required by them for payment of amounts due and owing by a
Shareholder to the Trust or any Series or Class or any governmental authority.
Notwithstanding the foregoing, the Trustees may postpone payment of the
redemption price and may suspend the right of the Shareholders to require any
Series or Class to redeem Shares during any period of time when and to the
extent permissible under the 1940 Act.
Section 3. DETERMINATION OF NET ASSET VALUE. The Trustees shall cause
the Net Asset Value of Shares of each Series or Class to be determined from time
to time in a manner consistent with applicable laws and regulations. The
Trustees may delegate the power and duty to determine Net Asset Value per Share
to one or more Trustees or officers of the Trust or to a custodian, depository
or other agent appointed for such purpose. The Net Asset Value of Shares shall
be determined separately for each Series
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or Class at such times as may be prescribed by the Trustees or, in the
absence of action by the Trustees, as of the close of regular trading on the New
York Stock Exchange on each day for all or part of which such Exchange is open
for unrestricted trading.
Section 4. SUSPENSION OF RIGHT OF REDEMPTION. If, as referred to in
Section 2 of this Article, the Trustees postpone payment of the redemption price
and suspend the right of Shareholders to redeem their Shares, such suspension
shall take effect at the time the Trustees shall specify, but not later than the
close of business on the business day next following the declaration of
suspension. Thereafter Shareholders shall have no right of redemption or payment
until the Trustees declare the end of the suspension. If the right of redemption
is suspended, a Shareholder may either withdraw his request for redemption or
receive payment based on the Net Asset Value per Share next determined after the
suspension terminates.
Section 5. REPURCHASE BY AGREEMENT. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the Net
Asset Value per Share determined as of the time when the purchase or contract of
purchase is made or the Net Asset Value as of any time which may be later
determined, provided payment is not made for the Shares prior to the time as of
which such Net Asset Value is determined.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. VOTING POWERS. The Shareholders shall have power to vote
only with respect to (a) the election of Trustees as provided in Section 2 of
this Article; (b) the removal of Trustees as provided in Article II, Section
3(d); (c) any investment advisory or management contract as provided in Article
VIII, Section 1; (d) any termination of the Trust as provided in Article IX,
Section 4; (e) the amendment of this Declaration to the extent and as provided
in Article X, Section 8; and (f) such additional matters relating to the Trust
as may be required or authorized by law, this Declaration, or the By-laws or any
registration of the Trust with the Commission or any State, or as the Trustees
may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall
be voted by individual Series or Class, except (a) when required by the 1940
Act, Shares shall be voted in the aggregate and not by individual Series or
Class, and (b) when the Trustees have determined that the matter affects the
interests of more than one Series or Class, then the Shareholders of all such
Series or Classes shall be entitled to vote thereon. As determined by the
Trustees without the vote or consent of shareholders, on any matter submitted to
a vote of Shareholders either (i) each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote or (ii) each dollar of net asset
value (number
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of Shares owned times net asset value per share of such Series or
Class, as applicable) shall be entitled to one vote on any matter on which such
Shares are entitled to vote and each fractional dollar amount shall be entitled
to a proportionate fractional vote. Without limiting the power of the Trustees
in any way to designate otherwise in accordance with the preceding sentence, the
Trustees hereby establish that each whole Share shall be entitled to one vote as
to any matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy or in any
manner provided for in the By-laws. The By-laws may provide that proxies may be
given by any electronic or telecommunications device or in any other manner, but
if a proposal by anyone other than the officers or Trustees is submitted to a
vote of the Shareholders of any Series or Class, or if there is a proxy contest
or proxy solicitation or proposal in opposition to any proposal by the officers
or Trustees, Shares may be voted only in person or by written proxy. Until
Shares of a Series are issued, as to that Series the Trustees may exercise all
rights of Shareholders and may take any action required or permitted to be taken
by Shareholders by law, this Declaration or the By-laws. Meetings of
Shareholders shall be called and notice thereof and record dates therefor shall
be given and set as provided in the By-laws.
Section 2. QUORUM; REQUIRED VOTE. One-third of the Outstanding Shares
of each Series or Class, or one-third of the Outstanding Shares of the Trust,
entitled to vote in person or by proxy shall be a quorum for the transaction of
business at a Shareholders' meeting with respect to such Series or Class, or
with respect to the entire Trust, respectively. Any lesser number shall be
sufficient for adjournments. Any adjourned session of a Shareholders' meeting
may be held within a reasonable time without further notice. Except when a
larger vote is required by law, this Declaration or the By-laws, a majority of
the Shares voting at a Shareholders' meeting in person or by proxy shall decide
any matters to be voted upon with respect to the entire Trust and a plurality of
such Shares shall elect a Trustee; provided, that if this Declaration or
applicable law permits or requires that Shares be voted on any matter by
individual Series or Classes, then a majority of the Shares of that Series or
Class (or, if required by law, a majority of the Shares outstanding and entitled
to vote of that Series or Class) voting at a Shareholders' meeting in person or
by proxy on the matter shall decide that matter insofar as that Series or Class
is concerned. Shareholders may act as to the Trust or any Series or Class by the
written consent of a majority (or such other amount as may be required by
applicable law) of the Outstanding Shares of the Trust or of such Series or
Class, as the case may be.
Section 3. RECORD DATES. For the purpose of determining the
Shareholders of any Series (or Class) who are entitled to receive payment of any
dividend or of any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such dividend or such
other payment, as the record date for determining the Shareholders of such
Series (or Class) having the right to receive such dividend or distribution.
Without fixing a record date, the Trustees may for distribution purposes close
the register or transfer books for one or more Series (or
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Classes) any time prior to the payment of a distribution. Nothing in this
Section shall be construed as precluding the Trustees from setting different
record dates for different Series (or Classes).
Section 4. ADDITIONAL PROVISIONS. The By-laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES
Section 1. PAYMENT OF EXPENSES BY THE TRUST. Subject to Article V,
Section 4, the Trust or a particular Series shall pay, or shall reimburse the
Trustees from the assets belonging to all Series or the particular Series, for
their expenses (or the expenses of a Class of such Series) and disbursements,
including, but not limited to, interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of Shares; certain
insurance premiums; applicable fees, interest charges and expenses of third
parties, including the Trust's investment advisers, managers, administrators,
distributors, custodians, transfer agents and fund accountants; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses; costs of forming the Trust and its
Series and maintaining its existence; costs of preparing and printing the
prospectuses of the Trust and each Series, statements of additional information
and Shareholder reports and delivering them to Shareholders; expenses of
meetings of Shareholders and proxy solicitations therefor; costs of maintaining
books and accounts; costs of reproduction, stationery and supplies; fees and
expenses of the Trustees; compensation of the Trust's officers and employees and
costs of other personnel performing services for the Trust or any Series; costs
of Trustee meetings; Commission registration fees and related expenses; state or
foreign securities laws registration fees and related expenses; and for such
non-recurring items as may arise, including litigation to which the Trust or a
Series (or a Trustee or officer of the Trust acting as such) is a party, and for
all losses and liabilities by them incurred in administering the Trust. The
Trustees shall have a lien on the assets belonging to the appropriate Series, or
in the case of an expense allocable to more than one Series, on the assets of
each such Series, prior to any rights or interests of the Shareholders thereto,
for the reimbursement to them of such expenses, disbursements, losses and
liabilities.
Section 2. PAYMENT OF EXPENSES BY SHAREHOLDERS. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, 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
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full and/or fractional Shares which represents the outstanding amount of
such charges due from such Shareholder.
ARTICLE IX
MISCELLANEOUS
Section 1. TRUST NOT A PARTNERSHIP. This Declaration creates a trust
and not a partnership. No Trustee shall have any power to bind personally either
the Trust's officers or any Shareholder.
Section 2. TRUSTEE ACTION. The exercise by the Trustees of their powers
and discretion hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested. Subject
to the provisions of Article IV, the Trustees shall not be liable for errors of
judgment or mistakes of fact or law.
Section 3. RECORD DATES. The Trustees may fix in advance a date up to
ninety (90) days before the date of any Shareholders' meeting, or the date for
the payment of any dividends or other distributions, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of such dividend or other distribution, or to
receive any such allotment of rights, or to exercise such rights in respect of
any such change, conversion or exchange of Shares.
Section 4. TERMINATION OF THE TRUST. (a) This Trust shall have
perpetual existence. Subject to the vote of a majority of the Shares
outstanding and entitled to vote of the Trust or of each Series to be affected,
the Trustees may
(i) sell and convey all or substantially all of the assets of all
Series or any affected Series to another Series or to another entity
which is an open-end investment company as defined in the 1940 Act, or
is a series thereof, for adequate consideration, which may include the
assumption of all outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust or any affected Series, and which
may include shares of or interests in such Series, entity, or series
thereof; or
(ii) at any time sell and convert into money all or substantially all
of the assets of all Series or any affected Series.
Upon making reasonable provision for the payment of all known liabilities of all
Series or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the
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Shareholders of all Series or any affected Series; however, the payment to
any particular Class of such Series may be reduced by any fees, expenses or
charges allocated to that Class.
(b) The Trustees may take any of the actions specified in subsection
(a) (i) and (ii) above without obtaining the vote of a majority of the Shares
Outstanding and entitled to vote of the Trust or any Series if a majority of the
Trustees determines that the continuation of the Trust or Series is not in the
best interests of the Trust, such Series, or their respective Shareholders as a
result of factors or events adversely affecting the ability of the Trust or such
Series to conduct its business and operations in an economically viable manner.
Such factors and events may include the inability of the Trust or a Series to
maintain its assets at an appropriate size, changes in laws or regulations
governing the Trust or the Series or affecting assets of the type in which the
Trust or Series invests, or economic developments or trends having a significant
adverse impact on the business or operations of the Trust or such Series.
(c) Upon completion of the distribution of the remaining proceeds or
assets pursuant to subsection (a), the Trust or affected Series shall terminate
and the Trustees and the Trust shall be discharged of any and all further
liabilities and duties hereunder with respect thereto and the right, title and
interest of all parties therein shall be canceled and discharged. Upon
termination of the Trust, following completion of winding up of its business,
the Trustees shall cause a certificate of cancellation of the Trust's
certificate of trust to be filed in accordance with the Delaware Act, which
certificate of cancellation may be signed by any one Trustee.
Section 5. REORGANIZATION. (a) Notwithstanding anything else herein, to
change the Trust's form or place of organization the Trustees may, without
Shareholder approval unless such approval is required by applicable law, (i)
cause the Trust to merge or consolidate with or into one or more entities, if
the surviving or resulting entity is the Trust or another open-end management
investment company under the 1940 Act, or a series thereof, that will succeed to
or assume the Trust's registration under the 1940 Act, (ii) cause the Shares to
be exchanged under or pursuant to any state or federal statute to the extent
permitted by law, or (iii) cause the Trust to incorporate under the laws of
Delaware or any other U.S. jurisdiction. Any agreement of merger or
consolidation or certificate of merger may be signed by a majority of Trustees
and facsimile signatures conveyed by electronic or telecommunication means shall
be valid.
(b) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, an agreement of merger or consolidation approved by
the Trustees in accordance with this Section 5 may effect any amendment to the
Declaration or effect the adoption of a new trust instrument of the Trust if it
is the surviving or resulting trust in the merger or consolidation.
(c) The Trustees may create one or more business trusts to which all or
any part of the assets, liabilities, profits or losses of the Trust or any
Series or Class thereof may
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be transferred and may provide for the conversion of Shares in the Trust or
any Series or Class thereof into beneficial interests in any such newly created
trust or trusts or any series or classes thereof.
Section 6. DECLARATION OF TRUST. The original or a copy of this
Declaration of Trust and of each amendment hereto or Declaration of Trust
supplemental shall be kept at the office of the Trust where it may be inspected
by any Shareholder. Anyone dealing with the Trust may rely on a certificate by a
Trustee or an officer of the Trust as to the authenticity of the Declaration of
Trust or any such amendments or supplements and as to any matters in connection
with the Trust. The masculine gender herein shall include the feminine and
neuter genders. Headings herein are for convenience only and shall not affect
the construction of this Declaration of Trust. This Declaration of Trust may be
executed in any number of counterparts, each of which shall be deemed an
original.
Section 7. APPLICABLE LAW. This Declaration and the Trust created
hereunder are governed by and construed and administered according to the
Delaware Act and the applicable laws of the State of Delaware; provided,
however, that there shall not be applicable to the Trust, the Trustees or this
Declaration of Trust (a) the provisions of Section 3540 of Title 12 of the
Delaware Code, or (b) any provisions of the laws (statutory or common) of the
State of Delaware (other than the Delaware Act) pertaining to trusts which
relate to or regulate (i) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and charges, (ii)
affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Declaration. The Trust shall be of the type commonly called a Delaware
business trust, and, without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
Section 8. AMENDMENTS. The Trustees may, without any Shareholder vote,
amend or otherwise supplement this Declaration by making an amendment, a
Declaration of Trust supplemental hereto or an amended and restated trust
instrument;
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provided, that Shareholders shall have the right to vote on any amendment
(a) which would affect the voting rights of Shareholders granted in
Article VII, Section l, (b) to this Section 8, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s) filed with the
Commission, and (d) submitted to them by the Trustees in their discretion. Any
amendment submitted to Shareholders which the Trustees determine would affect
the Shareholders of any Series shall be authorized by vote of the Shareholders
of such Series and no vote shall be required of Shareholders of a Series not
affected. Notwithstanding anything else herein, any amendment to Article IV
which would have the effect of reducing the indemnification and other rights
provided thereby to Trustees, officers, employees, and agents of the Trust or to
Shareholders or former Shareholders, and any repeal or amendment of this
sentence shall each require the affirmative vote of the holders of two-thirds of
the Outstanding Shares of the Trust entitled to vote thereon and no such
amendment shall effect the right to indemnification of any person who is no
longer a Trustee, Officer or employee or agent at the time of such amendment.
Section 9. DERIVATIVE ACTIONS. In addition to the requirements set
forth in Section 3816 of the Delaware Act, a Shareholder may bring a derivative
action on behalf of the Trust only if the following conditions are met:
(a) Shareholders eligible to bring such derivative action under the
Delaware Act who hold at least 10% of the Outstanding Shares of the Trust, or
10% of the Outstanding Shares of the Series or Class to which such action
relates, shall join in the request for the Trustees to commence such action; and
(b) the Trustees must be afforded a reasonable amount of time to
consider such shareholder request and to investigate the basis of such claim.
The Trustees shall be entitled to retain counsel or other advisers in
considering the merits of the request and shall require an undertaking by the
Shareholders making such request to reimburse the Trust for the expense of any
such advisers in the event that the Trustees determine not to bring such action.
Section 10. FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the By-laws. The Trustees may change the fiscal
year of the Trust without Shareholder approval.
Section 11. SEVERABILITY. The provisions of this Declaration are
severable. If the Trustees determine, with the advice of counsel, that any
provision hereof conflicts with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination. If any
provision hereof shall be held invalid or unenforceable in any jurisdiction,
such
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invalidity or unenforceability shall attach only to such provision only in
such jurisdiction and shall not affect any other provision of this Declaration.
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<PAGE>
IN WITNESS WHEREOF, the undersigned being all the Trustees of the Trust
have executed this instrument as of the date first written above.
/S/ MARY K. BUSH
Mary K. Bush As Trustee and not individually
/S/ JOHN F. COGAN, JR.
John F. Cogan, Jr. As Trustee and not individually
/S/ RICHARD H. EGDAHL
Richard H. Egdahl As Trustee and not individually
/S/ MARGARET B. W. GRAHAM
Margaret B. W. Graham As Trustee and not individually
/S/ JOHN W. KENDRICK
John W. Kendrick As Trustee and not individually
/S/ MARGUERITE A. PIRET
Marguerite A. Piret As Trustee and not individually
/S/ DAVID D. TRIPPLE
David D. Tripple As Trustee and not individually
/S/ STEPHEN K. WEST
Stephen K. West As Trustee and not individually
/S/ JOHN WINTHROP
John Winthrop As Trustee and not individually
The address of each Trustee is
c/o Pioneer High Yield Fund
60 State Street, Boston, Massachusetts 02109
phelen/71976.114/HighYield/dt.doc
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<PAGE>
CERTIFICATE OF TRUST
THIS Certificate of Trust of Pioneer High Yield Fund (the "Trust"),
dated August 3, 1999, is being duly executed and filed by the undersigned
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. [Subsection] 3801, ET SEQ).
1. NAME. The name of the business trust formed hereby is Pioneer
High Yield Fund.
2. REGISTERED AGENT. The business address of the registered
office of the Trust in the State of Delaware is 1201 North Market Street in the
City of Wilmington, County of New Castle, 19801. The name of the Trust's
registered agent at such address is Delaware Corporation Organizers, Inc.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective
upon the date and time of filing.
4. SERIES TRUST. Notice is hereby given that pursuant to Section 3804
of the Delaware Business Trust Act, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series of the Trust shall be enforceable against the assets of such
series only and not against the assets of the Trust generally. The Trust is a
registered investment company under the Investment Company Act of 1940, as
amended.
<PAGE>
IN WITNESS WHEREOF, the undersigned being all the Trustees of the Trust
have executed this instrument as of the date first written above.
/S/ MARY K. BUSH
Mary K. Bush As Trustee and not individually
/S/ JOHN F. COGAN, JR.
John F. Cogan, Jr. As Trustee and not individually
/S/ RICHARD H. EGDAHL
Richard H. Egdahl As Trustee and not individually
/S/ MARGARET BW BRAHAM
Margaret B.W. Graham As Trustee and not individually
/S/ JOHN W. KENDRICK
John W. Kendrick As Trustee and not individually
/S/ MARGUERITE A. PIRET
Marguerite A. Piret As Trustee and not individually
/S/ DAVID D. TRIPPLE
David D. Tripple As Trustee and not individually
/S/ STEPHEN K. WEST
Stephen K. West As Trustee and not individually
/S/ JOHN WINTHROP
John Winthrop As Trustee and not individually
/netuser12/phelan/op/71976.114/strategic/cert.wpf
BY-LAWS
OF
PIONEER HIGH YIELD FUND
ARTICLE I
DEFINITIONS
All capitalized terms have the respective meanings given them in the
Agreement and Declaration of Trust of Pioneer High Yield Fund dated August 3,
1999, as amended or restated from time to time.
ARTICLE II
OFFICES
SECTION 1. PRINCIPLES OFFICE. Until changed by the Trustees, the
principal office of the Trust shall be in Boston, Massachusetts.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the State of Delaware as the Trustees may from
time to time determine.
SECTION 3. REGISTERED OFFICE AND REGISTERED AGENT. The Board of
Trustees shall establish a registered office in the State of Delaware and shall
appoint as the Trust's registered agent for service of process in the State of
Delaware an individual resident of the State of Delaware or a Delaware
corporation or a corporation authorized to transact business in the State of
Delaware; in each case the business office of such registered agent for service
of process shall be identical with the registered Delaware office of the Trust.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the Shareholders of the Trust or a
Series or Class thereof shall be held as provided in the Declaration of Trust at
such place within or without the State of Delaware as the Trustee shall
designate. The holders of one-third of the Outstanding Shares of the Trust or a
Series or Class thereof present in person or by proxy and entitled to vote shall
constitute a quorum at any meeting of the Shareholders of the Trust or a Series
or Class thereof.
<PAGE>
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail or telegraphic or electronic means to each
Shareholder at his address as recorded on the register of the Trust mailed at
least (10) days and not more than ninety (90) days before the meeting, PROVIDED,
HOWEVER, that notice of a meeting need not be given to a Shareholder to whom
such notice need not be given under the proxy rules of the Commission under the
1940 Act and the Securities Exchange Act of 1934, as amended. Only the business
stated in the notice of the meeting shall be considered at such meeting. Any
adjourned meeting may be held a adjourned without further notice. No notice need
be given to any Shareholder who shall have failed to inform the Trust of his
current address or if a written waiver of notice, executed before or after the
meeting by the Shareholder who shall have failed to inform the Trust of his
current address or if a written waiver of notice, executed before or after the
meeting by the Shareholder or his attorney thereunto authorized, is filed with
the records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS AND OTHER PURPOSES. For the purpose
of determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determination of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration of Trust.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken. A
proxy shall be deemed signed if the shareholder's name is placed on the proxy,
(whether by manual signature, typewriting, telegraphic transmission, facsimile,
other electronic means or otherwise) by the Shareholder or the Shareholder's
attorney-in-fact. Proxies may be given by any electronic or telecommunication
device except as otherwise provided in the Declaration of Trust. Proxies may be
solicited in the name of one or more Trustees or one or more of the officers of
the Trust. Only Shareholders of record shall be entitled to vote. As determined
by the Trustees without the vote or consent of Shareholders, on any matter
submitted to a vote of Shareholders, either (i) each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote or (ii)
each dollar of net asset value (number of Shares owned times net asset value per
Share of such Series or Class, as applicable) shall be entitled to one vote on
any matter on which such Shares are entitled to vote and each fractional dollar
amount shall be entitled to a proportionate fractional vote. Without limiting
their power to designate otherwise in accordance with the preceding sentence,
the Trustees have established in the Declaration of Trust that each whole
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share shall be entitled to one vote as to any matter on which it is entitled
by the Declaration of Trust to vote and fractional shares shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such share is a minor or a person of unsound mind, and subject to
guardianship or the legal control of any other person as regards the charge or
management of such Share, he may vote by his guardian or such other person
appointed or having such control, and such vote may be given in person or by
proxy.
SECTION 5. ABSTENTIONS AND BROKER NON-VOTES. Outstanding Shares
represented in person or by proxy (including Shares which abstain or do not vote
with respect to one or more of any proposals presented for Shareholder approval)
will be counted for purposes of determining whether a quorum is present at a
meeting. Abstentions will be treated as Shares that are present and entitled to
vote for purposes of determining the number of Shares that are present and
entitled to vote with respect to any particular proposal, but will not be
counted as a vote in favor of such proposal. If a broker or nominee holding
Shares in "street name" indicates on the proxy that it does not have
discretionary authority to vote as to a particular proposal, those Shares will
not be considered as present and entitled to vote with respect to such proposal.
SECTION 6. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Delaware business corporation.
SECTION 7. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Outstanding Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law) consent to the action in writing and the written consents are
filed with the records of the meetings of Shareholders. Such consents shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the president,
the Chairman or by any one
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of the Trustees, at the time being in office. Notice of the time and place
of each meeting other than regular or stated meetings shall be given by the
Secretary or an Assistant Secretary or by the officer or Trustee calling the
meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be given by telephone, cable, wireless, facsimile or other
electronic mechanism to each Trustee at his business address, or personally
delivered to him at least one day before the meeting. Such notice may, however,
be waived by any Trustee. Notice of a meeting need not be given to any Trustee
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A notice or waiver of notice need not specify the purpose of any meeting.
The Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall be deemed to have been held at a place designated by the Trustees at the
meeting. participation in a telephone conference meeting shall constitute
presence in person at such meeting. Any action required or permitted to be taken
at any meeting of the Trustees may be taken by the Trustees without a meeting if
a majority of the Trustees consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings. Such consents
shall be treated as a vote for all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees in
order to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration of Trust or these By-laws)
the act of a majority of the Trustees present at any such meeting, at which a
quorum is present, shall be the act of the Trustees. In the absence of a quorum,
a majority of the Trustees present may adjourn the meeting from time to time
until a quorum shall be present. Notice of an adjourned meeting need not be
given.
ARTICLE V
COMMITTEES
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) members to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust or a Series thereof, and such
other powers of the Trustees as the Trustees may delegate to them, from time to
time, except those powers which by law, the Declaration of Trust or these
By-laws they are prohibited from delegating. The Trustees may also elect from
their own number other Committees from time to time; the number composing such
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Committees, the powers conferred upon the same (subject to the same limitations
as with respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
chairman of any such Committee. In the absence of such designation the Committee
may elect its own Chairman.
SECTION 2. MEETINGS QUORUM AND MANNER OF ACTING. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may
delegate to any officer or committee the power to appoint any subordinate
officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration of Trust or these Bylaws, the President, the
Treasurer, the Secretary and any other officer shall each hold office at the
pleasure of the Board of Trustees or until his successor shall have been duly
elected and qualified. The Secretary and the Treasurer may be the same person. A
Vice President and the Treasurer or a Vice President and the Secretary may be
the same person, but the offices of Vice President, Secretary and Treasurer
shall not be held by the same person. The President shall hold no other office,
however, the President may also serve as Chairman. Except as above provided, any
two offices may be held by the same person. Any officer may be but none need be
a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause, by a vote of a
majority of the
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Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN. The Trustees may, but
need not, appoint from among their number a Chairman. When present he shall
preside at the meetings of the Shareholders and of the Trustees. He may call
meetings of the Trustees and of any committee thereof whenever he deems it
necessary. He shall be an executive officer of the Trust and shall have, with
the President, general supervision over the business and policies of the Trust,
subject to the limitations imposed upon the President, as provided in Section 5
of this Article VI.
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT. The President may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and to the control of any Committees of the Trustees, within their
respective spheres, as provided by the Trustees, he shall at all times exercise
a general supervision and direction over the affairs of the Trust. He shall have
the power to employ attorneys and counsel for the Trust or any Series or Class
thereof and to employ such subordinate officers, agents, clerks and employees as
he may find necessary to transact the business of the Trust or any Series or
Class thereof. He shall also have the power to grant, issue, execute or sign
such powers of attorney, proxies or other documents as may be deemed advisable
or necessary in furtherance of the interests of the Trust or any Series thereof.
The President shall have such other powers and duties, as from time to time may
be conferred upon or assigned to him by the Trustees.
SECTION 6. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees, shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. He shall deliver
all funds of the Trust or any Series or Class thereof which may come into his
hands to such Custodian as the Trustees may employ. He shall render a statement
of condition of the finances of the Trust or any Series or Class thereof to the
Trustees as often as they shall require the same and he shall in general perform
all the duties incident to the office of a Treasurer and such other duties as
from time to time may be assigned to him by the Trustees. The Treasurer shall
give a bond for the faithful discharge of his duties, if required so to do by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
SECTION 8. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders in proper
books
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provided for that purpose; he shall have custody of the seal of the Trust;
he shall have charge of the Share transfer books, lists and records unless the
same are in the charge of a transfer agent. He shall attend to the giving and
serving of all notices by the Trust in accordance with the provisions of these
By-laws and as required by law; and subject to these By-laws, he shall in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF ASSISTANT OFFICERS. In the absence or
disability of the Treasurer, any officer designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Treasurer.
Each officer shall perform such other duties as from time to time may be
assigned to him by the Trustees. Each officer performing the duties and
exercising the powers of the Treasurer, if any, and any Assistant Treasurer,
shall give a bond for the faithful discharge of his duties, if required so to do
by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
SECTION 10. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 11. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable provisions of the Declaration of
Trust, the compensation of the officers and Trustees and members of an advisory
board shall be fixed from time to time by the Trustees or, in the case of
officers, by any Committee or officer upon whom such power may be conferred by
the Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of November
in each year and shall end on the last day of October in each year, provided,
however, that the Trustees may from time to time change the fiscal year. The
taxable year of each Series of the Trust shall be as determined by the Trustees
from time to time.
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ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration of Trust or these By-laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed to
have been sent by mail, telegraph, cable, wireless, facsimile or other
electronic means for the purposes of these By-laws when it has been delivered to
a representative of any company holding itself out as capable of sending notice
by such means with instructions that it be so sent.
ARTICLE X
AMENDMENT S
These By-laws, or any of them, may be altered, amended or repealed, or
new By-laws may be adopted by (a) vote of a majority of the Outstanding Shares
voting in person or by proxy at a meeting of Shareholders and entitled to vote
or (b) by the Trustees, provided, however, that no By-law may be amended,
adopted or repealed by the Trustees- if such amendment, adoption or repeal
requires, pursuant to law, the Declaration of Trust or these By-laws, a vote of
the Shareholders.
END OF BY-LAWS
phelan/71976.114/HighYield/bylaw.doc
8
Draft date 10/28/99
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made as
of this ____ day of October, 1999, between Pioneer High Yield Fund (the
"ACQUIRING FUND"), a business trust organized under the laws of the State of
Delaware with its principal place of business at 60 State Street, Boston,
Massachusetts 02109, and THIRD AVENUE TRUST, a business trust organized under
the laws of the State of Delaware with its principal place of business at 767
Third Avenue, New York, New York 10017-2023 (the "TRUST"), on behalf of Third
Avenue High Yield Fund (the "ACQUIRED FUND"), a series of the Trust.
This Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "CODE"). The reorganization (the
"REORGANIZATION") will consist of (a) the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange for (i) the issuance of Class A
shares of beneficial interest of the Acquiring Fund (collectively, the
"ACQUIRING FUND SHARES" and each, an "ACQUIRING FUND SHARE") to the Acquired
Fund, and (ii) the assumption by the Acquiring Fund of (I) the liabilities of
the Acquired Fund that are included in the calculation of net asset value
("NAV") on the closing date set forth below (the "CLOSING DATE") and (II) the
liabilities of the Acquired Fund with respect to its investment operations that
are not required by generally accepted accounting principles ("GAAP") to be
included in the calculation of NAV consistent with liabilities incurred by
registered management investment companies in the ordinary course of their
businesses (i.e., not including any extraordinary obligations, including, but
not limited to legal proceedings, shareholder claims and distribution payments)
(the "ASSUMED LIABILITIES"), and (b) the distribution by the Acquired Fund, on
the Closing Date, or as soon thereafter as practicable, of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in liquidation of the Acquired
Fund and the termination of the Acquired Fund, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, Acquiring Fund and the Trust are each registered investment
companies classified as management companies of the open-end type, and the
Acquired Fund owns securities that generally are assets of the character in
which the Acquiring Fund is permitted to invest;
WHEREAS, the Acquiring Fund is authorized to issue shares of beneficial
interest;
WHEREAS, the Board of Trustees of the Acquiring Fund has determined
that the exchange of all of the assets of the Acquired Fund for Acquiring Fund
Shares and the assumption of the Assumed Liabilities of the Acquired Fund by the
Acquiring Fund are in the best interests of the Acquiring Fund shareholders;
WHEREAS, the Board of Trustees of the Trust has determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of the Assumed Liabilities of the Acquired Fund by the Acquiring
Fund are in the best interests of the Acquired Fund shareholders.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND ASSUMPTION OF THE ASSUMED LIABILITIES AND LIQUIDATION
AND TERMINATION OF THE ACQUIRED FUND.
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the Acquired Fund
agrees to transfer its assets as set forth in paragraph
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1.2 to the Acquiring Fund free and clear of all liens and encumbrances
(other than those arising under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), liens for taxes not yet due and contractual restrictions on
the transfer of the acquired assets), and the Acquiring Fund agrees in exchange
therefor: (a) to issue to the Acquired Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined (to at least two decimal
places) by dividing the value of the Acquired Fund's net assets transferred to
the Acquiring Fund, computed in the manner and as of the time and date set forth
in paragraph 2.1, by the NAV of one Acquiring Fund Share, computed in the manner
and as of the time and date set forth in paragraph 2.2; and (b) to assume the
Assumed Liabilities, as set forth in paragraph 1.3. Such transactions shall take
place at the closing provided for in paragraph 3.1 (the "CLOSING").
1.2. (a) The assets of the Acquired Fund to be acquired by the
Acquiring Fund shall consist of all of its property, including, without
limitation, all goodwill, all contractual rights of the Acquired Fund or the
Trust in respect of the Acquired Fund, all other intangible property owned by
the Acquired Fund and originals or copies of all books and records of the
Acquired Fund but shall not include any interest in the name "Third Avenue."
(b) The Acquired Fund has provided the Acquiring Fund with a
list of all of the Acquired Fund's securities and other assets as of the date of
this Agreement. The Acquired Fund reserves the right to sell any of these
securities but will not, without the prior approval of the Acquiring Fund,
acquire any additional securities other than securities of the type in which the
Acquiring Fund is permitted to invest and shall not acquire, without the consent
of the Acquiring Fund, any securities that are valued at "fair value" under the
valuation procedures of either the Acquired Fund or the Acquiring Fund.
1.3. The Acquired Fund will endeavor to discharge all the Acquired
Fund's known liabilities and obligations that are or will become due prior to
the Closing Date. The Acquired Fund shall prepare an unaudited statement of
assets and liabilities (the "CLOSING STATEMENT"), as of the Valuation Date (as
defined in paragraph 2.1), in accordance with GAAP consistently applied from the
prior audited period, including a calculation of the net assets of the Acquired
Fund as of the close of business on the Closing Date. The Acquiring Fund shall
assume the Assumed Liabilities.
1.4. On the Closing Date or as soon thereafter as is conveniently
practicable, the Trust shall liquidate the Acquired Fund and distribute pro rata
to the Acquired Fund's shareholders of record determined as of the close of
business on the Closing Date (the "ACQUIRED FUND SHAREHOLDERS") the Acquiring
Fund Shares it receives pursuant to paragraph 1.1. Such liquidation and
distribution will be accomplished by the Trust instructing the Acquiring Fund to
transfer the Acquiring Fund Shares then credited to the account of the Acquired
Fund on the books of the Acquiring Fund to open accounts on the share records of
the Acquiring Fund in the names of the Acquired Fund Shareholders (as provided
to the Acquiring Fund by the Trust) and representing the respective pro rata
number of the Acquiring Fund Shares due such shareholders. The Trust shall
promptly provide the Acquiring Fund with evidence of such liquidation and
distribution. All issued and outstanding shares of the Acquired Fund will
simultaneously be cancelled on the books of the Acquired Fund, although share
certificates representing interests in the Acquired Fund will represent a number
of Acquiring Fund Shares after the Closing Date as determined in accordance with
paragraph 1.1. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent for its Class A shares. Acquiring Fund
Shares will be issued in the manner described in the Acquiring Fund's
Registration Statement on Form N-14 in the form attached to this Agreement as
Annex A.
1.6. Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund shares on
the books of the Acquired Fund as of the time
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of issuance shall, as a condition of such issuance and transfer, be paid by
the person to whom such Acquiring Fund Shares are to be issued and transferred.
1.7. Any reporting responsibility of the Trust with respect to the
Acquired Fund is and shall remain the responsibility of the Trust up to and
including the Closing Date and such later date on which the Acquired Fund is
terminated.
1.8. The Acquired Fund shall, following the Closing Date and the making
of all distributions pursuant to paragraph 1.4, be terminated as a series of the
Trust under the laws of the State of Delaware and in accordance with the Trust
Instrument and By-Laws of the Trust.
2. VALUATION
2.1. The value of the assets of the Acquired Fund to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of regular trading on the New York Stock Exchange, Inc. on the Closing
Date (such time and date being hereinafter called the "VALUATION DATE"), using
the valuation procedures set forth in the prospectus or statement of additional
information of the Acquired Fund as in effect on the date hereof.
2.2. The NAV of the Acquiring Fund Class A shares shall be calculated
in accordance with the valuation procedures described in paragraph 2.1.
2.3. All computations of value shall be made by First Data Investors
Services Group, Inc. in accordance with its regular practice as pricing agent
for the Acquired Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be February 29, 2000, or such later date as
the parties may agree to in writing. All acts taking place at the Closing shall
be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 5:00
p.m. (Eastern time) at the offices of Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts, or at such other time and/or place as the parties may
agree.
3.2. Portfolio securities shall be presented by the Acquired Fund to
Brown Brothers Harriman & Co. ("BBH") as custodian for the Acquiring Fund for
examination no later than three business days preceding the Valuation Date. The
Acquiring Fund may, in its sole discretion, reject any securities if it
reasonably believes that the ownership of such securities by the Acquired Fund
or the acquisition of such securities by the Acquiring Fund would violate the
investment policies and restrictions of the Acquired Fund and the Acquiring
Fund. The portfolio securities, cash and due bills shall be delivered by the
Acquired Fund to BBH as custodian for the Acquiring Fund for the account of the
Acquiring Fund at the Closing duly endorsed in proper form for transfer in such
condition as to constitute good delivery thereof in accordance with the custom
of brokers. The cash shall be delivered by wire in federal funds to an account
of the Acquiring Fund specified by the Acquiring Fund.
3.3. Custodial Trust Company, custodian for the Acquired Fund, shall
deliver at the Closing a certificate of an authorized officer stating that: (a)
the Acquired Fund's assets have been delivered in proper form to the Acquiring
Fund on the Closing Date and (b) all necessary transfer taxes including all
applicable federal and state stock transfer stamps, if any, have been paid, or
provision for payment shall have been made, in conjunction with the delivery of
portfolio securities.
3.4. In the event that on the Valuation Date (a) the primary trading
market for portfolio securities of the Acquired Fund shall be closed to trading
or trading thereon shall be restricted or (b) trading or the reporting of
trading on such market shall be disrupted so that accurate calculation based
upon available market prices of the value of the net assets of the parties
hereto is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed and
reporting shall have been restored, provided that unless the parties otherwise
agree, if
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the transactions contemplated by this Agreement shall not have occurred on
or prior to April 15, 2000, each party's obligations under this Agreement shall
terminate without liability to the other party, except for any liability that
may arise out of a party's breach of its obligations under this Agreement prior
to such termination.
3.5. The Acquired Fund shall deliver to the Acquiring Fund at the
Closing (or, if not reasonably available at the Closing, as soon as practicable
thereafter) a list of the names, addresses, taxpayer identification numbers and
backup withholding and nonresident alien withholding status of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding shares owned
by each such shareholder immediately prior to the Closing, certified by the
President or a Vice President of the Trust on behalf of the Acquired Fund as
being an accurate record of the information (i) provided by Acquired Fund
Shareholders or (ii) derived from the Trust's records by such officers or one of
the Trust's service providers.
3.6. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited to the Acquired Fund's
account on the Closing Date to the Secretary of the Trust on behalf of the
Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account on the
books of the Acquiring Fund. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. LIQUIDATION AND DISSOLUTION OF ACQUIRED FUND
4.1. As soon as practicable after the Closing, the Trust shall
liquidate the Acquired Fund and distribute pro rata to the Acquired Fund
Shareholders the Acquiring Fund Shares received pursuant to paragraph 1.1. Such
liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares credited to the account of the Acquired Fund to open
accounts on the share records in the names of Acquired Fund Shareholders as
delivered to the Acquiring Fund prior to the Closing Date in accordance with
paragraph 3.5 and representing the respective pro rata entitlement of each
Acquired Fund Shareholder in the Acquiring Fund Shares.
4.2. In connection with such liquidating distributions, (a) the
Acquiring Fund shall not deliver certificates representing its shares and (b)
the share transfer books of the Acquired Fund shall be permanently closed as of
the Closing Date and arrangements satisfactory to the Acquiring Fund, acting
reasonably, shall be made to restrict the further transfer of the Acquired
Fund's shares.
4.3. As soon as practicable after the liquidation of the Acquired
Fund, the Trust shall terminate the Acquired Fund as a series of the Trust
under the laws of the State of Delaware and in accordance with the Trust
Instrument and By-Laws of the Trust.
5. REPRESENTATIONS AND WARRANTIES
5.1. The Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund, which representations and warranties will be
true and correct on the date hereof and on the Closing Date as though made on
and as of the Closing Date, as follows:
(a) The Acquired Fund is a series of the Trust. The Trust is a
business trust validly existing and in good standing under the laws of the
State of Delaware and has the power to own all of its properties and assets
and, subject to approval by the Acquired Fund Shareholders, to perform its
obligations under this Agreement. The Acquired Fund is not required to qualify
to do business in any jurisdiction in which it is not so qualified or where
failure to qualify would not subject it to any material liability or
disability. Each of the Acquired Fund and the Trust has all necessary federal,
state and local authorizations to own all of the properties and assets
attributable to the Acquired Fund and to carry on the business of the Acquired
Fund as now being conducted;
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(b) The Trust is a registered investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "COMMISSION") under the Investment
Company Act of 1940 (the "INVESTMENT COMPANY ACT") is in full force and effect;
(c) The Trust is not, and the execution, delivery and performance of
this Agreement in respect of the Acquired Fund will not result, in a material
violation of its Trust Instrument or By-Laws or of any material agreement,
indenture, instrument, contract, lease or other undertaking with respect to the
Acquired Fund to which the Trust is a party or by which the Acquired Fund or
its assets are bound;
(d) Except as specifically disclosed on Schedule 5.1(d) or included in
the calculation of NAV on the Valuation Date, the Trust has no material
contracts or other commitments (other than this Agreement) with respect to the
Acquired Fund which will be terminated with liability to either the Trust or to
the Acquired Fund on or prior to the Closing Date;
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or to its knowledge
threatened against the Trust with respect to the Acquired Fund or any of the
Acquired Fund's properties or assets, except as previously disclosed in writing
to, and acknowledged in writing by, the Acquiring Fund. Neither the Trust nor
the Acquired Fund is a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects the Acquired Fund's business or the Trust's ability to
consummate the transactions herein contemplated;
(f) The statement of assets and liabilities of the Acquired Fund as of October
31, 1998 has been, and the statement of assets and liabilities of the Acquired
Fund as of October 31, 1999 to be delivered to the Acquiring Fund pursuant to
paragraph 8.4 will be, audited by PricewaterhouseCoopers LLP, independent
certified public accountants, and is or will be in accordance with GAAP
consistently applied and fairly reflects, or will fairly reflect, the financial
condition of the Acquired Fund as of such dates; except for the Assumed
Liabilities, the Acquired Fund will not have any known or contingent liabilities
on the Closing Date;
(g) Since October 31, 1998, except as disclosed on a schedule to this Agreement
or specifically disclosed in the Acquired Fund's prospectus or statement of
additional information as in effect on the date of this Agreement, there has not
been any material adverse change in the Acquired Fund's financial condition,
assets, liabilities, business or prospects, or any incurrence by the Acquired
Fund of indebtedness, except for normal contractual obligations incurred in the
ordinary course of business or in connection with the settlement of purchases
and sales of portfolio securities. For the purposes of this subparagraph (g), a
decline in NAV per share of the Acquired Fund arising out of its normal
investment operations or a decline in net assets of the Acquired Fund as a
result of redemptions shall not constitute a material adverse change;
(h) For each taxable year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company and has elected to be treated as such and will
qualify as such as of the Closing Date. The Acquired Fund has not taken any
action which has caused or will cause the Acquired Fund to fail to qualify as a
regulated investment company under the Code. The Acquired Fund has not been
notified that any tax return or other filing of the Acquired Fund has been
reviewed or audited by any federal, state, local or foreign taxing authority.
Except as set forth on Schedule 5.1:
(A) Within the times and in the manner prescribed by law, the
Acquired Fund has filed all federal, state and local tax returns,
including all information returns and payee statements, and all tax
returns for foreign countries, provinces and other governing bodies
that have jurisdiction to levy taxes upon it and which are required to
be filed;
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(B) The Acquired Fund has paid all taxes, interest, penalties,
assessments and deficiencies which have become due or which
have been claimed to be due;
(C) All tax returns filed by the Acquired Fund constitute
complete and accurate reports of the respective tax liabilities of the
Acquired Fund or, in the case of information returns and payee
statements, the amounts required to be reported accurately set
forth all items required to be included or reflected in such
returns except for such instances of misreporting with respect
to which, individually or in the aggregate, the Acquired Fund
is not required to notify any shareholder;
(D) The Acquired Fund has not waived or extended any applicable
statute of limitations relating to the assessment of federal,
state, local or foreign taxes; and
(E) The Acquired Fund has not been notified that any examinations
of the federal, state, local or foreign tax returns of the
Acquired Fund are currently in progress or threatened and no
deficiencies have been asserted or assessed against the
Acquired Fund as a result of any audit by the Internal Revenue
Service or any state, local or foreign taxing authority, and no
such deficiency has been proposed or threatened;
(i) All issued and outstanding shares of the Acquired Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. To the Trust's knowledge, all of the issued and outstanding
shares of the Acquired Fund will, at the time of Closing, be held of record by
the persons and in the amounts set forth in the records of the transfer agent
as provided in paragraph 3.5. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any shares of
the Acquired Fund, nor is there outstanding any security convertible into any
shares of the Acquired Fund;
(j) At the Closing Date, the Trust in respect of the Acquired Fund
will have good and marketable title to the assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.1 and full right, power and authority to
sell, assign, transfer and deliver such assets hereunder, and, upon delivery
and payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto, subject to no restrictions on the full transfer
thereof, except such restrictions as might arise under the Securities Act,
other than as disclosed in writing to, and acknowledged in writing by, the
Acquiring Fund;
(k) The Trust on behalf of the Acquired Fund has the trust power and
authority to enter into and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement has been duly authorized
by all necessary action on the part of the Trust's Board of Trustees on behalf
of the Acquired Fund, and, subject to the approval of the Acquired Fund
Shareholders, assuming due authorization, execution and delivery by the
Acquiring Fund, this Agreement will constitute a valid and binding obligation
of the Trust in respect of the Acquired Fund, enforceable in accordance with
its terms, subject as to enforcement, bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(l) Any information furnished by EQSF Advisers, Inc. or the Trust on
behalf of the Acquired Fund for use in registration statements, proxy materials
and any information necessary to compute the yield and total return of the
Acquired Fund shall be accurate and complete in all material respects and shall
comply in all material respects with federal securities and other laws and
regulations applicable thereto or the requirements of any form for which its
use is intended;
(m) The proxy statement to be included in the Acquiring Fund's
Registration Statement on Form N-14 attached hereto as Annex A (other than
information therein that relates to Pioneer Investment
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Management, Inc., the Acquiring Fund or their affiliates) will, on the
effective date of that Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(n) Except as set forth on Schedule 5.1 and as will be obtained on or
prior to the Closing Date, no consent, approval, authorization or order of any
court or governmental authority is required for the consummation by the Trust
or the Acquired Fund of the transactions contemplated by this Agreement;
(o) To the Trust's knowledge, all of the issued and outstanding shares
of beneficial interest of the Acquired Fund have been offered for sale and sold
in conformity with all applicable federal and state securities laws, except as
may have been previously disclosed in writing to the Acquiring Fund;
(p) The Acquired Fund currently complies in all material respects with
and since its organization has complied in all material respects with the
requirements of, and the rules and regulations under, the Investment Company
Act, the Securities Act, the Securities Exchange Act of 1934 (the "EXCHANGE
ACT"), state "Blue Sky" laws and all other applicable federal and state laws or
regulations. The Acquired Fund currently complies in all material respects with,
and since its organization has complied in all material respects with, all
investment objectives, policies, guidelines and restrictions and any compliance
procedures established by the Trust with respect to the Acquired Fund. All
advertising and sales material used by the Acquired Fund complies in all
material respects with and has complied in all material respects with the
applicable requirements of the Securities Act, the rules and regulations of the
Commission, and, to the extent applicable, the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") and any applicable state
regulatory authority. All registration statements, prospectuses, reports, proxy
materials or other filings required to be made or filed with the Commission, the
NASD or any state securities authorities by the Acquired Fund have been duly
filed and have been approved or declared effective, if such approval or
declaration of effectiveness is required by law. Such registration statements,
prospectuses, reports, proxy materials and other filings under the Securities
Act, the Exchange Act and the Investment Company Act (i) are or were in
compliance in all material respects with the requirements of all applicable
statutes and the rules and regulations thereunder and (ii) do not or did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not false or misleading;
(q) The Acquired Fund has previously provided to the Acquiring Fund
(and will at the Closing provide an update through the Closing Date of such
information) with data which supports a calculation of the Acquired Fund's total
return and yield for all periods since the organization of the Acquired Fund.
Such data has been prepared in accordance in all material respects with the
requirements of the Investment Company Act and the regulations thereunder and
the rules of the NASD; and
(r) The prospectus of the Acquired Fund dated February 28, 1999, and
any amendments or supplements thereto, previously furnished to the Acquiring
Fund, did not as of their dates or the dates of their distribution to the
public contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading.
5.2. The Acquiring Fund represents and warrants to the Trust, which
representations and warranties will be true and correct on the date hereof and
on the Closing Date as though made on and as of the Closing Date, as follows:
(a) The Acquiring Fund is a business trust, validly existing and in
good standing under the laws of the State of Delaware and has the power to own
all of its properties and assets and to perform its obligations under this
Agreement. The Acquiring Fund is not required to qualify to do business in any
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jurisdiction in which it is not so qualified or where failure to qualify would
not subject it to any material liability or disability. The Acquiring Fund has
all necessary federal, state and local authorizations to own all of its
properties and assets and to carry on its business as now being conducted;
(b) The Acquiring Fund is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in full
force and effect;
(c) The prospectus and statement of additional information of the
Acquiring Fund included in the Acquiring Fund's registration statement that
will be in effect on the Closing Date will conform in all material respects
with the applicable requirements of the Securities Act and the Investment
Company Act and the rules and regulations of the Commission thereunder and did
not as of its date and will not as of the Closing Date contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(d) The Acquiring Fund is not, and its execution, delivery and
performance of this Agreement will not result, in a violation of its Agreement
and Declaration of Trust or By-Laws or a material violation of any agreement,
indenture, instrument, contract, lease or other undertaking with respect to the
Acquiring Fund to which it is a party or by which it is bound;
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or threatened
against the Acquiring Fund or any of the Acquiring Fund's properties or assets,
except as previously disclosed in writing to, and acknowledged in writing by,
the Acquired Fund. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings, and the Acquiring Fund is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects the Acquiring
Fund's business or its ability to consummate the transactions contemplated
herein;
(f) The Acquiring Fund has the trust power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action,
if any, on the part of the Acquiring Fund's Board of Trustees, and, assuming
due authorization, execution and delivery by the Acquired Fund, this Agreement
will constitute a valid and binding obligation of the Acquiring Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights and to general equity principles;
(g) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares and will be fully paid and non-assessable; the Acquiring Fund does
not have outstanding any options, warrants or other rights to subscribe for or
purchase any Acquiring Fund Shares, nor is there outstanding any security
convertible into any of the Acquiring Fund Shares;
(h) The information to be furnished by the Acquiring Fund or Pioneer Investment
Management, Inc. for use in proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations applicable
thereto or the requirements of any form for which its use is intended;
(i) The Acquiring Fund is a qualified institutional buyer as defined in Rule
144A under the Securities Act;
(j) Neither the Acquiring Fund nor, to the knowledge of the Acquiring Fund, any
"affiliated person" of the Acquiring Fund has been convicted of any felony or
misdemeanor, described in Section
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9(a)(1) of the Investment Company Act, nor, to the knowledge of the
Acquiring Fund, has any affiliated person of the Acquiring Fund been the
subject, or presently is the subject, of any proceeding or investigation with
respect to any disqualification that would be a basis for denial, suspension or
revocation of registration as an investment adviser under Section 203(e) of the
Investment Advisers Act of 1940 or Rule 206(4)-4(b) thereunder or of a
broker-dealer under Section 15 of the Exchange Act, or for disqualification as
an investment adviser, employee, officer or director of an investment company
under Section 9 of the Investment Company Act;
(k) The Acquiring Fund intends to elect to qualify as a regulated investment
company under Section 851 of the Code. Immediately prior to the Closing, the
Acquiring Fund will be in compliance in all material respects with all
applicable laws, rules and regulations, including, without limitation, the
Investment Company Act, the Securities Act, the Exchange Act and all applicable
state securities laws. Immediately prior to the Closing, the Acquiring Fund will
be in compliance in all material respects with the applicable investment
policies and restrictions set forth in its registration statement currently in
effect and will have calculated its NAV in accordance with the Acquiring Fund's
registration statement;
(l) The Acquiring Fund Shares to be issued pursuant to this Agreement shall on
the Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of the Acquiring Fund then in effect and qualified for
sale under the applicable state securities laws; and
(m) The Acquiring Fund Shares to be issued pursuant to this Agreement are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform in all material respects to the description
thereof contained in the Acquiring Fund's Registration Statement on Form N-14.
On the Closing Date, the Acquiring Fund shall not, except as provided herein,
have outstanding any warrants, options, convertible securities or any other type
of right pursuant to which any person could acquire Acquiring Fund Shares.
6. COVENANTS OF EACH OF THE PARTIES
6.1. The Trust, on behalf of the Acquired Fund, will operate the
Acquired Fund's business in the ordinary course between the date hereof and the
Closing Date. It is understood that such ordinary course of business will
include the declaration and payment of customary dividends and distributions
and any other dividends and distributions necessary or advisable (except to the
extent distributions that are not customary may be limited by representations
made in connection with the issuance of the tax opinion described in paragraph
9.5 hereof), in each case payable either in cash or in additional shares.
6.2. The Trust will call a meeting of the Acquired Fund Shareholders
to consider and act upon the matters set forth in the proxy statement. Each of
the Trust, on behalf of the Acquired Fund, and the Acquiring Fund will use
reasonable efforts to promptly prepare and file with the Commission a
Registration Statement on Form N-14 relating to the transactions contemplated
by this Agreement.
6.3. The Trust, on behalf of the Acquired Fund, covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
6.4. The Acquired Fund will assist the Acquiring Fund in obtaining
such information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund's shares.
6.5. Subject to the provisions of this Agreement each of the Trust, on
behalf of the Acquired Fund, and the Acquiring Fund will take, or cause to be
taken, all actions, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
6.6. The Acquired Fund shall furnish to the Acquiring Fund on the
Closing Date the Closing Statement, which statement shall be prepared in
accordance with GAAP consistently applied and shall be
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certified by the Trust's Treasurer or Assistant Treasurer. As promptly as
practicable, but in any case within 90 days after the Closing Date, the Trust
shall furnish to the Acquiring Fund, in such form as is reasonably satisfactory
to the Acquiring Fund, a statement of the earnings and profits of the Acquired
Fund for federal income tax purposes, and of any capital loss carryovers and
other items that will be carried over to the Acquiring Fund as a result of
Section 381 of the Code, and which statement will be certified by the Treasurer
of the Trust.
6.7. The Trust will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus, which will include the
proxy statement, referred to in paragraph 5.1(m), all to be included in the
Acquiring Fund's Registration Statement on Form N-14, in compliance with the
Securities Act, the Exchange Act and the Investment Company Act in connection
with the meeting of the Acquired Fund Shareholders to consider approval of this
Agreement and the transactions contemplated herein.
6.8. The Trust shall maintain errors and omissions insurance covering
management of the Acquired Fund prior to and including the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Acquiring Fund of all of the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the following further
conditions, unless waived by the Acquired Fund in writing:
7.1. All representations and warranties made in this Agreement by the
Acquiring Fund shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date; and
7.2. The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance reasonably satisfactory
to the Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties made in this Agreement by or on behalf of the
Acquiring Fund are true and correct in all material respects at and as of the
Closing Date, except as they may be affected by the transactions contemplated
by this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Trust and Acquired Fund of all of the obligations to be performed by them
hereunder on or before the Closing Date and, in addition thereto, the following
further conditions:
8.1. All representations and warranties made in this Agreement by or
on behalf of the Trust and the Acquired Fund shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date;
8.2. The Trust shall have delivered to the Acquiring Fund a statement
of the Acquired Fund's assets and liabilities showing the federal tax bases and
holding periods as of the Closing Date, certified by the Trust's Treasurer or
Assistant Treasurer on behalf of the Trust;
8.3. The Trust, on behalf of the Acquired Fund, shall have delivered
to the Acquiring Fund on the Closing Date a certificate executed in its name by
its President or Vice President and Treasurer or Assistant Treasurer, in form
and substance reasonably satisfactory to the Acquiring Fund and dated as of the
Closing Date, to the effect that the representations and warranties made in
this Agreement are true
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and correct in all material respects at and as of the
Closing Date, except as they may be affected by the transactions contemplated
by this Agreement; and
8.4. The Trust shall have delivered to the Acquiring Fund at least 30
days prior to the Closing Date financial statements of the Acquired Fund as of
October 31, 1999 audited by PricewaterhouseCoopers LLP. With the consent of
PricewaterhouseCoopers LLP (which the Trust agrees to use its reasonable
efforts to obtain), the Trust consents to the inclusion of such financial
statements, and any financial statement of the Acquired Fund for a prior
period, in the Acquiring Fund's registration statements under the Securities
Act and the Investment Company Act.
9. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE PARTIES
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to either party hereto, the other party to this
Agreement shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
9.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of each of the Trust's Trust
Instrument and By-Laws, and certified copies of the votes evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither party hereto may waive the conditions
set forth in this paragraph 9.1;
9.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
9.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities) deemed
necessary by either party hereto to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of
either party hereto, provided that either party may for itself waive any of such
conditions;
9.4. The Acquiring Fund's Registration Statement on Form N-14 shall
have become effective under the Securities Act and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the Securities Act;
9.5. The parties shall have received a favorable opinion of Skadden,
Arps, Slate, Meagher & Flom (Illinois), addressed to the Acquiring Fund and the
Trust in respect of the Acquired Fund and satisfactory to the Acquiring Fund and
the Trust, substantially to the effect that for federal income tax purposes, on
the basis of the facts, representations and assumptions set forth in such
opinion, the acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to
the Acquired Fund and the assumption of all of the Assumed Liabilities by the
Acquiring Fund, followed by the distribution by the Acquired Fund, in
liquidation of the Acquired Fund, of Acquiring Fund Shares to the Acquired Fund
Shareholders in exchange for their Acquired Fund shares of beneficial interest
and the termination of the Acquired Fund, will constitute a reorganization
within the meaning of Section 368(a) of the Code, and the Acquired Fund and the
Acquiring Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code.
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9.6. Each of the Acquiring Fund and the Acquired Fund agrees to make,
to the extent that it is able to accurately do so, and provide representations
with respect to itself that are reasonably necessary to enable Skadden, Arps,
Slate, Meagher & Flom (Illinois) to deliver an opinion substantially as set
forth in paragraph 9.5.
10. BROKERAGE FEES AND EXPENSES
10.1. Each party hereto represents and warrants to the other party
hereto that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
10.2. The parties have been informed by Pioneer Investment Management,
Inc. that it will pay all expenses incurred in connection with the
Reorganization (including, but not limited to, the preparation of the proxy
statement and solicitation expenses), except that the Acquired Fund shall be
liable for its fees and expenses incurred in connection with its liquidation and
termination; provided, however, that any fees and expenses of counsel to the
Trust in excess of $15,000 shall be paid by EQSF Advisers, Inc.; and provided
further that in the event that the transactions contemplated by this Agreement
are not approved by the shareholders of the Acquired Fund or the transactions
contemplated hereby are not otherwise completed otherwise than as a result of a
breach of this Agreement, each of Pioneer Investment Management, Inc. and EQSF
Advisers, Inc. shall pay 50% of the costs incurred by each of the Acquiring Fund
and the Acquired Fund in connection with the transactions contemplated by this
Agreement; provided finally EQSF Advisers, Inc. shall not be liable for more
than $20,000 pursuant to the preceding clause. EQSF Advisers, Inc. shall also be
solely liable for any expenses incurred in connection with obtaining the
approval of the Trustees of the Trust of the transactions contemplated by this
Agreement.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The parties hereto agree that no party has made any
representation, warranty or covenant not set forth herein or referred to in
paragraph 9.6 hereof and that this Agreement constitutes the entire agreement
between the parties.
11.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
12. TERMINATION
12.1. This Agreement may be terminated at any time prior to the Closing
Date by: (a) the mutual agreement of the Trust, on behalf of the Acquired Fund,
and the Acquiring Fund; (b) any party in the event that the other party hereto
shall breach any material representation, warranty or agreement contained herein
to be performed at or prior to the Closing Date and has not cured such breach
within 10 days of notice thereof; or (c) a condition herein expressed to be
precedent to the obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
12.2. In the event of any such termination, there shall be no liability
for damages on the part of any party hereto or their respective Trustees or
officers to the other party, but, except as provided in Section 10, each shall
bear the expenses incurred by it incidental to the preparation and carrying out
of this Agreement.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Trust on behalf of the Acquired Fund and the Acquiring Fund; provided, however,
that following the meeting of the Acquired Fund Shareholders called by the Trust
pursuant to paragraph 6.2 of this Agreement, no such amendment may have the
effect of
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changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of the Acquired Fund Shareholders without their further
approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the Trust on behalf of the
Acquired Fund at 767 Third Avenue, New York, New York 10017-2023, and the
Acquiring Fund at 60 State Street, Boston, Massachusetts 02109.
15. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
15.1. The article and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
15.3. This Agreement shall be governed by and construed in accordance
with the laws of The Commonwealth of Massachusetts.
15.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
either party without the written consent of the other party hereto. Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give any person, firm, corporation or other entity, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
15.5 It is expressly agreed that the obligations of the Acquiring Fund
and the Trust, on behalf of the Acquired Fund, shall not be binding upon any of
their respective Trustees, shareholders, nominees, officers, agents or employees
personally, but bind only the trust property of the Acquiring Fund or the
Acquired Fund, as the case may be, as provided in the trust instruments of the
Acquiring Fund and the Trust, respectively. The execution and delivery of this
Agreement have been authorized by the Trustees of each of the Acquiring Fund and
the Trust, on behalf of the Acquired Fund, and this Agreement has been executed
by authorized officers of the Acquiring Fund and the Trust, on behalf of the
Acquired Fund, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officers shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Acquiring Fund and the
Acquired Fund, as the case may be, as provided in the trust instruments of the
Acquiring Fund and the Trust, respectively.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President or Vice President and attested by its
Secretary or Assistant Secretary.
Attest: THIRD AVENUE TRUST ON BEHALF OF
THIRD AVENUE HIGH YIELD FUND
By: __________________________ By: __________________________
Name: Ian M. Kirschner Name: __________________________
Title: Secretary Title: __________________________
Attest: PIONEER HIGH YIELD FUND
By: __________________________ By: __________________________
Name: Joseph P. Barri Name: __________________________
Title: Secretary Title: __________________________
Phelan/71978.108/thirdave/reorg_11.doc
14
MANAGEMENT CONTRACT
THIS AGREEMENT dated this _____ day of January, 2000, between Pioneer High
Yield Fund, a Delaware business trust (the "Trust"), and Pioneer Investment
Management, Inc., a Delaware corporation (the "Manager").
WITNESSETH
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has filed with the Securities and Exchange Commission (the "Commission") a
registration statement for the purpose of registering its shares for public
offering under the Securities Act of 1933, as amended (the "1933 Act").
WHEREAS, the parties hereto deem it mutually advantageous that the Manager
should be engaged, subject to the supervision of the Trust's Board of Trustees
and officers, to manage the Trust.
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, the Trust and the Manager do hereby agree as follows:
(1) The Manager will regularly provide the Trust with investment research,
advice and supervision and will furnish continuously an investment program for
the Trust, consistent with the investment objective and policies of the Trust.
The Manager will determine from time to time what securities shall be purchased
for the Trust, what securities shall be held or sold by the Trust and what
portion of the Trust's assets shall be held uninvested as cash, subject always
to the provisions of the Trust's Agreement and Declaration of Trust, By-Laws and
its registration statements under the 1940 Act and under the 1933 Act covering
the Trust's shares, as filed with the Commission, and to the investment
objective, policies and restrictions of the Trust, as each of the same shall be
from time to time in effect, and subject, further, to such policies and
instructions as the Board of Trustees of the Trust may from time to time
establish. To carry out such determinations, the Manager will exercise full
discretion and act for the Trust in the same manner and with the same force and
effect as the Trust itself might or could do with respect to purchases, sales or
other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(2) The Manager will, to the extent reasonably required in the conduct of
the business of the Trust and upon the Trust's request, furnish to the Trust
research, statistical and advisory reports upon the industries, businesses,
corporations or securities as to which such requests shall be made, whether or
not the Trust shall at the time have any investment in such industries,
businesses, corporations or securities. The Manager will use its best efforts in
the preparation of such reports and will endeavor to consult the persons and
sources believed by it to have information available with respect to such
industries, businesses, corporations or entities.
<PAGE>
(3) The Manager will maintain all books and records with respect to the
Trust's securities transactions required by subparagraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than those
records being maintained by the custodian or transfer agent appointed by the
Trust) and preserve such records for the periods prescribed therefor by Rule
31a-2 under the 1940 Act. The Manager will also provide to the Board of Trustees
such periodic and special reports as the Board may reasonably request.
(4) Except as otherwise provided herein, the Manager, at its own expense,
shall furnish to the Trust office space in the offices of the Manager or in such
other place as may be agreed upon from time to time, and all necessary office
facilities, equipment and personnel for managing the Trust's affairs and
investments, and shall arrange, if desired by the Trust, for members of the
Manager's organization to serve as officers or agents of the Trust.
(5) The Manager shall pay directly or reimburse the Trust for: (i) the
compensation (if any) of the Trustees who are affiliated with, or "interested
persons" (as defined in the 1940 Act) of, the Manager and all officers of the
Trust as such; and (ii) all expenses not hereinafter specifically assumed by the
Trust where such expenses are incurred by the Manager or by the Trust in
connection with the management of the affairs of, and the investment and
reinvestment of the assets of, the Trust.
(6) The Trust shall assume and shall pay: (i) 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 Manager, or its
affiliates, office space and facilities and personnel compensation, training and
benefits; (ii) the charges and expenses of auditors; (iii) the charges and
expenses of any custodian, transfer agent, plan agent, dividend disbursing agent
and registrar appointed by the Trust; (iv) issue and transfer taxes chargeable
to the Trust in connection with securities transactions to which the Trust is a
party; (v) insurance premiums, interest charges, dues and fees for membership in
trade associations and all taxes and corporate fees payable by the Trust to
federal, state or other governmental agencies; (vi) fees and expenses involved
in registering and maintaining registrations of the Trust and/or its shares with
the Commission, state or blue sky securities agencies and foreign jurisdictions,
including the preparation of prospectuses and statements of additional
information for filing with such regulatory agencies; (vii) 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; (viii) charges and expenses of legal counsel to the Trust
and the Trustees; (ix) any distribution fees paid by the Trust in accordance
with Rule 12b-1 promulgated by the Commission pursuant to the 1940 Act; (x)
compensation of those Trustees of the Trust who are not affiliated with or
interested persons of the Manager, the Trust (other than as Trustees), The
Pioneer Group, Inc. or Pioneer Funds Distributor, Inc.; (xi) the cost of
preparing and printing share certificates; and (xii) interest on borrowed money,
if any.
(7) In addition to the expenses described in Section 6 above, the Trust
shall pay all brokers' and underwriting commissions chargeable to the Trust in
connection with securities transactions to which the Trust is a party.
2
<PAGE>
(8) The Trust shall pay to the Manager, as compensation for the Manger's
services hereunder, a fee equal on an annual basis to the following percentage
of the Trust's average daily net assets:
First $500 million 0.70%
$500 million up to $1 billion 0.65%
Over $1 billion 0.60%
(9) The management fee payable hereunder shall be computed daily and paid
monthly in arrears. In the event of termination of this Agreement, the fee
provided in Section 8 shall be computed on the basis of the period ending on the
last business day on which this Agreement is in effect subject to a pro rata
adjustment based on the number of days elapsed in the current month as a
percentage of the total number of days in such month.
(10) The Manager may from time to time agree not to impose all or a portion
of its fee otherwise payable hereunder (in advance of the time such fee or a
portion thereof would otherwise accrue) and/or undertake to pay or reimburse the
Trust for all or a portion of its expenses not otherwise required to be borne or
reimbursed by the Manager. Any such fee reduction or undertaking may be
discontinued or modified by the Manager at any time.
(11) It is understood that the Manager may employ one or more
sub-investment advisers (each a "Subadviser") to provide investment advisory
services to the Trust by entering into a written agreement with each such
Subadviser; PROVIDED, that any such agreement first shall be approved by the
vote of a majority of the Trustees, including a majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Trust, the Manager
or any such Subadviser, at a meeting of Trustees called for the purpose of
voting on such approval and by the affirmative vote of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of the Trust. The
authority given to the Manager in Sections 1 through 13 hereof may be delegated
by it under any such agreement; PROVIDED, that any Subadviser shall be subject
to the same restrictions and limitations on investments and brokerage discretion
as the Manager. The Trust agrees that the Manager shall not be accountable to
the Trust or the Trust's shareholders for any loss or other liability relating
to specific investments directed by any Subadviser, even though the Manager
retains the right to reverse any such investment, because, in the event a
Subadviser is retained, the Trust and the Manager will rely almost exclusively
on the expertise of such Subadviser for the selection and monitoring of specific
investments.
(12) The Manager 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 security on the recommendation of the
Manager, whether or not such recommendation shall have been based upon its own
investigation and research or upon investigation and research made by any other
individual, firm or corporation, but nothing contained herein will be construed
to protect the Manager against any liability to the Trust or its shareholders 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 this Agreement.
3
<PAGE>
(13) Nothing in this Agreement will in any way limit or restrict the
Manager or any of its officers, directors, or employees from buying, selling or
trading in any securities for its or their own accounts or other accounts. The
Manager may act as an investment adviser to any other person, firm or
corporation, and may perform management and any other services for any other
person, association, corporation, firm or other entity pursuant to any contract
or otherwise, and take any action or do any thing in connection therewith or
related thereto; and no such performance of management or other services or
taking of any such action or doing of any such thing shall be in any manner
restricted or otherwise affected by any aspect of any relationship of the
Manager to or with the Trust or deemed to violate or give rise to any duty or
obligation of the Manager to the Trust except as otherwise imposed by law. The
Trust recognizes that the Manager, in effecting transactions for its various
accounts, may not always be able to take or liquidate investment positions in
the same security at the same time and at the same price.
(14) In connection with purchases or sales of securities for the account of
the Trust, neither the Manager nor any of its directors, officers or employees
will act as a principal or agent or receive any commission except as permitted
by the 1940 Act. The Manager shall arrange for the placing of all orders for the
purchase and sale of securities for the Trust's account with brokers or dealers
selected by the Manager. In the selection of such brokers or dealers and the
placing of such orders, the Manager is directed at all times to seek for the
Trust the most favorable execution and net price available except as described
herein. It is also understood that it is desirable for the Trust that the
Manager have access to supplemental investment and market research and security
and economic analyses provided by brokers who may execute brokerage transactions
at a higher cost to the Trust than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the Manager is authorized to place orders for the purchase
and sale of securities for the Trust with such brokers, subject to review by the
Trust's Trustees from time to time with respect to the extent and continuation
of this practice. It is understood that the services provided by such brokers
may be useful to the Manager in connection with its or its affiliates' services
to other clients. In addition, subject to the Manager's obligation to seek the
most favorable execution and net price available, the Manager may consider the
sale of the Trust's shares in selecting brokers and dealers.
(15) On occasions when the Manager deems the purchase or sale of a security
to be in the best interest of the Trust as well as other clients, the Manager,
to the extent permitted by applicable laws and regulations, may aggregate the
securities to be sold or purchased in order to obtain the best execution and
lower brokerage commissions, if any. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Manager in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Trust and to such clients.
(16) This Agreement shall become effective on the date hereof and shall
remain in force until January __, 2002 and from year to year thereafter, but
only so long as its continuance is approved annually by a vote of the Trustees
of the Trust voting in person, including a majority of its Trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of any such parties, at a meeting of Trustees called for the purpose of voting
on such approval or by a vote of a "majority of the outstanding voting
securities" (as defined in the 1940
4
<PAGE>
Act) of the Trust, subject to the right of the Trust and the Manager to
terminate this contract as provided in Section 17 hereof.
(17) Either party hereto may, without penalty, terminate this Agreement by
vote of its Board of Trustees or Directors, as the case may be, or by vote of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Trust or the manager, as the case may be, and the giving of 60 days' written
notice to the other party.
(18) This Agreement shall automatically terminate in the event of its
assignment. For purposes of this Agreement, the term "assignment" shall have the
meaning given it by Section 2(a)(4) of the 1940 Act.
(19) The Trust agrees that in the event that neither the Manager nor any of
its affiliates acts as an investment adviser to the Trust, the name of the Trust
will be changed to one that does not contain the name "Pioneer" or otherwise
suggest an affiliation with the Manager.
(20) The Manager is an independent contractor and not an employee of the
Trust for any purpose. If any occasion should arise in which the Manager gives
any advice to its clients concerning the shares of the Trust, the Manager will
act solely as investment counsel for such clients and not in any way on behalf
of the Trust.
(21) This Agreement states the entire agreement of the parties hereto and
is intended to be the complete and exclusive statement of the terms hereof. It
may not be added to or changed orally and may not be modified or rescinded
except by a writing signed by the parties hereto and in accordance with the 1940
Act, when applicable.
(22) This Agreement and all performance hereunder shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts.
(23) Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms or provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
(24) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers and their seals to be hereto affixed
as of the day and year first above written.
ATTEST: PIONEER HIGH YIELD FUND
_____________________________ By: _____________________________
Joseph P. Barri John F. Cogan, Jr.
Secretary Chairman and President
ATTEST: PIONEER INVESTMENT MANAGEMENT, INC.
_____________________________ By: _____________________________
Joseph P. Barri David D. Tripple
Secretary President
6
Phelan_David/71976.114/highyield/manage2.doc
UNDERWRITING AGREEMENT
THIS UNDERWRITING AGREEMENT, dated this ___ day of January, 2000, by
and between Pioneer High Yield Fund, a Delaware business trust ("Trust"), and
Pioneer Funds Distributor, Inc., a Massachusetts corporation (the "Underwriter")
WITNESSETH
WHEREAS, the Trust is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and has filed a registration statement (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") for the purpose of registering shares of beneficial interest for
public offering under the Securities Act of 1933, as amended;
WHEREAS, the Underwriter engages in the purchase and sale of securities
both as a broker and a dealer and is registered as a broker-dealer with the
Commission and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD");
WHEREAS, the parties hereto deem it mutually advantageous that the
Underwriter should act as Principal Underwriter, as defined in the 1940 Act, for
the sale to the public of the shares of beneficial interest of the securities
portfolio of each series of the Trust which the Trustees may establish from time
to time (individually, a "Portfolio" and collectively, the "Portfolios"); and
NOW, THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Trust and the Underwriter do hereby agree as follows:
1. The Trust hereby grants to the Underwriter the right and option to purchase
shares of beneficial interest of each class of each Portfolio of the Trust (the
"Shares") for sale to investors either directly or indirectly through other
broker-dealers. The Underwriter is not required to purchase any specified number
of Shares, but will purchase from the Trust only a sufficient number of Shares
as may be necessary to fill unconditional orders received from time to time by
the Underwriter from investors and dealers.
2. The Underwriter shall offer Shares to the public at an offering price based
upon the net asset value of the Shares, to be calculated for each class of
Shares as described in the Registration Statement, including the Prospectus(es),
filed with the Commission and in
<PAGE>
effect at the time of the offering, plus sales charges as approved by the
Underwriter and the Trustees of the Trust and as further outlined in the Trust's
Prospectus(es). The offering price shall be subject to any provisions set forth
in the Prospectus(es) from time to time with respect thereto, including, without
limitation, rights of accumulation, letters of intention, exchangeability of
Shares, reinstatement privileges, net asset value purchases by certain persons
and reinvestments of dividends and capital gain distributions.
3. In the case of all Shares sold to investors through other broker-dealers, a
portion of applicable sales charges will be reallowed to such broker-dealers who
are members of the NASD or, in the case of certain sales by banks or certain
sales to foreign nationals, to brokers or dealers exempt from registration with
the Commission. The concession reallowed to broker-dealers shall be set forth in
a written sales agreement and shall be generally the same for broker-dealers
providing comparable levels of sales and service.
4. This Agreement shall terminate on any anniversary hereof if its terms and
renewal have not been approved by a majority vote of the Trustees of the Trust
voting in person, including a majority of its Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Underwriting Agreement (the "Qualified Trustees"), at a
meeting of Trustees called for the purpose of voting on such approval. This
Agreement may also be terminated at any time, without payment of any penalty, by
the Trust on 60 days' written notice to the Underwriter, or by the Underwriter
upon similar notice to the Trust. This Agreement may also be terminated by a
party upon five (5) days' written notice to the other party in the event that
the Commission has issued an order or obtained an injunction or other court
order suspending effectiveness of the Registration Statement covering the
Shares. Finally, this Agreement may also be terminated by the Trust upon five
(5) days' written notice to the Underwriter provided either of the following
events has occurred: (i) the NASD has expelled the Underwriter or suspended its
membership in that organization; or (ii) the qualification, registration,
license or right of the Underwriter to sell Shares in a particular state has
been suspended or cancelled in a state in which sales of Shares during the most
recent 12-month period exceeded 10% of all Shares sold by the Underwriter during
such period.
5. The compensation for the services of the Underwriter as a principal
underwriter under this Agreement shall be:
With respect to Class A Shares (i) that part of the sales charge which
is retained by the Underwriter after allowance of discounts to dealers
as set forth, if required, in the Registration Statement, including the
Prospectus, filed with the Commission and in effect at the time of the
offering, as amended, and (ii) those amounts payable to the Underwriter
as reimbursement of expenses pursuant to any distribution plan for the
Trust which may be in effect.
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<PAGE>
With respect to Class B Shares (i) the Underwriter's Allocable Portion
(as defined in Section 9) of the Distribution Fee, if any, payable from
time to time to the Underwriter under the Trust's Class B
Distribution Plan and (ii) the contingent deferred sales charge payable
with respect to Class B Shares sold through the
Underwriter as set forth in the Registration Statement, including the
Prospectus, filed with the Commission and in effect at the time of the
sale of such Class B Shares.
With respect to Class C Shares (i) the Distribution Fee, if any,
payable from time to time to the Underwriter under the Trust's Class
C Distribution Plan and (ii) the contingent deferred sales charge
payable with respect to Class C Shares sold through the
Underwriter as set forth in the Registration Statement, including the
Prospectus, filed with the Commission and in effect at the time of the
sale so such Class C Shares.
With respect to Class Y Shares, the Underwriter shall not be entitled
to any compensation.
With respect to any future class of Shares, the Underwriter shall be
entitled to such consideration as the Trust and the Underwriter shall
agree at the time such class of Shares is established.
Notwithstanding anything to the contrary herein, subsequent to the issuance of a
Class B Share the Trust agrees not to take any action to waive or change any
contingent deferred sales charge (including, without limitation, by change in
the rules applicable to conversion of Class B Shares into another class) in
respect of such Class B Shares, except (i) as provided in the Trust's Prospectus
or Statement of Additional Information in effect on ___________________________,
2000, or (ii) as required by a change in the 1940 Act and the rules and
regulations thereunder, the Conduct Rules of the NASD or any order of any court
or governmental agency enacted, issued or promulgated after
___________________________, 2000. Neither the termination of the Underwriter's
role as principal underwriter of the Class B Shares nor the termination of this
Agreement nor the termination or modification of the Class B Distribution Plan
shall terminate the Underwriter's right to the contingent deferred sales charge
with respect to Class B Shares sold through said Underwriter or Class B Shares
issued through one or a series of exchanges of shares of another investment
company for which the Underwriter acts as principal underwriter, in each case
with respect to Class B Shares or their predecessors initially issued prior to
such termination or modification ("Pre-Amendment Class B Shares"). Except as
provided in the preceding sentences and notwithstanding any other provisions of
the Agreement or the Class B Distribution Plan, the Underwriter's entitlement to
its Allocable Portion of the contingent deferred sales charge payable in respect
of the Pre-Amendment Class B Shares shall be absolute and unconditional and
shall not be subject to dispute, offset, counterclaim or any defense
3
<PAGE>
whatsoever, at law or equity, including, without limitation, any of the
foregoing based on the insolvency or bankruptcy of such Underwriter.
6. Notwithstanding anything to the contrary set forth in the Distribution Plan
or this Agreement, the Trust agrees to comply with respect to Pre-Amendment
Class B Shares (as such term is defined in the Distribution Plan) with the
provision of Sections 1(b), (d), (g) and (h) and Section 4 and Section 6 of the
Trust's Class B Distribution Plan as though such provision were set forth in
this Agreement.
7. Nothing contained herein shall relieve the Trust of any obligation under its
management contract or any other contract with any affiliate of the Underwriter.
8. Notwithstanding anything to the contrary set forth in the Class B
Distribution Plan or this Agreement, the Trust acknowledges that the Underwriter
may assign, sell or pledge (collectively, "Transfer") its rights to Distribution
Fees and contingent deferred sales charges with respect to Class B Shares. Upon
receipt of notice of such Transfer, the Trust shall pay to the assignee,
purchaser or pledgee (collectively with their subsequent transferees,
"Transferees"), as third party beneficiaries, such portion of the Distribution
Fees and contingent deferred sales charges payable to the Underwriter as
provided in written instructions (the "Allocation Instructions") from the
Underwriter to the Trust and shall pay the balance, if any, to the Underwriter.
In the absence of Allocation Instructions, the Trust shall have no obligations
to a Transferee.
9. Payments of the Distribution Fee and contingent deferred sales charges with
respect to Class B Shares shall be allocated between the Underwriter (or its
Transferee) and such co- or successor principal underwriter (each an "Allocable
Portion"), as provided in the Allocation Procedures attached hereto.
10. The parties to this Agreement acknowledge and agree that all liabilities
arising hereunder, whether direct or indirect, of any nature whatsoever,
including without limitation, liabilities arising in connection with any
agreement of the Trust or its Trustees as set forth herein to indemnify any
party to this Agreement or any other person, if any, shall be satisfied out of
the assets of the Trust and that no Trustee, officer or holder of Shares
shall be personally liable for any of the foregoing liabilities. The Trust's
Agreement and Declaration of Trust describes in detail the respective
responsibilities and limitations on liability of the Trustees, officers and
holders of Shares.
11. This Agreement shall automatically terminate in the event of its assignment
(as that term is defined in the 1940 Act).
12. In the event of any dispute between the parties, this Agreement shall be
construed according to the laws of The Commonwealth of Massachusetts.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers and their seals to be hereto
affixed as of the day and year first above written.
ATTEST: PIONEER HIGH YIELD FUND
_____________________________ By: _____________________________
Joseph P. Barri John F. Cogan, Jr.
Secretary President
ATTEST: PIONEER FUNDS DISTRIBUTOR, INC.
_____________________________ By: _____________________________
Joseph P. Barri David D. Tripple
Clerk President
phelan/719.78.108/UA2.doc
5
<PAGE>
[Allocation Procedures]
AGREEMENT BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
PIONEER HIGH YIELD FUND
<PAGE>
TABLE OF CONTENTS
<PAGE>
1. Employment of Custodian 1
2. Powers and Duties of the Custodian
with respect to Property of the Fund
held by the Custodian 1
A. Safekeeping 2
B. Manner of Holding Securities 2
C. Registered Name; Nominee 2
D. Purchases 2
E. Exchanges 4
F. Sales of Securities 4
G. Depositary Receipts 5
H. Exercise of Rights; Tender Offers 6
I. Stock Dividends, Rights, Etc. 6
J. Options 6
K. Borrowings 7
L. Demand Deposit Bank Accounts 7
M. Interest Bearing Call or Time Deposits 8
N. Foreign Exchange Transactions
and Futures Contracts 9
O. Stock Loans 10
P. Collections 10
Q. Dividends, Distributions and Redemptions 11
R. Proxies, Notices, Etc. 12
S. Nondiscretionary Details 12
T. Bills 13
U. Deposit of Fund Assets in Securities Systems 13
V. Other Transfers 15
W. Investment Limitations 15
X. Proper Instructions 16
Y. Segregated Account 17
3. Powers and Duties of the Custodian with
Respect to the Appointment of Subcustodians 18
4. Assistance by the Custodian as to Certain Matters 22
5. Powers and Duties of the Custodian with
Respect to its Role as Financial Agent 22
A. Records 22
B. Accounts 23
C. Access to Records 23
D. Disbursements 23
<PAGE>
6. Standard of Care and Related Matters 23
A. Liability of the Custodian with
Respect to Proper Instructions;
Evidence of Authority; Etc. 24
B. Liability of the Custodian with
Respect to Use of Securities System 25
C. Liability of the Custodian with
respect to Subcustodians 25
D. Standard of Care; Liability;
Indemnification 26
E. Reimbursement of Advances 28
F. Security for Obligations to Custodian 28
G. Appointment of Agents 29
H. Powers of Attorney 29
7. Compensation of the Custodian 29
8. Termination; Successor Custodian 29
9. Amendment 30
10. Governing Law 31
11. Notices 31
12. Binding Effect 31
13. Counterparts 32
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made this ____________, ____, between PIONEER HIGH YIELD FUND
(herein referred to as the "Fund") and Brown Brothers Harriman & Co. (the
"Custodian");
WITNESSETH: That in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Employment of Custodian: The Fund hereby employs and appoints the
Custodian as a custodian for the term and subject to the provisions of this
Agreement. The Custodian shall not be under any duty or obligation to require
the Fund to deliver to it any securities or funds owned by the Fund and shall
have no responsibility or liability for or on account of securities or funds not
so delivered. The Fund will deposit with the Custodian copies of the Declaration
of Trust or Certificate of Incorporation and By-Laws (or comparable documents)
of the Fund and all amendments thereto, and copies of such votes and other
proceedings of the Fund as may be necessary for or convenient to the Custodian
in the performance of its duties.
2. Powers and Duties of the Custodian with respect to Property of the
Fund held by the Custodian: Except for securities and funds held by any
Subcustodians or held by the Custodian through a non-U.S. securities depository
appointed pursuant to the
-1-
<PAGE>
provisions of Section 3 hereof, the Custodian shall have and perform the
following powers and duties:
A. Safekeeping - To keep safely the securities and other assets of
the Fund that have been delivered to the Custodian and, on behalf of the Fund,
from time to time to receive delivery of securities for safekeeping.
B. Manner of Holding Securities - To hold securities of the Fund (1)
by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form, or (2) in book-entry
form by a Securities System (as said term is defined in Section 2U).
C. Registered Name; Nominee - To hold registered securities of the
Fund (1) in the name or any nominee name of the Custodian or the Fund, or in the
name or any nominee name of any Agent appointed pursuant to Section 6F, or (2)
in street certificate form, so-called, and in any case with or without any
indication of fiduciary capacity, provided that securities are held in an
account of the Custodian containing only assets of the Fund or only assets held
as fiduciary or custodian for customers.
D. Purchases - Upon receipt of Proper Instructions, as defined in
Section X on Page 17, insofar as funds are available for the purpose, to pay for
and receive securities purchased for the account of the Fund, payment being made
only upon receipt of the securities (1) by the Custodian, or (2) by a clearing
corporation of a national securities exchange of which the Custodian is a
member, or (3) by a Securities System. However, (i)
-2-
<PAGE>
in the case of repurchase agreements entered into by the Fund, the Custodian (as
well as an Agent) may release funds to a Securities System or to a Subcustodian
prior to the receipt of advice from the Securities System or Subcustodian that
the securities underlying such repurchase agreement have been transferred by
book entry into the Account (as defined in Section 2U) of the Custodian (or such
Agent) maintained with such Securities System or Subcustodian, so long as such
payment instructions to the Securities System or Subcustodian include a
requirement that delivery is only against payment for securities, (ii) in the
case of foreign exchange contracts, options, time deposits, call account
deposits, currency deposits, and other deposits, contracts or options pursuant
to Sections 2J, 2L, 2M and 2N, the Custodian may make payment therefor without
receiving an instrument evidencing said deposit, contract or option so long as
such payment instructions detail specific securities to be acquired, and (iii)
in the case of securities in which payment for the security and receipt of the
instrument evidencing the security are under generally accepted trade practice
or the terms of the instrument representing the security expected to take place
in different locations or through separate parties, such as commercial paper
which is indexed to foreign currency exchange rates, derivatives and similar
securities, the Custodian may make payment for such securities prior to delivery
thereof in accordance with such generally accepted trade practice or the terms
of the instrument representing such security.
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<PAGE>
E. Exchanges - Upon receipt of proper instructions, to exchange
securities held by it for the account of the Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares, change
of par value, conversion or other event relating to the securities or the issuer
of such securities and to deposit any such securities in accordance with the
terms of any reorganization or protective plan. Without proper instructions, the
Custodian may surrender securities in temporary form for definitive securities,
may surrender securities for transfer into a name or nominee name as permitted
in Section 2C, and may surrender securities for a different number of
certificates or instruments representing the same number of shares or same
principal amount of indebtedness, provided the securities to be issued are to be
delivered to the Custodian, and further provided the Custodian shall at the time
of surrendering securities or instruments receive a receipt or other evidence of
ownership thereof.
F. Sales of Securities - Upon receipt of proper instructions, to make
delivery of securities which have been sold for the account of the Fund, but
only against payment therefor (1) in cash, by a certified check, bank cashier's
check, bank credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a national securities exchange of
which the Custodian is a member, or (3) by credit to the account of the
Custodian or an Agent of the Custodian with a Securities System; provided,
however, that (i)
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in the case of delivery of physical certificates or instruments representing
securities, the Custodian may make delivery to the broker buying the securities,
against receipt therefor, for examination in accordance with "street delivery"
custom, provided that the payment therefor is to be made to the Custodian (which
payment may be made by a broker's check) or that such securities are to be
returned to the Custodian, and (ii) in the case of securities referred to in
clause (iii) of the last sentence of Section 2D, the Custodian may make
settlement, including with respect to the form of payment, in accordance with
generally accepted trade practice relating to such securities or the terms of
the instrument representing said security.
G. Depositary Receipts - Upon receipt of proper instructions, to
instruct a Subcustodian or an Agent to surrender securities to the depositary
used by an issuer of American Depositary Receipts or International Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the Subcustodian or Agent that the depositary
has acknowledged receipt of instructions to issue with respect to such
securities ADRs in the name of the Custodian, or a nominee of the Custodian, for
delivery to the Custodian in Boston, Massachusetts, or at such other place as
the Custodian may from time to time designate.
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Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a Subcustodian or an Agent.
H. Exercise of Rights; Tender Offers - Upon timely receipt of proper
instructions, to deliver to the issuer or trustee thereof, or to the agent of
either, warrants, puts, calls, rights or similar securities for the purpose of
being exercised or sold, provided that the new securities and cash, if any,
acquired by such action are to be delivered to the Custodian, and, upon receipt
of proper instructions, to deposit securities upon invitations for tenders of
securities, provided that the consideration is to be paid or delivered or the
tendered securities are to be returned to the Custodian.
I. Stock Dividends, Rights, Etc. - To receive and collect all stock
dividends, rights and other items of like nature; and to deal with the same
pursuant to proper instructions relative thereto.
J. Options - Upon receipt of proper instructions, to receive and
retain confirmations or other documents evidencing the purchase or writing of an
option on a security or securities index by the Fund; to deposit and maintain in
a segregated account, either physically or by book-entry in a Securities System,
securities subject to a covered call option written by
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the Fund; and to release and/or transfer such securities or other assets only in
accordance with the provisions of any agreement among the Fund, the Custodian
and; and to pay, release and/or transfer such securities, cash or other assets
in accordance with a broker-dealer relating to such securities or other assets a
notice or other communication evidencing the expiration, termination or exercise
of such covered option furnished by The Options Clearing Corporation, the
securities or options exchange on which such covered option is traded or such
other organization as may be responsible for handling such options transactions.
K. Borrowings - Upon receipt of proper instructions, to deliver
securities of the Fund to lenders or their agents as collateral for borrowings
effected by the Fund, provided that such borrowed money is payable to or upon
the Custodian's order as Custodian for the Fund.
L. Demand Deposit Bank Accounts - To open and operate an account or
accounts in the name of the Fund on the Custodian's books subject only to draft
or order by the Custodian. All funds received by the Custodian from or for the
account of the Fund shall be deposited in said account(s). The responsibilities
of the Custodian to the Fund for deposits accepted on the Custodian's books
shall be that of a U. S. bank for a similar deposit
If and when authorized by proper instructions the Custodian may open
and operate an additional account(s) in such other banks or trust companies as
may be designated by the Fund in such instructions (any such bank or trust
company so
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designated by the Fund being referred to hereafter as a "Banking Institution"),
provided that such account(s) (hereinafter collectively referred to as "demand
deposit bank accounts") shall be in the name of the Custodian for account of the
Fund and subject only to the Custodian's draft or order. Such demand deposit
accounts may be opened with Banking Institutions in the United States and in
other countries and may be denominated in either U. S. Dollars or other
currencies as the Fund may determine. All such deposits shall be deemed to be
portfolio securities of the Fund and accordingly the responsibility of the
Custodian therefore shall be the same as and no greater than the Custodian's
responsibility in respect of other portfolio securities of the Fund.
M. Interest Bearing Call or Time Deposits - To place interest bearing
fixed term and call deposits with such banks and in such amounts as the Fund may
authorize pursuant to proper instructions. Such deposits may be placed with the
Custodian or with Subcustodians or other Banking Institutions as the Fund may
determine. Deposits may be denominated in U. S. Dollars or other currencies and
need not be evidenced by the issuance or delivery of a certificate to the
Custodian, provided that the Custodian shall include in its records with respect
to the assets of the Fund appropriate notation as to the amount and currency of
each such deposit, the accepting Banking Institution and other appropriate
details, and shall retain such forms of advice or receipt evidencing the
deposit, if any, as may be forwarded to
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the Custodian by the Banking Institution. Such deposits, other than those placed
with the Custodian, shall be deemed portfolio securities of the Fund and the
responsibilities of the Custodian therefor shall be the same as those for demand
deposit bank accounts placed with other banks, as described in Section L of this
Agreement. The responsibility of the Custodian for such deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
N. Foreign Exchange Transactions and Futures Contracts - Pursuant to
proper instructions, to enter into foreign exchange contracts or options to
purchase and sell foreign currencies for spot and future delivery on behalf and
for the account of the Fund. Such transactions may be undertaken by the
Custodian with such Banking Institutions, including the Custodian and
Subcustodian(s) as principals, as approved and authorized by the Fund. Foreign
exchange contracts and options other than those executed with the Custodian,
shall be deemed to be portfolio securities of the Fund and the responsibilities
of the Custodian therefor shall be the same as those for demand deposit bank
accounts placed with other banks as described in Section 2L of this agreement.
Upon receipt of proper instructions, to receive and retain confirmations
evidencing the purchase or sale of a futures contract or an option on a futures
contract by the Fund; to deposit and maintain in a segregated account, for the
benefit of any futures commission merchant or to pay to such futures commission
merchant, assets designated by the Fund as initial,
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maintenance or variation "margin" deposits intended to secure the Fund's
performance of its obligations under any futures contracts purchased or sold or
any options on futures contracts written by the Fund, in accordance with the
provisions of any agreement or agreements among any of the Fund, the Custodian
and such futures commission merchant, designated to comply with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding such margin deposits; and to release
and/or transfer assets in such margin accounts only in accordance with any such
agreements or rules.
0. Stock Loans - Upon receipt of proper instructions, to deliver
securities of the Fund, in connection with loans of securities by the Fund, to
the borrower thereof prior to receipt of the collateral, if any, for such
borrowing, provided that for stock loans secured by cash collateral the
Custodian's instructions to the Securities System require that the Securities
System may deliver the securities to the borrower thereof only upon receipt of
the collateral for such borrowing.
P. Collections - To collect, receive and deposit in said account or
accounts all income, payments of principal and other payments with respect to
the securities held hereunder, and in connection therewith to deliver the
certificates or other instruments representing the securities to the issuer
thereof or its agent when securities are called, redeemed, retired or otherwise
become payable; provided, that the payment is to be made
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in such form and manner and at such time, which may be after delivery by the
Custodian of the instrument representing the security, as is in accordance with
the terms of the instrument representing the security, or such proper
instructions as the Custodian may receive, or governmental regulations, the
rules of Securities Systems or other U.S. securities depositories and clearing
agencies or, with respect to securities referred to in clause (iii) of the last
sentence of Section 2D, in accordance with generally accepted trade practice;
(ii) to execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to securities of the Fund or in connection with transfer of
securities, and (iii) pursuant to proper instructions to take such other actions
with respect to collection or receipt of funds or transfer of securities which
involve an investment decision.
Q. Dividends, Distributions and Redemptions - Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from the Fund's
shareholder servicing agent or agent with comparable duties (the "Shareholder
Servicing Agent") (given by such person or persons and in such manner on behalf
of the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities to the Shareholder Servicing Agent
or otherwise apply funds or securities, insofar as available, for the payment of
dividends or other distributions to Fund shareholders. Upon receipt of proper
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instructions from the Fund, or upon receipt of instructions from the Shareholder
Servicing Agent (given by such person or persons and in such manner on behalf of
the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities, insofar as available, to the
Shareholder Servicing Agent or as such Agent shall otherwise instruct for
payment to Fund shareholders who have delivered to such Agent a request for
repurchase or redemption of their shares of capital stock of the Fund.
R. Proxies, Notices, Etc. - Promptly to deliver or mail to the Fund
all forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, and upon receipt of proper instructions to execute
and deliver or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor its nominee shall
vote upon any of such securities or execute any proxy to vote thereon or give
any consent or take any other action with respect thereto (except as otherwise
herein provided) unless ordered to do so by proper instructions.
S. Nondiscretionary Details - Without the necessity of express
authorization from the Fund, to attend to all nondiscretionary details in
connection with the sale, exchange, substitution, purchase, transfer or other
dealings with securities, funds or other property of the Fund held by the
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Custodian except as otherwise directed from time to time by the Directors or
Trustees of the Fund.
T. Bills - Upon receipt of proper instructions, to pay or cause to be
paid, insofar as funds are available for the purpose, bills, statements, or
other obligations of the Fund.
U. Deposit of Fund Assets in Securities Systems - The Custodian may
deposit and/or maintain securities owned by the Fund in (i) The Depository Trust
Company, (ii) any book-entry system as provided in Subpart 0 of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, or the book-entry
regulations of federal agencies substantially in the form of Subpart 0, or (iii)
any other domestic clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 which acts
as a securities depository and whose use the Fund has previously approved in
writing (each of the foregoing being referred to in this Agreement as a
"Securities System"). Utilization of a Securities System shall be in accordance
with applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Custodian (provided that
any such agent shall be qualified to act as a custodian of the Fund pursuant to
the Investment Company Act of 1940 and the rules and regulations thereunder), in
a Securities System provided that such securities
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<PAGE>
are represented in an account ("Account") of the Custodian or such Agent in the
Securities System which shall not include any assets of the Custodian or Agent
other than assets held as a fiduciary, custodian, or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Fund which are maintained in a Securities System shall identify by book-entry
those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account
of the Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer securities sold for the
account of the Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices from the Securities
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by the Custodian or an Agent as referred to
above, and be provided to the Fund at its request. The Custodian shall furnish
the Fund confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's
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transactions in the Securities System for the account of the Fund on the next
business day;
4) The Custodian shall provide the Fund with any report obtained by
the Custodian or any Agent as referred to above on the Securities System's
accounting system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System; and the Custodian and such Agents
shall send to the Fund such reports on their own systems of internal accounting
control as the Fund may reasonably request from time to time.
5) At the written request of the Fund, the Custodian will terminate
the use of any such Securities System on behalf of the Fund as promptly as
practicable.
V. Other Transfers - Upon receipt of proper instructions, to deliver
securities, funds and other property of the Fund to a Subcustodian or another
custodian of the Fund; and, upon receipt of proper instructions, to make such
other disposition of securities, funds or other property of the Fund in a manner
other than or for purposes other than as enumerated elsewhere in this Agreement,
provided that the instructions relating to such disposition shall include a
statement of the purpose for which the delivery is to be made, the amount of
securities to be delivered and the name of the person or persons to whom
delivery is to be made.
W. Investment Limitations - In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, the
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Custodian may assume unless and until notified in writing to the contrary that
proper instructions received by it are not in conflict with or in any way
contrary to any provisions of the Fund's Declaration of Trust or Certificate of
Incorporation or By-Laws (or comparable documents) or votes or proceedings of
the shareholders or Directors of the Fund. The Custodian shall in no event be
liable to the Fund and shall be indemnified by the Fund for any violation which
occurs in the course of carrying out instructions given by the Fund of any
investment limitations to which the Fund is subject or other limitations with
respect to the Fund's powers to make expenditures, encumber securities, borrow
or take similar actions affecting the Fund.
X. Proper Instructions - Proper instructions shall mean a tested
telex from the Fund or a written request, direction, instruction or
certification signed or initialled on behalf of the Fund by one or more person
or persons as the Board of Directors or Trustees of the Fund shall have from
time to time authorized, provided, however, that no such instructions directing
the delivery of securities or the payment of funds to an authorized signatory of
the Fund shall be signed by such person. Those persons authorized to give proper
instructions may be identified by the Board of Directors or Trustees by name,
title or position and will include at least one officer empowered by the Board
to name other individuals who are authorized to give proper instructions on
behalf of the Fund. Telephonic or other oral instructions given by any one of
the above persons will be
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considered proper instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. Oral instructions will be confirmed by tested telex or in
writing in the manner set forth above but the lack of such confirmation shall in
no way affect any action taken by the Custodian in reliance upon such oral
instructions. The Fund authorizes the Custodian to tape record any and all
telephonic or other oral instructions given to the Custodian by or on behalf of
the Fund (including any of its officers, Directors, Trustees, employees or
agents) and will deliver to the Custodian a similar authorization from any
investment manager or adviser or person or entity with similar reponsibilities
which is authorized to give proper instructions on behalf of the Fund to the
Custodian. Proper instructions may relate to specific transactions or to types
or classes of transactions, and may be in the form of standing instructions.
Proper instructions may include communications effected directly
between electro-mechanical or electronic devices or systems, in addition to
tested telex, provided that the Fund and the Custodian agree to the use of such
device or system.
Y. Segregated Account - The Custodian shall upon receipt of proper
instructions establish and maintain on its books a segregated account or
accounts for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities of the Fund, including securities maintained
by the Custodian
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pursuant to Section 2U hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. (or any futures commission merchant registered under
the Commodity Exchange Act) relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund,
(iii) for the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies, and (iv) as mutually
agreed from time to time between the Fund and the Custodian.
3. Powers and Duties of the Custodian with Respect to the Appointment
of Subcustodians: The Fund hereby authorizes and instructs the Custodian to hold
securities, funds and other property of the Fund which are maintained outside
the United States at subcustodians appointed pursuant to the provisions of this
Section 3 (a "Subcustodian"). The Fund shall approve in
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writing (1) the appointment of each Subcustodian and the subcustodian agreement
to be entered into between such Subcustodian and the Custodian, and (2) if the
Subcustodian is organized under the laws of a country other than the United
States, the country or countries in which the Subcustodian is authorized to hold
securities, cash and other property of the Fund. The Fund hereby further
authorizes and instructs the Custodian and any Subcustodian to utilize such
securities depositories located outside the United States which are approved in
writing by the Fund to hold securities, cash and other property of the Fund.
Upon such approval by the Fund, the Custodian is authorized on behalf of the
Fund to notify each Subcustodian of its appointment as such. The Custodian may,
at any time in its discretion, remove any Subcustodian that has been appointed
as such but will promptly notify the Fund of any such action.
Those Subcustodians, and the countries where and the securities
depositories through which they or the Custodian may hold securities, cash and
other property of the Fund which the Fund has approved to date are set forth on
Appendix A hereto. Such Appendix shall be amended from time to time as
Subcustodians, and/or countries and/or securities depositories are changed,
added or deleted. The Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be held in a
country not listed on Appendix A, in order that there shall be sufficient time
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for the Fund to give the approval required by the preceding paragraph and for
the Custodian to put the appropriate arrangements in place with such
Subcustodian, including negotiation of a subcustodian agreement and submission
of such subcustodian agreement to the Fund for approval.
If the Fund shall have invested in a security to be held in a country
before the foregoing procedures have been completed, such security shall be held
by such agent as the Custodian may appoint. In any event, the Custodian shall be
liable to the Fund for the actions of such agent if and only to the extent the
Custodian shall have recovered from such agent for any damages caused the Fund
by such agent. At the request of the Fund, Custodian agrees to remove any
securities held on behalf of the Fund by such agent, if practical, to an
approved Subcustodian. Under such circumstances Custodian will collect income
and respond to corporate actions on a best efforts basis.
With respect to securities and funds held by a Subcustodian, either
directly or indirectly (including by a securities depository or clearing
agency), notwithstanding any provision of this Agreement to the contrary,
payment for securities purchased and delivery of securities sold may be made
prior to receipt of the securities or payment, respectively, and securities or
payment may be received in a form, in accordance with governmental regulations,
rules of securities depositories and clearing agencies, or generally accepted
trade practice in the applicable local market.
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In the event that any Subcustodian appointed pursuant to the
provisions of this Section 3 fails to perform any of its obligations under the
terms and conditions of the applicable subcustodian agreement, the Custodian
shall use its best efforts to cause such Subcustodian to perform such
obligations. In the event that the Custodian is unable to cause such
Subcustodian to perform fully its obligations thereunder, the Custodian shall
forthwith upon the Fund's request terminate such Subcustodian in accordance with
the termination provisions under the applicable subcustodian agreement and, if
necessary or desirable, appoint another subcustodian in accordance with the
provisions of this Section 3. At the election of the Fund, it shall have the
right to enforce, to the extent permitted by the subcustodian agreement and
applicable law, the Custodian's rights against any such Subcustodian for loss or
damage caused the Fund by such Subcustodian.
The Custodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder except upon the prior written approval
of the Fund.
The Custodian may, at any time in its discretion upon notification to
the Fund, terminate any Subcustodian of the Fund in accordance with the
termination provisions under the applicable Subcustodian Agreement, and at the
written request of the Fund, the Custodian will terminate any Subcustodian in
accordance with the termination provisions under the applicable Subcustodian
Agreement.
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If necessary or desirable, the Custodian may appoint another
subcustodian to replace a Subcustodian terminated pursuant to the foregoing
provisions of this Section 3, such appointment to be made upon approval of the
successor subcustodian by the Fund's Board of Directors or Trustees in
accordance with the provisions of this Section 3.
In the event the Custodian receives a claim from a Subcustodian under
the indemnification provisions of any subcustodian agreement, the Custodian
shall promptly give written notice to the Fund of such claim. No more than
thirty days after written notice to the Fund of the Custodian's intention to
make such payment, the Fund will reimburse the Custodian the amount of such
payment except in respect of any negligence or misconduct of the Custodian.
4. Assistance by the Custodian as to Certain Matters: The Custodian
may assist generally in the preparation of reports to Fund shareholders and
others, audits of accounts, and other ministerial matters of like nature.
5. Powers and Duties of the Custodian with Respect to its Role as
Financial Agent: The Fund hereby also appoints the Custodian as the Funds
financial agent. With respect to the appointment as financial agent, the
Custodian shall have and perform the following powers and duties:
A. Records - To create, maintain and retain such records relating to
its activities and obligations under this Agreement as are required under the
Investment Company Act of 1940 and the
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rules and regulations thereunder (including Section 31 thereof and Rules 31a-1
and 31a-2 thereunder) and under applicable Federal and State tax laws. All such
records will be the property of the Fund and in the event of termination of this
Agreement shall be delivered to the successor custodian.
B. Accounts - To keep books of account and render statements,
including interim monthly and complete quarterly financial statements, or copies
thereof, from time to time as reasonably requested by proper instructions.
C. Access to Records - The books and records maintained by the
Custodian pursuant to Sections 5A and 5B shall at all times during the
Custodian's regular business hours be open to inspection and audit by officers
of, attorneys for and auditors employed by the Fund and by employees and agents
of the Securities and Exchange Commission, provided that all such individuals
shall observe all security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as may be reasonably imposed by the Custodian.
D. Disbursements - Upon receipt of proper instructions, to pay or
cause to be paid, insofar as funds are available for the purpose, bills,
statements and other obligations of the Fund (including but not limited to
interest charges, taxes, management fees, compensation to Fund officers and
employees, and other operating expenses of the Fund).
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6. Standard of Care and Related Matters:
A. Liability of the Custodian with Respect to Proper Instructions;
Evidence of Authority, Etc. The Custodian shall not be liable for any action
taken or omitted in reliance upon proper instructions believed by it to be
genuine or upon any other written notice, request, direction, instruction,
certificate or other instrument believed by it to be genuine and signed by the
proper party or parties.
The Secretary or Assistant Secretary of the Fund shall certify to the
Custodian the names, signatures and scope of authority of all persons authorized
to give proper instructions or any other such notice, request, direction,
instruction, certificate or instrument on behalf of the Fund, the names and
signatures of the officers of the Fund, the name and address of the Shareholder
Servicing Agent, and any resolutions, votes, instructions or directions of the
Fund's Board of Directors or Trustees or shareholders. Such certificate may be
accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and may be considered in full force and effect until receipt
of a similar certificate to the contrary.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement.
The Custodian shall be entitled, at the expense of the Fund, to
receive and act upon advice of (i) counsel regularly
-24-
<PAGE>
retained by the Custodian in respect of custodian matters, (ii) counsel for the
Fund, or (iii) such other counsel as the Fund and the Custodian may agree upon,
with respect to all matters, and the Custodian shall be without liability for
any action reasonably taken or omitted pursuant to such advice.
B. Liability of the Custodian with Respect to Use of Securities
System - With respect to the portfolio securities, cash and other property of
the Fund held by a Securities System, the Custodian shall be liable to the Fund
only for any loss or damage to the Fund resulting from use of the Securities
System if caused by any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or from any failure of
the Custodian or any such agent to enforce effectively such rights as it may
have against the Securities System. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to any
claim against the Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage to the Fund if and to the
extent that the Fund has not been made whole for any such loss or damage.
C. Liability of the Custodian with respect to Subcustodians The
Custodian shall be liable to the Fund for any loss or damage to the Fund caused
by or resulting from the acts or omissions of any Subcustodian to the extent
that under the terms set forth in the subcustodian agreement between the
Custodian and the Subcustodian (or in the subcustodian agreement
-25-
<PAGE>
between a Subcustodian and any secondary Subcustodian), the Subcustodian (or
secondary Subcustodian) has failed to perform in accordance with the standard of
conduct imposed under such subcustodian agreement as determined in accordance
with the law which is adjudicated to govern such agreement and in accordance
with any determination of any court as to the duties of said Subcustodian
pursuant to said agreement. The Custodian shall also be liable to the Fund for
its own negligence in transmitting any instructions received by it from the Fund
and for its own negligence in connection with the delivery of any securities or
funds held by it to any Subcustodian.
D. Standard of Care; Liability; Indemnification - The Custodian shall
be held only to the exercise of reasonable care and diligence in carrying out
the provisions of this Agreement, provided that the Custodian shall not thereby
be required to take any action which is in contravention of any applicable law.
The Fund agrees to indemnify and hold harmless the Custodian and its nominees
from all claims and liabilities (including counsel fees) incurred or assessed
against it or its nominees in connection with the performance of this Agreement,
except such as may arise from its or its nominee's breach of the relevant
standard of conduct set forth in this Agreement. Without limiting the foregoing
indemnification obligation of the Fund, the Fund agrees to indemnify the
Custodian and any nominee in whose name portfolio securities or other property
of the Fund is registered
-26-
<PAGE>
against any liability the Custodian or such nominee may incur by reason of taxes
assessed to the Custodian or such nominee or other costs, liability or expense
incurred by the Custodian or such nominee resulting directly or indirectly from
the fact that portfolio securities or other property of the Fund is registered
in the name of the Custodian or such nominee.
It is also understood that the Custodian shall not be liable for any
loss involving any securities, currencies, deposits or other property of the
Fund, whether maintained by it, a Subcustodian, a securities depository, an
agent of the Custodian or a Subcustodian, a Securities System, or a Banking
Institution, or for any loss arising from a foreign currency transaction or
contract, where the loss results from a Sovereign Risk or where the entity
maintaining such securities, currencies, deposits or other property of the Fund,
whether the Custodian, a Subcustodian, a securities depository, an agent of the
Custodian or a Subcustodian, a Securities System or a Banking Institution, has
exercised reasonable care maintaining such property or in connection with the
transaction involving such property. A "Sovereign Risk" shall mean
nationalization, expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental authority, de
facto or de jure; or enactment, promulgation, imposition or enforcement by any
such governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Fund's property; or acts of war,
terrorism,
-27-
<PAGE>
insurrection or revolution; or any other act or event beyond the Custodian's
control.
E. Reimbursement of Advances - The Custodian shall be entitled to
receive reimbursement from the Fund on demand, in the manner provided in Section
7, for its cash disbursements, expenses and charges (including the fees and
expenses of any Subcustodian or any Agent) in connection with this Agreement,
but excluding salaries and usual overhead expenses.
F. Security for obligations to Custodian - If the Fund shall require
the Custodian to advance cash or securities for any purpose for the benefit of
the Fund, including in connection with foreign exchange contracts or options
(collectively, an "Advance"), or if the Custodian or any nominee thereof shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Agreement (collectively a
"Liability"), except such as may arise from its or such nominee's breach of the
relevant standard of conduct set forth in this Agreement, then in such event any
property at any time held for the account of the Fund by the Custodian or a
Subcustodian shall be security for such Advance or Liability and if the Fund
shall fail to repay or indemnify the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund's property,
including securities, to the extent necessary to obtain reimbursement or
indemnification.
-28-
<PAGE>
G. Appointment of Agents - The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank or trust
company as its agent (an "Agent") to carry out such of the provisions of this
Agreement as the Custodian may from time to time direct, provided, however, that
the appointment of such Agent (other than an Agent appointed pursuant to the
third paragraph of Section 3) shall not relieve the Custodian of any of its
responsibilities under this agreement.
H. Powers of Attorney - Upon request, the Fund shall deliver to the
Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement.
7. Compensation of the Custodian: The Fund shall pay the Custodian a
custody fee based on such fee schedule as may from time to time be agreed upon
in writing by the Custodian and the Fund. Such fee, together with all amounts
for which the Custodian is to be reimbursed in accordance with Section 6E, shall
be billed to the Fund in such a manner as to permit payment by a direct cash
payment to the Custodian.
8. Termination; Successor Custodian: This Agreement shall continue in
full force and effect until terminated by either party by an instrument in
writing delivered or mailed, postage prepaid, to the other party, such
termination to take effect not sooner than seventy five (75) days after the date
of
-29-
<PAGE>
such delivery or mailing. In the event of termination the Custodian shall be
entitled to receive prior to delivery of the securities, funds and other
property held by it all accrued fees and unreimbursed expenses the payment of
which is contemplated by Sections 6E and 7, upon receipt by the Fund of a
statement setting forth such fees and expenses.
In the event of the appointment of a successor custodian, it is
agreed that the funds and securities owned by the Fund and held by the Custodian
or any Subcustodian shall be delivered to the successor custodian, and the
Custodian agrees to cooperate with the Fund in execution of documents and
performance of other actions necessary or desirable in order to substitute the
successor custodian for the Custodian under this Agreement.
9. Amendment: This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof. No
provision of this Agreement may be amended or terminated except by a statement
in writing signed by the party against which enforcement of the amendment or
termination is sought.
In connection with the operation of this Agreement, the Custodian and
the Fund may agree in writing from time to time on such provisions
interpretative of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the
-30-
<PAGE>
preceding sentence shall be deemed to be an amendment of this Agreements.
The section headings in this Agreement are for the convenience of the
parties and in no way alter, amend, limit or restrict the contractual
obligations of the parties set forth in this Agreement.
10. Governing Law: This instrument is executed and delivered in The
Commonwealth of Massachusetts and shall be governed by and construed according
to the laws of said Commonwealth.
11. Notices: Notices and other writings delivered or mailed postage
prepaid to the Fund addressed to the Fund at 60 State Street, Boston,
Massachusetts 02109 or to such other address as the Fund may have designated to
the Custodian in writing, or to the Custodian at 40 Water Street, Boston,
Massachusetts 02109, Attention: Manager, Securities Department, or to such other
address as the Custodian may have designated to the Fund in writing, shall be
deemed to have been properly delivered or given hereunder to the respective
addressee.
12. Binding Effect: This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that neither party hereto may assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party.
-31-
<PAGE>
13. Counterparts: This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and behalf on the day and year first above written.
PIONEER HIGH YIELD FUND BROWN BROTHERS HARRIMAN & CO.
By_________________________________ per pro________________________________
-32-
CLASS A SHARES DISTRIBUTION PLAN
PIONEER HIGH YIELD FUND
CLASS A SHARES DISTRIBUTION PLAN, dated as of January __, 2000, of
PIONEER HIGH YIELD FUND, a Delaware business trust (the "Trust").
WITNESSETH
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act");
WHEREAS, the Trust intends to distribute shares of beneficial interest
(the "Class A Shares") of the Trust in accordance
with Rule 12b-1 promulgated by the Securities and Exchange Commission under the
1940 Act ("Rule 12b-1") and desires to adopt this Class A Shares distribution
plan (the "Class A Plan") as a plan of distribution pursuant to Rule 12b-1;
WHEREAS, the Trust desires that Pioneer Funds Distributor, Inc., a
Massachusetts corporation ("PFD"), provide certain distribution services for the
Trust's Class A Shares in connection with the Class A Plan;
WHEREAS, the Trust has entered into an underwriting agreement (in a
form approved by the Trust's Board of Trustees in a manner specified in Rule
12b-1) with PFD, whereby PFD provides facilities and personnel and renders
services to the Trust in connection with the offering and distribution of Class
A Shares (the "Underwriting Agreement");
WHEREAS, the Trust also recognizes and agrees that (a) PFD may retain
the services of firms or individuals to act as dealers or wholesalers
(collectively, the "Dealers") of the Class A Shares in connection with the
offering of Class A Shares, (b) PFD may compensate any Dealer that sells Class A
Shares in the manner and at the rate or rates to be set forth in an agreement
between PFD and such Dealer and (c) PFD may make such payments to the Dealers
for distribution services out of the fee paid to PFD hereunder, any deferred
sales charges imposed by PFD in connection with the repurchase of Class A
Shares, its profits or any other source available to it;
WHEREAS, the Trust recognizes and agrees that PFD may impose certain
deferred sales charges in connection with the repurchase of Class A Shares by
the Trust, and PFD may retain (or receive from the Trust, as the case may be)
all such deferred sales charges; and
<PAGE>
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Trust should adopt and implement this Class A Plan, has evaluated such
information as it deemed necessary to an informed determination whether this
Class A Plan should be adopted and implemented and has considered such pertinent
factors as it deemed necessary to form the basis for a decision to use assets of
the Trust for such purposes, and has determined that there is a reasonable
likelihood that the adoption and implementation of this Class A Plan will
benefit the Trust and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Class A Plan for the Trust as a plan of distribution of Class A Shares in
accordance with Rule 12b-1, on the following terms and conditions:
1. The Trust may expend pursuant to this Class A Plan amounts not to
exceed 0.25% of the average daily net assets attributable to Class A Shares of
the Trust per annum.
2. Subject to the limit in paragraph 1, the Trust shall reimburse PFD
for amounts expended by PFD to finance any activity which is primarily intended
to result in the sale of Class A Shares of the Trust or the provision of
services to Class A shareholders of the Trust, including but not limited to
commissions or other payments to Dealers and salaries and other expenses of PFD
relating to selling or servicing efforts, provided, that the Board of Trustees
of the Trust shall approve categories of expenses for which reimbursement shall
be made pursuant to this paragraph 2 and, without limiting the generality of the
foregoing, the initial categories of such expenses shall be (i) a service fee to
be paid to qualified broker-dealers in an amount not to exceed 0.25% per annum
of the Trust's daily net assets attributable to Class A Shares; (ii)
reimbursement to PFD for its expenditures for broker-dealer commissions and
employee compensation on certain sales of the Trust's Class A Shares with no
initial sales charge; and (iii) reimbursement to PFD for expenses incurred in
providing services to Class A shareholders and supporting broker-dealers and
other organizations, such as banks and trust companies, in their efforts to
provide such services (any addition of such categories shall be subject to the
approval of the Qualified Trustees, as defined below, of the Trust). Such
reimbursement shall be paid ten (10) days after the end of the month or quarter,
as the case may be, in which such expenses are incurred. The Trust acknowledges
that PFD will charge an initial sales load or a contingent sales load in
connection with certain sales of Class A Shares of the Trust and that PFD will
reallow to Dealers all or a portion of such sales loads, as described in the
Trust's Prospectus from time to time. Nothing contained herein is intended to
have any effect whatsoever on PFD's ability to charge any such sales loads or to
reallow all or any portion thereof to Dealers.
3. The Trust understands that agreements between PFD and Dealers may
provide for payment of fees to Dealers in connection with the sale of Class A
Shares and the provision of services to shareholders of the Trust.
Nothing in this Class A
2
<PAGE>
Plan shall be construed as requiring the Trust to make any payment to any
Dealer or to have any obligations to any Dealer in connection with services as a
dealer of the Class A Shares. PFD shall agree and undertake that any agreement
entered into between PFD and any Dealer shall provide that such Dealer shall
look solely to PFD for compensation for its services thereunder and that in no
event shall such Dealer seek any payment from the Trust.
4. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Agreement and Declaration of Trust, as it may be
amended or restated from time to time, or By-Laws or any applicable statutory or
regulatory requirement to which it is subject or by which it is bound, or to
relieve or deprive the Trust's Board of Trustees of the responsibility for and
control of the conduct of the affairs of the Trust.
5. This Class A Plan shall become effective upon approval by a
vote of the Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust and who have no direct or indirect financial
interest in the operation of the Class A Plan or in any agreements
related to the Class A Plan (the "Qualified Trustees"), such votes to be cast
in person at a meeting called for the purpose of voting on this Class A Plan.
6. This Class A Plan will remain in effect indefinitely, provided that
such continuance is "specifically approved at least annually" by a vote of both
a majority of the Trustees of the Trust and a majority of the Qualified
Trustees. If such annual approval is not obtained, this Class A Plan shall
expire on ___________ , 2001. This Class A Plan shall automatically terminate
upon assignment.
7. This Class A Plan may be amended at any time by the Board of
Trustees, provided that this Class A Plan may not be amended to increase
materially the limitation on the annual percentage of average net assets which
may be expended hereunder without the approval of holders of a "majority of the
outstanding voting securities" of Class A of the Trust and may not be materially
amended in any case without a vote of a majority of both the Trustees and the
Qualified Trustees. Any amendment of this Class A Plan to increase or modify the
expense categories initially designated by the Trustees in paragraph 2 above
shall only require approval of a majority of the Trustees and the Qualified
Trustees if such amendment does not include an increase in the expense
limitation set forth in paragraph 1 above. This Class A Plan may be terminated
at any time by a vote of a majority of the Qualified Trustees or by a vote of
the holders of a "majority of the outstanding voting securities" of Class A of
the Trust.
3
<PAGE>
8. In the event of termination or expiration of this Class A Plan, the
Trust may nevertheless, within twelve months of such termination or expiration
reimburse any expense which it incurs prior to such termination or expiration,
provided that payments by the Trust during such twelve-month period shall not
exceed 0.25% of the Trust's average daily net assets attributable to Class A
Shares during such period and provided further that such payments are
specifically approved by the Board of Trustees, including a majority of the
Qualified Trustees.
9. The Trust and PFD shall provide to the Trust's Board of Trustees,
and the Board of Trustees shall review, at least quarterly, a written report of
the amounts expended under this Class A Plan and the purposes for which such
expenditures were made.
10. While this Class A Plan is in effect, the selection and nomination
of Qualified Trustees shall be committed to the discretion of the Trustees who
are not "interested persons" of the Trust.
11. For the purposes of this Class A Plan, the terms "assignment,"
"interested persons," "majority of the outstanding voting securities" and
"specifically approved at least annually" are used as defined in the 1940 Act.
12. The Trust shall preserve copies of this Class A Plan, and each
agreement related hereto and each report referred to in paragraph 9 hereof
(collectively, the "Records"), for a period of not less than six (6) years from
the end of the fiscal year in which such Records were made and, for a period of
two (2) years, each of such Records shall be kept in an easily accessible place.
13. This Class A Plan shall be construed in accordance with the laws of
The Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
14. If any provision of this Class A Plan shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Class A
Plan shall not be affected thereby.
/phelan/71976.114/strategic/classa.doc
4
PIONEER FUNDS DISTRIBUTOR, INC.
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 742-7825
SALES AGREEMENT
Pioneer Funds Distributor, Inc. (PFD), acts as principal underwriter, as
defined in the Investment Company Act of 1940, for the registered investment
companies (the "Funds") listed on Appendix A attached (as amended from time to
time by PFD). Acting as a principal, PFD offers to sell shares of the Funds
subject to the conditions set forth in this agreement and subsequent amendments
thereto.
1. Shares purchased from PFD for sale to the public shall be offered and
sold at the price or prices, and on the terms and conditions, set forth in the
currently effective prospectuses of the Funds, as amended or supplemented from
time to time (the "Prospectus" or "Prospectuses"). In the sale of such shares to
the public you shall act as dealer for your own account or as agent for your
customer, and in no transaction shall you have any authority to act or hold
yourself out as agent for PFD, any of the Funds, the Funds' Custodians, the
Funds' Transfer Agent, or any other party, and nothing in this agreement shall
constitute you a partner, employee or agent of ours or give you any authority to
act for PFD. Neither PFD nor the Funds shall be liable for any of your acts or
obligations as a broker-dealer under this agreement. Nothing herein shall be
construed to prohibit your acting as agent for one or both customers in the sale
of shares by one customer to another and charging such customer(s) a reasonable
commission.
2. Shares purchased from PFD for sale to the public shall be purchased only
to cover orders previously received by you from your customers. Shares purchased
for your own bona fide investment shall not be reoffered or sold except to the
applicable Fund or to PFD. PFD also agrees to purchase shares only for
investment or to cover orders received.
3. If you purchase shares from your customers, you agree to pay such
customers not less than the redemption price in effect on the date of purchase,
as defined in the Prospectus of the applicable Fund. Sales of shares at prices
reflecting a discount, concession, commission or other reallowance shall be made
only to registered broker-dealers which are members of the National Association
of Securities Dealers, Inc. (NASD) and who also have entered into sales
agreements with PFD.
4. Only unconditional orders for a designated number of shares or dollar
amount of investment shall be accepted. Procedures relating to handling orders
shall be conveyed to you from time to time. All orders are subject to acceptance
or rejection by PFD in our sole discretion.
5. If any shares sold to or through you under the terms of this agreement
are repurchased by PFD or by the issuer or are tendered for redemption within
seven business days after the date of our confirmation of the original purchase
by you, we both agree to pay to the Fund all commissions on such shares.
6. Sales by you to the public shall earn a commission computed as a
percentage of the applicable offering price and which varies with the size and
nature of each such purchase. The terms and conditions affecting the applicable
offering prices on shares sold with a front-end sales charge, including features
such as combined purchase, rights of accumulation, Letters of Intent and net
asset value purchases, are described in the Prospectuses. The schedules of
commissions generally payable with respect to sales of the Funds' shares are
outlined on Appendix A to this agreement. Commission checks for less than $1
will not be issued.
PFD may, from time to time, offer additional commissions or bonuses on
sales by you or your representatives without otherwise revising this agreement.
Any such additional commissions or bonuses shall take effect in accordance with
the terms and conditions contained in written notification to you.
7. Remittance of the net amount due for shares purchased from PFD shall be
made payable to Pioneering Services Corporation (PSC), Agent for the
Underwriter, in New York or Boston funds, within three days of our confirmation
of sale to you, or within such shorter time as specified by the rules of the
NASD or of a registered clearing agent through which the transaction is settled.
Payments made to PSC should be sent to Post Office Box 9014, Boston, MA 02205
(or wired to an account designated by PSC), along with your transfer
instructions on the appropriate copy of our confirmation of sale to you. If such
payment is not received by PSC, we reserve the right to liquidate the shares
purchased for your account and risk. Promptly upon receipt of payment, shares
sold to you shall be deposited by PSC to an account on the books of the Fund(s)
in accordance with your instructions. Certificates will not be issued unless
specifically requested and we reserve the right to levy a charge for issuance of
certificates.
8. You represent that you are and, at the time of purchasing any shares of
the Funds, will be registered as a broker-dealer with the US. Securities and
Exchange Commission (SEC) or are exempt from such registration; if required to
be registered as a broker-dealer you are a member in good standing of the NASD;
you are qualified to act as a broker-dealer in the states or jurisdictions in
which you intend to offer shares of the Funds; you will abide by all applicable
federal and state statutes and the rules of the NASD; and when making sales to
citizens or residents of a foreign country, that you will abide by all
applicable laws and regulations of that country. Expulsion or suspension from
the NASD or revocation or suspension of SEC registration shall act as an
immediate cancellation of this agreement.
9. No person is authorized to make any representations concerning shares of
any of the Funds except those contained in the then current Prospectus or
Statement of Additional Information for such Fund. In purchasing shares from PFD
you shall rely solely on the representations contained in such Prospectuses and
Statements of Additional Information.
10. Additional copies of the current Prospectuses, Statements of Additional
Information and other literature will be supplied in reasonable quantities upon
request.
<PAGE>
11. We reserve the right in our discretion to suspend sales or withdraw the
offering of shares of any Fund entirely. Either party hereto has the right to
cancel this agreement upon five days' written notice to the other party. We
reserve the right to amend this agreement at any time, and you agree that an
order to purchase shares of any one of the Funds placed by you after notice of
such amendment has been sent to you shall constitute your agreement to any such
amendment.
12. All written communications to PFD should be sent to the above address.
All written communications to you will be sent to your address listed below.
13. This agreement shall become effective upon receipt by us of your
acceptance hereof and supersedes any prior agreement between us with respect to
the sales of shares of any of the Funds.
14. This agreement shall be construed in accordance with the laws of
Massachusetts. The parties hereby agree that all disputes between us of whatever
subject matter, whether existing on the date hereof or arising hereafter, shall
be submitted to arbitration in accordance with the then current Code of
Arbitration Procedure of the NASD, the Uniform Arbitration Act or similar rules.
Arbitration shall take place in the city of Boston, Massachusetts. Any decision
that shall be made in such arbitration shall be final and binding and shall have
the same force and effect as a judgment made in a court of competent
jurisdiction.
15. You appoint the Transfer Agent for each Fund as your agent to execute
the purchase transactions of shares of such Fund in accordance with the terms
and provisions of any account, program, plan or service established or used by
your customers and to confirm each purchase to your customers on your behalf,
except as modified in writing by the Transfer Agent, and you guarantee to us and
the Fund the legal capacity of your customers so purchasing such shares and any
other person in whose name the shares are to be registered.
PIONEER FUNDS DISTRIBUTOR, INC.
Date:
By:__________________________________
William A. Misata
Senior Vice President
The undersigned hereby accepts the offer set forth in above letter.
[Firm]
By:______________________________ [Address]
Title:___________________________
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
CLASS A
SCHEDULE 1
Pioneer Fund Pioneer Mid-Cap Fund* Pioneer Equity-Income Fund
Pioneer II Pioneer Gold Shares Pioneer Growth Shares
Pioneer International Growth Fund Pioneer Europe Fund Pioneer Real Estate Shares
Pioneer Capital Growth Fund Pioneer Emerging Markets Fund Pioneer Small Company Fund
Pioneer Indo-Asia Fund Pioneer Micro-Cap Fund Pioneer World Equity Fund
Pioneer Tax-Managed Fund
<S> <C> <C>
Sales Charge
Broker/Dealer as % of Public
PURCHASE AMOUNT OFFERING PRICE COMMISSION
- --------------- -------------- ----------
Less than $ 50,000.......... 5.75 5.00%
$ 50,000 - 99,999.......... 4.50 4.00
100,000 - 249,999.......... 3.50 3.00
250,000 - 499,999.......... 2.50 2.00
500,000 - 999,999.......... 2.00 1.75
1,000,000 or more .......... none a) see below
<CAPTION>
SCHEDULE 2
Pioneer Bond Fund Pioneer America Income Trust Pioneer Tax-Free Income Fund
Pioneer Balanced Fund** Pioneer Strategic Income Fund Pioneer High Yield Fund
<S> <C> <C>
Sales Charge
Broker/Dealer as % of Public
PURCHASE AMOUNT OFFERING PRICE COMMISSION
- --------------- -------------- ----------
Less than $100,000.......... 4.50 4.00%
$100,000 - 249,999.......... 3.50 3.00
250,000 - 499,000......... 2.50 2.00
500,000 - 999,999......... 2.00 1.75
1,000,000 or more ........... none a) see below
<CAPTION>
SCHEDULE 3
Pioneer Limited Maturity Bond Fund
<S> <C> <C>
Sales Charge
Broker/Dealer as % of Public
PURCHASE AMOUNT OFFERING PRICE COMMISSION
- --------------- -------------- ----------
Less than $ 50,000.......... 2.50 2.00%
$ 50,000 - 99,999.......... 2.00 1.75
100,000 - 249,999.......... 1.50 1.25
250,000 - 999,999.......... 1.00 1.00
1,000,000 or more ........... none a) see below
</TABLE>
a) Purchases of $1 million or more, and certain group plans, are not
subject to an initial sales charge. PFD may pay a commission to broker-dealers
who initiate and are responsible for such purchases at the following rate: for
funds listed on schedules 1 and 2 above, the rate is as follows: 1% on the first
$5 million invested, .50 of 1% on the next $45 million and .25 of 1% on the
excess over $50 million. For funds listed on schedule 3: .50 of 1% on purchases
of $1 million to $5 million and .10 of 1% on the excess over $5 million. A
one-year prepaid service fee is included in this commission. These commissions
shall not be payable if the purchaser is affiliated with the broker-dealer or if
the purchase represents the reinvestment of a redemption made during the
previous 12 calendar months. A contingent deferred sales charge will be payable
on these investments in the event of share redemption within 12 months following
the share purchase, at the rate of 1% on funds in schedules 1 and 2; and .50 of
1% on funds in schedule 3, of the lesser of the value of the shares redeemed
(exclusive of reinvested dividend and capital gain distributions) or the total
cost of such shares. For additional information about the broker-dealer
commission and contingent deferred sales charge applicable to these
transactions, refer to the fund's prospectus.
SCHEDULE 5
Pioneer Cash Reserves Fund
Pioneer Independence Fund
No Load
PLEASE RETAIN THIS COPY
<PAGE>
<TABLE>
<CAPTION>
CLASS B
SCHEDULE 1 SCHEDULE 2
---------- ----------
Pioneer Fund Pioneer Limited Maturity Bond Fund
Pioneer II
Pioneer Equity Income Fund
Pioneer Bond Fund
Pioneer Capital Growth Fund
Pioneer Europe Fund
Pioneer Gold Shares
Pioneer America Income Trust
Pioneer Emerging Markets Fund
Pioneer Indo-Asia Fund
Pioneer Cash Reserves Fund
Pioneer Growth Shares
Pioneer Balanced Fund **
Pioneer Tax-Free Income Fund
Pioneer Small Company Fund
Pioneer International Growth Fund
Pioneer Real Estate Shares
Pioneer Mid-Cap Fund*
Pioneer World Equity Fund
Pioneer Micro-Cap Fund
Pioneer Strategic Income Fund
Pioneer Tax-Managed Fund
Pioneer High Yield Fund
<S> <C> <C>
BROKER/DEALER
COMMISSION 4.00% 2.00%
- ----------
YEAR SINCE
PURCHASE CDSC% CDSC%
First 4.0 2.0
Second 4.0 2.0
Third 3.0 1.0
Fourth 3.0 none
Fifth 2.0 none
Sixth 1.0 To A Class
Seventh none
Eighth none
Ninth To A Class
a) Dealer Commission includes a first year service fee equal to 0.25% of the
amount invested in all Class B shares.
<CAPTION>
CLASS C
Pioneer Fund Pioneer II
Pioneer America Income Trust Pioneer Bond Fund Pioneer Capital Growth Fund
Pioneer Cash Reserves Fund Pioneer Emerging Markets Fund Pioneer Equity-Income Fund
Pioneer Europe Fund Pioneer Gold Shares Pioneer Growth Shares
Pioneer Balanced Fund** Pioneer Real Estate Shares Pioneer Indo-Asia Fund
Pioneer Tax-Free Income Fund Pioneer Small Company Fund Pioneer World Equity Fund
Pioneer International Growth Fund Pioneer Mid-Cap Fund* Pioneer Strategic Income Fund
Pioneer Tax-Managed Fund Pioneer High Yield Fund
<S> <C>
a) 1% Payout to Broker
b) 1% CDSC for One Year
<CAPTION>
CLASS Y
Pioneer Europe Fund Pioneer Growth Shares Pioneer Equity-Income Fund
Pioneer Capital Growth Fund Pioneer Emerging Markets Fund Pioneer Real Estate Shares
Pioneer Limited Maturity Bond Fund Pioneer Fund Pioneer Tax-Managed Fund
Pioneer High Yield Fund
a) Class Y shares are sold at net asset value, without either an initial
charge or a contingent deferred sales charge. Class Y shares are not subject to
any ongoing service fee or distribution fee and do not convert to any other
class of shares. Class Y shares are described more fully in "Buying, exchanging
and selling shares" in the fund's Class Y shares prospectus.
*formerly Pioneer Three
**formerly Pioneer Income Fund
</TABLE>
<PAGE>
PIONEER FUNDS DISTRIBUTOR, INC.
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 742-7825
SUPPLEMENTAL SALES AND SERVICE AGREEMENT
You have entered into a Sales Agreement with Pioneer Funds Distributor,
Inc. (PFD) with respect to the Pioneer mutual funds for which PFD serves as
principal underwriter (the "Funds").
This agreement incorporates and supplements that agreement. In
consideration of your sales of shares of the Funds, for providing services to
shareholders of the Funds and assisting PFD and its affiliates in providing such
services, we are authorized to pay you certain service fees as specified herein.
Receipt by you of any such service fees is subject to the terms and conditions
contained in the Funds' prospectuses and/or specified below, as may be amended
from time to time.
1. You agree to cooperate as requested with programs that the Funds, PFD or
their affiliates provide to enhance shareholder service.
2. You agree to take an active role in providing such shareholder services
as processing purchase and redemption transactions and, where applicable,
exchanges and account transfers; establishing and maintaining shareholder
accounts; providing certain information and assistance with respect to the
Funds; and responding to shareholder inquiries or advising us of such inquiries
where appropriate.
3. You agree to assign an active registered representative to each
shareholder account on your and our records and to reassign accounts when
registered representatives leave your firm. You also agree, with respect to
accounts which are held in nominee or "street" name, to provide such
documentation and verification that active representatives are assigned to all
such accounts as PFD may require from time to time.
4. You agree to pay to the registered representatives assigned to
shareholder accounts a share of any service fees paid to you pursuant to this
agreement. You also agree to instruct your representatives to regularly contact
shareholders whose accounts are assigned to them.
5. You acknowledge that service fee payments are subject to terms and
conditions set forth herein and in the Funds' prospectuses, statements of
additional information and plans of distribution and that this agreement may be
terminated by either party at any time by written notice to the other. Any order
to purchase or sell shares received by PFD from you subsequent to the date of
our notification to you of an amendment of this agreement shall be deemed to be
your acceptance of such an amendment.
6. You acknowledge that your continued participation in this agreement is
subject to your providing a level of support to PFD's marketing and shareholder
retention efforts that is deemed acceptable by PFD. Factors which may be
considered by PFD in this respect include, but are not limited to, the level of
shareholder redemptions, the level of assistance in disseminating shareholder
communications, reasonable access to your offices and/or representatives by PFD
wholesalers or other employees and whether your compensation system or
"preferential list" unduly discriminates against the sale of shares of the
Funds.
7. Service fees will generally be paid quarterly, at the rates and under
the conditions specified on Schedule A hereto.
8. All communications to PFD should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to the address
specified by you below. This agreement, in conjunction with the Sales Agreement,
describes the complete understanding of the parties. This agreement shall be
construed under the laws of the Commonwealth of Massachusetts.
Accepted: Execute this Agreement in duplicate
and return one of the duplicate
originals to us.
By:________________________________
By:__________________________________
Title:_____________________________ William A. Misata
Senior Vice President
[Firm] [Date]
RETAIN ONE COPY AND RETURN THE OTHER
<PAGE>
SUPPLEMENTAL SALES AND SERVICE AGREEMENT
WITH PIONEER FUNDS DISTRIBUTOR, INC.
SCHEDULE A
1. EXCEPT AS SPECIFIED IN SECTION 4 BELOW, service fees on the aggregate
net asset value of each account assigned to you in Pioneer Fund, Pioneer II, and
Pioneer Mid-Cap Fund** will be paid at the rate of:
a. 0.15% annually on shares acquired prior to August 19, 1991.
b. 0.25% annually on shares acquired on or after August 19, 1991.
2. EXCEPT AS SPECIFIED IN SECTION 4 BELOW, service fees on the aggregate
net asset value of each account assigned to you in:
Pioneer Fund Pioneer II
Pioneer America Income Trust Pioneer International Growth Fund
Pioneer Bond Fund Pioneer Growth Shares
Pioneer Micro-Cap Fund Pioneer Real Estate Shares
Pioneer Europe Fund Pioneer Balanced Fund***
Pioneer Capital Growth Fund Pioneer Tax-Free Income Fund
Pioneer Equity-Income Fund Pioneer Limited Maturity Bond Fund
Pioneer Gold Shares Pioneer Indo-Asia Fund
Pioneer Emerging Markets Fund Pioneer Small Company Fund*
Pioneer World Equity Fund Pioneer Strategic Income Fund
Pioneer Independence Fund Pioneer Tax-Managed Fund
Pioneer High Yield Fund Pioneer Mid-Cap Fund**
will be paid at the rate of:
a. 0.15% annually if the shares are acquired on or after August 19,
1991, AS A RESULT OF AN EXCHANGE from Pioneer Fund, Pioneer II, or
Pioneer Mid-Cap Fund** of shares owned prior to August 19, 1991.
b. 0.25% annually on all other shares.
3. EXCEPT AS SPECIFIED IN SECTION 4 BELOW, service fees will be paid at an
annual rate of 0.15% of the aggregate net asset value of each account assigned
to you in:
Pioneer Cash Reserves Fund
4. EXCEPTIONS -- Service fees will not be paid on accounts representing:
a. Purchases by you or your affiliates, employees or
representatives.
b. Shares which were purchased at net asset value, except for sales
of Pioneer Cash Reserves Fund or sales on which you are paid a
commission and which are subject to the contingent deferred sales
charge described in the funds' prospectuses.
c. "House" accounts or any other accounts not assigned to an active
registered representative(s).
d. Accounts established in Pioneer Bond Fund prior to January 1,
1986.
e. Service fees of less than $50 per calendar quarter will not be
paid.
f. Pioneer reserves the right to reduce the service fee paid on
individual accounts of more than $10 million.
g. First year service fees on shares subject to a CDSC are at the
rate of 0.25% and are prepaid as part of the initial sales
commission.
5. Service fees on shares sold with a front-end sales charge normally begin
to be earned as soon as the transaction settles, unless specified otherwise in
the fund prospectus. Since the commission on shares sold with a CDSC includes a
prepaid one-year service fee, periodic service fees on such shares are paid
beginning one year following the transaction.
6. Service fees of 1% on Class C shares will begin after first year.
* Service fees begin accruing January 1, 1996
** Formerly Pioneer Three Fund
***Formerly Pioneer Income Fund
PIONEER HIGH YIELD FUND
Multiple Class Plan Pursuant to Rule 18f-3
Class A Shares, Class B Shares, Class C Shares and Class Y Shares
September 7, 1999
Each class of shares of Pioneer High Yield Fund (the "Fund") will have
the same relative rights and privileges and be subject to the same sales
charges, fees and expenses, except as set forth below. The Board of Trustees may
determine in the future that other distribution arrangements, allocations of
expenses (whether ordinary or extraordinary) or services to be provided to a
class of shares are appropriate and amend this Plan accordingly without the
approval of shareholders of any class. Except as set forth in the Fund's
prospectus(es), shares may be exchanged only for shares of the same class of
another Pioneer mutual fund.
Article I. Class A Shares
Class A Shares are sold at net asset value and subject to the initial
sales charge schedule or contingent deferred sales charge ("CDSC") and minimum
purchase requirements as set forth in the Fund's prospectus. Class A Shares
shall be entitled to the shareholder services set forth from time to time in the
Fund's prospectus with respect to Class A Shares. Class A Shares are subject to
fees calculated as a stated percentage of the net assets attributable to Class A
Shares under the Fund's Class A Rule 12b-1 Distribution Plan as set forth in
such Distribution Plan. The Class A Shareholders have exclusive voting rights,
if any, with respect to the Class A Rule 12b-1 Distribution Plan. Transfer
agency fees are allocated to Class A Shares on a per account basis except to the
extent, if any, such an allocation would cause the Fund to fail to satisfy any
requirement necessary to obtain or rely on a private letter ruling from the
Internal Revenue Service ("IRS") relating to the issuance of multiple classes of
shares. Class A Shares shall bear the costs and expenses associated with
conducting a shareholder meeting for matters relating to Class A Shares.
The initial purchase date for Class A Shares acquired through (i)
reinvestment of dividends on Class A Shares or (ii) exchange from another
Pioneer mutual fund will be deemed to be the date on which the original Class A
shares were purchased.
Article II. Class B Shares
Class B Shares are sold at net asset value per share without the
imposition of an initial sales charge. However, Class B Shares redeemed within a
specified number of years of purchase will be subject to a CDSC as set forth in
the Fund's prospectus. Class B Shares are sold subject to the minimum purchase
requirements set forth in the Fund's prospectus. Class B Shares shall be
entitled to the shareholder services set forth from time to time in the Fund's
prospectus with respect to Class B Shares. Class B Shares are
<PAGE>
subject to fees calculated as a stated percentage of the net assets
attributable to Class B Shares under the Class B Rule 12b-1 Distribution Plan as
set forth in such Distribution Plan. The Class B Shareholders of the Fund have
exclusive voting rights, if any, with respect to the Fund's Class B Rule 12b-1
Distribution Plan. Transfer agency fees are allocated to Class B Shares on a per
account basis except to the extent, if any, such an allocation would cause the
Fund to fail to satisfy any requirement necessary to obtain or rely on a private
letter ruling from the IRS relating to the issuance of multiple classes of
shares. Class B Shares shall bear the costs and expenses associated with
conducting a shareholder meeting for matters relating to Class B Shares.
Class B Shares will automatically convert to Class A Shares of the Fund
at the end of a specified number of years after the initial purchase date of
Class B Shares, except as provided in the Fund's prospectus. Such conversion
will occur at the relative net asset value per share of each class without the
imposition of any sales charge, fee or other charge. The conversion of Class B
Shares to Class A Shares may be suspended if it is determined that the
conversion constitutes or is likely to constitute a taxable event under federal
income tax law.
The initial purchase date for Class B Shares acquired through (i)
reinvestment of dividends on Class B Shares or (ii) exchange from another
Pioneer mutual fund will be deemed to be the date on which the original Class B
shares were purchased.
Article III. Class C Shares
Class C Shares are sold at net asset value per share without the
imposition of an initial sales charge. However, Class C Shares redeemed within
one year of purchase will be subject to a CDSC as set forth in the Fund's
prospectus. Class C Shares are sold subject to the minimum purchase requirements
set forth in the Fund's prospectus. Class C Shares shall be entitled to the
shareholder services set forth from time to time in the Fund's prospectus with
respect to Class C Shares. Class C Shares are subject to fees calculated as a
stated percentage of the net assets attributable to Class C Shares under the
Class C Rule 12b-1 Distribution Plan as set forth in such Distribution Plan. The
Class C Shareholders of the Fund have exclusive voting rights, if any, with
respect to the Fund's Class C Rule 12b-1 Distribution Plan. Transfer agency fees
are allocated to Class C Shares on a per account basis except to the extent, if
any, such an allocation would cause the Fund to fail to satisfy any requirement
necessary to obtain or rely on a private letter ruling from the IRS relating to
the issuance of multiple classes of shares. Class C Shares shall bear the costs
and expenses associated with conducting a shareholder meeting for matters
relating to Class C Shares.
The initial purchase date for Class C Shares acquired through (i)
reinvestment of dividends on Class C Shares or (ii) exchange from another
Pioneer mutual fund will be deemed to be the date on which the original Class C
shares were purchased.
2
<PAGE>
Article IV. Class Y Shares
Class Y Shares are sold at net asset value per share without the
imposition of an initial sales charge. Class Y Shares are not subject to a CDSC
upon redemption regardless of the length of the period of time such shares are
held. Class Y Shares are sold subject to the minimum purchase requirements set
forth in the Fund's prospectus. Class Y Shares shall be entitled to the
shareholder services set forth from time to time in the Fund's prospectus with
respect to Class Y Shares.
Class Y Shares are not subject to fees payable under a distribution or
other plan adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"). The Class Y Shareholders of the Fund have
exclusive voting rights, if any, with respect to the Fund's possible future
adoption of a Class Y Rule 12b-1 Distribution Plan. Transfer agency fees are
allocated to Class Y Shares on a per account basis except to the extent, if any,
such an allocation would cause the Fund to fail to satisfy any requirement
necessary to obtain or rely on a private letter ruling from the IRS relating to
the issuance of multiple classes of shares. Class Y Shares shall bear the costs
and expenses associated with conducting a shareholder meeting for matters
relating to Class Y Shares.
The initial purchase date for Class Y Shares acquired through (i)
reinvestment of dividends on Class Y Shares or (ii) exchange from another
Pioneer mutual fund will be deemed to be the date on which the original Class Y
shares were purchased.
Article V. Approval by Board of Trustees
This Plan shall not take effect until it has been approved by the vote
of a majority (or whatever greater percentage may, from time to time, be
required under Rule 18f-3 under the Act) of (a) all of the Trustees of the Fund
and (b) those of the Trustees who are not "interested persons" (as such term may
be from time to time defined under the Act) of the Fund.
Article VI. Amendments
No material amendment to the Plan shall be effective unless it is
approved by the Board of Trustees in the same manner as is provided for approval
of this Plan in Article V.
Phelan/71976.114/strategic/phelan.wpf
3
Hale and Dorr LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 [bullet] fax 617-526-5000
October 18, 1999
Pioneer High Yield Fund
60 State Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
Pioneer High Yield Fund (the "Trust") was established as a Delaware
business trust under an Agreement and Declaration of Trust dated August 3, 1999,
("Declaration of Trust"). The beneficial interests thereunder are represented by
transferable shares of beneficial interest, no par value.
The Trustees have the powers set forth in the Declaration of Trust,
subject to the terms, provisions and conditions therein provided. Pursuant to
Article V, Section 2 of the Declaration of Trust, the number of shares of
beneficial interest authorized to be issued under the Declaration of Trust is
unlimited and the Trustees are authorized to divide the shares into one or more
series of shares and one or more classes thereof as they deem necessary or
desirable. Pursuant to Article V, Section 3 of the Declaration of Trust, the
Trustees are empowered in their discretion to issue shares of any series for
such amount and type of consideration, including cash or securities, and on
such terms as the Trustees may authorize, all without action or approval of the
shareholders. As of the date of this opinion, the Trustees have divided the
shares of the Trust into four classes, designated as Class A, Class B, Class C
and Class Y.
We have examined the Declaration of Trust and By-Laws, each as amended
from time to time, of the Trust, and such other documents as we have deemed
necessary or appropriate for the purposes of this opinion, including, but not
limited to, originals, or copies certified or otherwise identified to our
satisfaction, of such documents, Trust records and other instruments. In our
examination of the above documents, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all documents submitted to us as
certified of photostatic copies.
Washington, DC Boston, MA London, UK*
- --------------------------------------------------------------------------------
HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INTERNATIONAL JOINT VENTURE LAW FIRM)
<PAGE>
Pioneer High Yield Fund
October 18, 1999
Page 2
Any reference to "our knowledge", to any matter "known to us", "coming
to our attention" or "of which we are aware" or any variation of any of the
foregoing shall mean the conscious awareness of the attorneys in this firm who
have rendered substantive attention to the preparation of the Trust's
Registration Statement on Form N-1A or any amendments thereto, of the existence
or absence of any facts which would contradict the opinions set forth below. We
have not undertaken any independent investigation to determine the existence or
absence of such facts, and no inference as to our knowledge of the existence or
absence of such facts should be drawn from the fact of our representation of the
Trust. Without limiting the foregoing, we have not examined any dockets or
records of any court, administrative tribunal or other similar entity, or any
electronic or computer databases, in connection with our opinions expressed
below.
Our opinions below are qualified to the extent that they may be subject
to or affected by (i) applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium or similar laws affecting the
rights and remedies of creditors generally, (ii) statutory or decisional law
concerning recourse by creditors to security in the absence of notice or hearing
and (iii) duties and standards imposed on creditors and parties to contracts,
including, without limitation, requirements of good faith, reasonableness and
fair dealing. Further, we do not express any opinion as to (i) the availability
of the remedy of specific performance or any other equitable remedy upon breach
of any provision of any agreement whether applied by a court of law or equity,
(ii) the successful assertion of any equitable defense, or (iii) the right of
any party to enforce the indemnification or contribution provisions of any
agreement.
In rendering the opinion below, insofar as it relates to the good
standing and valid existence of the Trust, we have relied solely on certificates
of the Secretary of State of the State of Delaware, dated as of a recent date,
and such opinion is limited accordingly and is rendered as of the respective
dates of such certificates.
This opinion is limited to the Delaware Business Trust Act, and we
express no opinion with respect to the laws of any other jurisdiction or to any
other laws of the State of Delaware. Further, we express no opinion as to
compliance with any state or federal securities laws, including the securities
laws of the State of Delaware.
Our opinion below, as it relates to the non-assessability of the shares
of the Trust, is qualified to the extent that any shareholder is, was or may
become a named Trustee of the Trust. It is also qualified to the extent that,
pursuant to Section 2 of Article VIII of the Declaration of Trust, the Trustees
have the power to cause shareholders of the Trust or any particular series of
the Trust, to pay certain custodian, transfer, servicing or similar agent
charges by setting off the same against declared but
<PAGE>
Pioneer High Yield Fund
October 18, 1999
Page 3
unpaid dividends or by reducing share ownership (or by both means).
Subject to the foregoing, we are of the opinion that the Trust is a
duly organized and validly existing business trust in good standing under the
laws of the State of Delaware and that the shares of beneficial interest of the
Trust, when issued in accordance with the terms, conditions, requirements and
procedures set forth in the Declaration of Trust, the Trust's Registration
Statement on Form N-1A and the Underwriting Agreement between the Trust and
Pioneer Funds Distributor, Inc., will constitute legally and validly issued,
fully paid and non-assessable shares of beneficial interest in the Trust,
subject to compliance with the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and the applicable state laws
regulating the sale of securities.
We are opining only as to the specific legal issues expressly set forth
herein, and no opinion should be inferred as to any other matters. We are
opining on the date hereof as to the law in effect on the date hereof, and we
disclaim any obligation to advise you of any change in any of these sources of
law or subsequent legal or factual developments that might affect any matters or
opinions set forth herein.
This opinion is furnished to you solely for your use and may not be
quoted to or relied upon by any other person or entity or used for any other
purpose, without our prior written consent.
We consent to your filing this opinion with the Securities and Exchange
Commission (the "Commission") as an exhibit to the Trust's registration
statements on Form N-14 and Form N-1A, and any amendments thereto. Except as
provided in this paragraph, this opinion may not be relied upon by, or filed
with, any other parties or for any other purpose.
Very truly yours,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
lynnr/71976.435/opn10_99.wpf
Draft November 2, 1999 - 11:34 AM
D R A F T
[SASM&F (Illinois) letterhead]
________________, 1999
Pioneer High Yield Fund
60 State Street
Boston, Massachusetts 02109
Third Avenue Trust,
(on behalf of Third Avenue High Yield Fund)
767 Third Avenue
New York, New York 10017
Ladies and Gentlemen:
We have acted as special United States federal income tax counsel to EQSF
Advisers, Inc. ("EQSF"), a New York corporation, in connection with the
contemplated reorganization (the "Reorganization") of Third Avenue High Yield
Fund (the "Old Fund"), a series of Third Avenue Trust, a Delaware business trust
("Third Avenue Trust"), and Pioneer High Yield Fund, a Delaware business trust
(the "New Fund"). The Reorganization will occur in accordance with the terms and
conditions set forth in the Agreement and Plan of Reorganization (the
"Agreement"), dated as of , 1999, among the New Fund and Third Avenue Trust on
behalf of the Old Fund. You have requested our opinion regarding whether the
Reorganization will be treated for United States federal income tax purposes as
a reorganization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended (the "Code").
In connection with our opinion, we have reviewed originals or copies,
certified or otherwise identified to our satisfaction, of the Proxy Statement of
Third Avenue High Yield Fund/Prospectus for Class A Shares of Pioneer High Yield
Fund
<PAGE>
Pioneer High Yield Fund
Third Avenue Trust
__________, 1999
Page 2
(the "Proxy/Prospectus Statement"), the Agreement and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinion set forth below. We have assumed that the Reorganization will be
consummated in accordance with the Agreement, the Proxy/Prospectus Statement and
such other documents, certificates and records and that statements as to factual
matters contained in the Proxy/Prospectus Statement are true, correct and
complete and will continue to be true, correct and complete through the
effective time of the Reorganization. In rendering our opinion, we have also
relied upon statements and representations of officers and other representatives
of the Old Fund, the New Fund and Pioneer Investment Management, Inc., a
Delaware corporation and investment adviser to the New Fund, and, with your
permission, have assumed that such statements and representations will continue
to be true, correct and complete through the effective time of the
Reorganization without regard to any qualification as to knowledge and belief.
For purposes of our opinion, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents.
In rendering our opinion, we have relied on the Code, Treasury Regulations,
judicial authorities, published positions of the Internal Revenue Service and
such other authorities as we have considered relevant, all as in effect as of
the date of this opinion and all of which are subject to differing
interpretations or change at any time (possibly with retroactive effect). A
change in the authorities upon which our opinion is based could affect our
conclusions.
On the basis of and subject to the foregoing, we are of the opinion that
for United States federal income tax purposes the Reorganization will be treated
as a "reorganization" qualifying under the provisions of Section 368(a)(1)(F) of
the Code and that the New Fund and the Old Fund will each be a party to such
reorganization within the meaning of Section 368(b) of the Code.
We express no opinion as to the United States federal income tax
consequences other than as set forth above or as to any state, local or foreign
tax consequences. We hereby consent to the reference to us in the section
captioned "Certain Federal Income Tax Consequences" in the Proxy Statement. In
giving this consent, we do not admit that we come within the category of persons
whose consent
<PAGE>
Pioneer High Yield Fund
Third Avenue Trust
__________, 1999
Page 3
is required under Section 7 of the Securities Act of 1933, as amended, or
the Rules and Regulations of the Securities and Exchange Commission thereunder.
This opinion is expressed as of the date hereof, and we disclaim any undertaking
to advise you of any subsequent changes of the matters stated or assumed herein
or any subsequent changes in applicable law.
Very truly yours,
INVESTMENT COMPANY SERVICE AGREEMENT
__________ __, 1999
__________________, a ____________ business trust with its principal
place of business at 60 State Street, Boston, Massachusetts 02109 ("Customer"),
and Pioneering Services Corporation, a Massachusetts corporation with its
principal place of business at 60 State Street, Boston, Massachusetts 02109
("PSC"), hereby agree as follows:
1. SERVICES TO BE PROVIDED BY PSC. During the term of this Agreement,
PSC will provide to each series of shares of beneficial interest of Customer,
which may be established, from time to time (the "Account"), with the services
described in EXHIBITS A, B, C and D (collectively, the "Exhibits") that are
attached hereto and incorporated herein by reference. It is understood that PSC
may subcontract any of such services to one or more firms designated by PSC,
provided that PSC (i) shall be solely responsible for all compensation payable
to any such firm and (ii) shall be liable to Customer for the acts or omissions
of any such firm to the same extent as PSC would be liable to Customer with
respect to any such act or omission hereunder.
2. EFFECTIVE DATE. This Agreement shall become effective on the date
hereof (the "Effective Date") and shall continue in effect until it is
terminated in accordance with Section 11 below.
3. DELIVERY OF DOCUMENTATION, MATERIALS AND DATA. Customer shall, from
time to time, while this Agreement is in effect deliver all such documentation,
materials and data as may be necessary or desirable to enable PSC to perform its
services hereunder.
4. REPORTS AND MAINTENANCE OF RECORDS BY PSC. PSC will furnish to
Customer and to properly authorized auditors, examiners, distributors, dealers,
underwriters, salesmen, insurance companies, investors, and others designated by
Customer in writing, such books, any and all records and reports at such times
as are prescribed for each service in the Exhibits attached hereto. Customer
agrees to examine or to ask any other authorized recipient to examine each such
report or copy promptly and will report or cause to be reported any errors or
discrepancies therein of which Customer then has any knowledge. PSC may at its
option at any time, and shall forthwith upon Customer's demand, turn over to
Customer and cease to retain in PSC's files, any and all records and documents
created and maintained by PSC pursuant to this Agreement which are no longer
needed by PSC in the performance of its services or for its protection.
If not so turned over to Customer, such documents and reports will be
retained by PSC for six years from the year of creation, during the first two of
which the same shall be in readily accessible form. At the end of six years,
such records and documents will be turned over to Customer by PSC unless
Customer authorizes their destruction.
5. PSC'S DUTY OF CARE. PSC shall at all time use reasonable care and
act in good faith in performing its duties hereunder. PSC shall incur no
liability to Customer in connection with its performance of services hereunder
except to the extent that it does not comply with the foregoing standards.
PSC shall at all times adhere to various procedures and systems
consistent with industry standards in order to safeguard Customer's checks,
records and other data from loss or damage attributable to fire or theft. PSC
shall maintain insurance adequate to protect against the costs of reconstructing
checks, records and other data in the event of such loss and shall notify
Customer in the event of a material adverse change in such insurance coverage.
In the
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<PAGE>
event of damage or loss occurring to Customer's records or data such that
PSC is unable to meet the terms of this Agreement, PSC shall transfer all
records and data to a transfer agent of Customer's choosing upon Customer's
written authorization to do so.
Without limiting the generality of the foregoing, PSC shall not be
liable or responsible for delays or errors occurring by reason of circumstances
beyond its control including acts of civil, military or banking authority,
national emergencies, labor difficulties, fire, flood or other catastrophes,
acts of God, insurrection, war, riots, failure of transportation, communication
or power supply.
6. CONFIDENTIALITY. PSC will keep confidential all records and
information provided by Customer or by the shareholders of the Account to PSC,
except to the extent disclosures are required by this Agreement, are required by
the Customer's Prospectus and Statement of Additional Information, or are
required by a valid subpoena or warrant issued by a court of competent
jurisdiction or by a state or federal agency or governmental authority.
7. CUSTOMER INSPECTION. Upon reasonable notice, in writing signed by
Customer, PSC shall make available, during regular business hours, all records
and other data created and maintained pursuant to this Agreement for reasonable
audit and inspection by Customer or Customer's agents, including reasonable
visitation by Customer or Customer's agents, including inspecting PSC's
operation facilities. PSC shall not be liable for injury to or responsible in
any way for the safety of any individual visiting PSC's facilities under the
authority of this section. Customer will keep confidential and will cause to
keep confidential all confidential information obtained by its employees or
agents or any other individual representing Customer while on PSC's premises.
Confidential information shall include (1) any information of whatever nature
regarding PSC's operations, security procedures, and data processing
capabilities, (2) financial information regarding PSC, its affiliates, or
subsidiaries, and (3) any information of whatever kind or description regarding
any customer of PSC, its affiliates or subsidiaries.
8. RELIANCE BY PSC ON INSTRUCTIONS AND ADVICE; INDEMNITY. PSC shall be
entitled to seek advice of Customer's legal counsel with respect to PSC's
responsibilities and duties hereunder and shall in no event be liable to
Customer for any action taken pursuant to such advice, except to the extent that
Customer's legal counsel determines in its sole discretion that the rendering of
advice to PSC would result in a conflict of interest.
Whenever PSC is authorized to take action hereunder pursuant to proper
instructions from Customer, PSC shall be entitled to rely upon any certificate,
letter or other instrument or telephone call reasonably believed by PSC to be
genuine and to have been properly made or signed by an officer or other
authorized agent of Customer, and shall be entitled to receive as conclusive
proof of any fact or matter required to be ascertained by it hereunder a
certificate signed by an officer of Customer or any other person authorized by
Customer's Board of Trustees.
Subject to the provisions of Section 13 of this Agreement, Customer
agrees to indemnify and hold PSC, its employees, agents and nominees harmless
from any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to PSC's action or non-action
upon information, instructions or requests given or made to PSC by Customer with
respect to the Account.
Notwithstanding the above, whenever Customer may be asked to indemnify
or hold PSC harmless, Customer shall be advised of all pertinent facts arising
from the situation in question. Additionally, PSC will use reasonable care to
identify and notify Customer promptly concerning
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<PAGE>
any situation, which presents, actually or potentially, a claim for
indemnification against Customer. Customer shall have the option to defend PSC
against any claim for which PSC is entitled to indemnification from Customer
under the terms hereof, and in the event Customer so elects, it will notify PSC
and, thereupon, Customer shall take over complete defense of the claim and PSC
shall sustain no further legal or other expenses in such a situation for which
indemnification shall be sought or entitled. PSC may in no event confess any
claim or make any compromise in any case in which Customer will be asked to
indemnify PSC except with Customer's prior written consent.
9. MAINTENANCE OF DEPOSIT ACCOUNTS. PSC shall maintain on behalf of
Customer such deposit accounts as are necessary or desirable from time to time
to enable PSC to carry out the provisions of this Agreement.
10. COMPENSATION AND REIMBURSEMENT TO PSC. For the services rendered by
PSC under this Agreement, Customer agrees to pay to PSC an annual fee of
$______* per open account and an annual fee of $7.30 per closed account, such
fees to be payable in equal monthly installments. Customer shall reimburse PSC
monthly for out-of-pocket expenses, including but not limited to, forms,
postage, mail service, telephone charges, including internet access charges,
archives, microfiche and other records storage services, mailing and tabulating
proxies, sub account recordkeeper fees relating to omnibus accounts, and
miscellaneous. In addition, the Customer will reimburse any other expenses
incurred by PSC at the request of or with the consent of the Customer.
11. TERMINATION. Either PSC or Customer may at any time terminate this
Agreement by giving 90 days' prior written notice to the other.
After the date of termination, for so long as PSC in fact continues to
perform any one or more of the services contemplated by this Agreement or the
Exhibits, the provisions of this Agreement, including without limitation the
provisions of Section 8 dealing with indemnification, shall where applicable
continue in full force and effect.
12. REPRESENTATIONS AND WARRANTIES; REQUIRED DOCUMENTS.
12.1 REPRESENTATIONS AND WARRANTIES OF PSC.
PSC represents and warrants to the Customer that:
(a) It is a corporation duly organized and existing and
in good standing under the laws of The Commonwealth
of Massachusetts.
(b) It is duly qualified to carry on its business in The
Commonwealth of Massachusetts and the State of
Nebraska.
(c) All requisite corporate proceedings have been taken
to authorize it to enter into this Agreement.
(d) It is empowered under all applicable laws and by its
Articles of Organization and By Laws to enter into
and perform this Agreement.
12.2 REPRESENTATIONS AND WARRANTIES OF CUSTOMER.
Customer represents and warrants to PSC that:
- --------
* Insert $25.25 for equity funds and $33.00 for fixed income funds and money
market fund.
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<PAGE>
(a) It is a business trust duly organized and existing and
in good standing under the laws of its governing
jurisdiction.
(b) All requisite corporate proceedings have been taken to
authorize it to enter into this Agreement.
(c) It is empowered under all applicable laws and by its
Agreement and Declaration of Trust and By Laws to enter
into and perform this Agreement.
(d) It is an open-end management investment company
registered under the Investment Company Act of 1940, as
amended.
(e) A registration statement under the Securities Act of
1933, as amended (the "Registration Statement"), has
been filed with the Securities and Exchange Commission
and is currently effective and will remain effective,
and appropriate state securities law filings have been
made and will continue to be made, with respect to all
shares of beneficial interest of the Customer to be
offered for sale.
12.3 CUSTOMER DOCUMENT DELIVERY.
Customer shall promptly furnish to PSC the following:
(a) A copy of Customer's Agreement and Declaration of Trust
and By Laws and all amendments related thereto.
(b) A certified copy of the resolution of the Customer's
Board of Trustees authorizing the appointment of PSC
and the execution and delivery of this Agreement.
(c) A copy of the Customer's Registration Statement and all
amendments thereto.
13. INDEMNIFICATION. The parties to this Agreement acknowledge and agree
that all liabilities arising, directly or indirectly, under this Agreement, of
any and every nature whatsoever, including without limitation, liabilities
arising in connection with any agreement of Customer or its Trustees set forth
herein to indemnify any party to this Agreement or any other person, shall be
satisfied out of the assets of the Account first and then of Customer and that
no Trustee, officer or holder of shares of beneficial interest of Customer shall
be personally liable for any of the foregoing liabilities. Customer's Agreement
and Declaration of Trust describes in detail the respective responsibilities and
limitations on liability of the Trustees, officers, and holders of shares of
beneficial interest of Customer.
14. MISCELLANEOUS. In connection with the operation of this Agreement,
PSC and Customer may agree from time to time on such provisions interpretive of
or in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions are to be signed by both parties and annexed hereto, but
no such provision shall contravene any applicable Federal and state law or
regulation, and no such provision shall be deemed to be an amendment of this
Agreement.
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<PAGE>
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether written or oral.
If any provision or provisions of this Agreement shall be held invalid,
unlawful or unenforceable, the validity, legality, and enforceability of the
remaining provisions of the Agreement shall not in any way be affected or
impaired.
This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Customer and PSC have caused this Agreement to
be executed in their respective names by their respective officers thereunto
duly authorized as of the date first written above.
ATTEST: PIONEERING SERVICES CORPORATION
_____________________________ By: _____________________________
Robert P. Nault, Assistant Clerk Roger B. Rainville
President
PIONEER ________________
_____________________________ By: _____________________________
Robert P. Nault, Assistant Secretary John F. Cogan, Jr.
President
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<PAGE>
EXHIBIT A - TO INVESTMENT COMPANY SERVICE AGREEMENT
SHAREHOLDER ACCOUNT SERVICE:
As Servicing Agent for fund accounts and in accordance with the provisions of
the standard fund application and Customer's Prospectus and Statement of
Additional Information, PSC will:
1. Open, maintain and close accounts.
2. Purchase shares for the shareholder.
3. Out of the money received in payment for sales of Customer's shares pay
to the Customer's custodian the net asset value per share and pay to
the underwriter and to the dealer their commission, if any, on a
bimonthly basis.
4. Redeem shares by systematic withdrawal orders. (SEE EXHIBIT B)
5. Issue share certificates, upon instruction, resulting from withdrawals
from share accounts (It is the policy of PSC to issue share
certificates only upon request of the shareholder). Maintain records
showing name, address, certificate numbers and number of shares.
6. Deposit certificates to shareholder accounts when furnished with such
documents, as PSC deems necessary, to authorize the deposit.
7. Reinvest or disburse dividends and other distributions upon direction of
shareholder.
8. Establish the proper registration of ownership of shares.
9. Pass upon the adequacy of documents submitted by a shareholder or his
legal representative to substantiate the transfer of ownership of
shares from the registered owner to transferees.
10. Make transfers from time to time upon the books of the Customer in
accordance with properly executed transfer instructions furnished to
PSC.
11. Upon receiving appropriate detailed instructions and written materials
prepared by Customer and, where applicable, proxy proofs checked by
Customer, mail shareholder reports, proxies and related materials of
suitable design for automatic enclosing, receive and tabulate executed
proxies, and furnish an annual meeting list of shareholders when
required.
12. Respond to shareholder inquiries in a timely manner.
13. Maintain dealer and salesperson records.
14. Maintain and furnish to Customer such shareholder information as
Customer may reasonably request for the purpose of compliance by
Customer with the applicable tax and securities law of various
jurisdictions.
15. Mail confirmations of transactions to shareholders in a timely fashion
(confirmations of Automatic Investment Plan transactions will be mailed
quarterly).
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<PAGE>
16. Provide Customer with such information regarding correspondence as well
as enable Customer to comply with related Form N-SAR (semi-annual
report) requirements.
17. Maintain continuous proof of the outstanding shares of Customer.
18. Solicit taxpayer identification numbers.
19. Provide data to enable Customer to file abandoned property reports for
those accounts that have been indicated by the Post Office to be not at
the address of record with no forwarding address.
20. Maintain bank accounts and reconcile same on a monthly basis.
21. Provide management information reports on a quarterly basis to
Customer's Board of Trustees outlining the level of service provided.
22. Provide sale/statistical reporting for purposes of providing Customer's
management with information to maximizing the return to shareholders.
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<PAGE>
EXHIBIT B - TO INVESTMENT COMPANY SERVICE AGREEMENT
REDEMPTION SERVICE:
In accordance with the provisions of the Customer's Prospectus and Statement of
Additional Information, as servicing agent for the redemptions, PSC will:
1. Where applicable, establish accounts payable based on information
furnished to PSC on behalf of Customer (i.e., copies of trade
confirmations and other documents deemed necessary or desirable by PSC
on the first business day following the trade date).
2. Receive for redemption either:
a. Share certificates, supported by appropriate documentation; or
b. Written or telephone authorization (where no share certificates are
issued).
3. Verify there are sufficient available shares in an account to cover
redemption requests.
4. Transfer the redeemed or repurchased shares to Customer's treasury
share account or, if applicable, cancel such shares for retirement.
5. Pay the applicable redemption or repurchase price to the shareholder in
accordance with Customer's Prospectus, Statement of Additional
Information and Agreement and Declaration of Trust on or before the
seventh calendar day succeeding any receipt of certificates or requests
for redemption or repurchase in "good order" as defined in the
Prospectus and Statement of Additional Information.
6. Notify Customer and the underwriter on behalf of Customer of the total
number of shares presented and covered by such requests within a
reasonable period of time following receipt.
7. Promptly notify the shareholder if any such certificate or request for
redemption or repurchase is not in "good order" together with notice of
the documents required to comply with the good order standards. Upon
receipt of the necessary documents PSC shall effect such redemption at
the net asset value applicable at the date and time of receipt of such
documents.
8. Produce periodic reports of unsettled items, if any.
9. Adjust unsettled items, if any, relative to dividends and distributions.
10. Report to Customer any late redemptions which must be included in
Customer's Form N-SAR (semi-annual report) filing.
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<PAGE>
EXHIBIT C - TO INVESTMENT COMPANY SERVICE AGREEMENT
EXCHANGE SERVICE:
1. Receive and process exchanges in accordance with a duly executed
exchange authorization. PSC will redeem existing shares and use the
proceeds to purchase new shares. Shares of Customer purchased directly
or acquired through reinvestment of dividends on such shares may be
exchanged for shares of other Pioneer funds (which funds have sales
charges) only by payment of the applicable sales charge, if any, as
described in Customer's Prospectus and Statement of Additional
Information. Shares of Customer acquired by exchange and through
reinvestment of dividends on such shares may be re-exchanged to another
Pioneer fund at their respective net asset values.
2. Make authorized deductions of fees, if any.
3. Register new shares identically with the shares surrendered for
exchange. Mail new shares certificates, if requested, or an account
statement confirming the exchange by first class mail to the address of
record.
4. Maintain a record of unprocessed exchanges and produce a periodic
report.
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<PAGE>
EXHIBIT D - TO INVESTMENT COMPANY SERVICE AGREEMENT
INCOME ACCRUAL AND DISBURSING SERVICE:
1. Distribute income dividends and/or capital gain distributions, either
through reinvestment or in cash, in accordance with shareholder
instructions.
2. On the mailing date, Customer shall make available to PSC collected funds
to make such distribution.
3. Adjust unsettled items relative to dividends and distribution.
4. Reconcile dividends and/or distributions with Customer.
5. Prepare and file annual Federal and State information returns of
distributions and, in the case of Federal returns, mail information
copies to shareholders and report and pay Federal income taxes withheld
from distributions made to non-resident aliens.
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ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT dated this 9th day of October, 1998
between the Pioneer Funds, listed on Exhibit 1 hereto (the "Funds"), and
Pioneering Management Corporation, a Delaware corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Funds are registered as open-end, diversified, management
investment companies under the Investment Company Act of 1940, as amended (the
"1940 Act"), and has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement") for the
purpose of registering its shares for public offering under the Securities Act
of 1933, as amended (the "1933 Act");
WHEREAS, the parties hereto are parties to Management Contracts (the
"Management Contracts");
WHEREAS, the Management Contracts provide that the Manager will bear
all of the Funds' expenses other than those provided in Section 2(c) and 2(d) of
the Management Contracts;
WHEREAS, Section 2(c)(i) provides that the Funds shall pay charges and
expenses for Fund accounting, pricing and appraisal services and, for those
Funds noted with an asterisk on Exhibit 2 hereto, related overhead, including,
to the extent that such services were performed by personnel of the Manager or
its affiliates, office space and facilities, and personnel compensation,
training and benefits;
WHEREAS, Section 2(c)(vi) and (vii) provide that the Funds shall pay
(i) fees and expenses involved in registering and maintaining registrations of
the Funds and/or their shares with the Commission, state or blue sky securities
agencies and foreign countries, including the preparation of prospectuses and
statements of additional information for filing with the Commission and (ii) 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; and
WHEREAS, certain of these activities, as set forth on Exhibit 3 hereto,
can be performed by members of the Manager's legal, accounting and
administrative staff working at the direction and under the supervision of the
Board of Trustees and Fund counsel.
NOW THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Funds and the Manager do hereby agree as follows:
<PAGE>
1. The Funds authorize the Manager to perform fund accounting services
on behalf of the Funds, subject to the supervision and direction of the Board of
Trustees. Such services, determined as of the date of this Agreement, are set
forth on Exhibit 2 hereto. These services (the "Bookkeeping Services") may be
revised from time to time on mutual agreement of the parties.
2. The Funds authorize the Manager to assist with the performance of
the legal services listed on Exhibit 3 hereto (the "Legal Services"). The Legal
Services shall at all times be subject to the supervision and direction of the
Board of Trustees and Fund counsel.
3. The Trustees recognize that the Bookkeeping Services and the Legal
Services can be performed efficiently by the Manager. The Funds are entering
into this Agreement to achieve the operating and expense benefits of such
efficiency. In authorizing such activities on behalf of the Funds, the Funds
expressly do not delegate to the Manager or its personnel the authority to
render legal advice to, or legal judgments on behalf of, the Funds. Between
meetings of the Trustees, Fund counsel is authorized to determine the services
that may appropriately be provided by the Manager pursuant to this Agreement.
4. In consideration of its services under this Agreement, the Manager
shall be entitled to be reimbursed for the allocable portion of the direct costs
of the Bookkeeping Services and the Legal Expenses (collectively, the
"Services"). Such allocation shall be based upon the proportion of personnel
time devoted to the Services authorized to be performed on behalf of the Funds
to the total time worked by such personnel, in each case as estimated in good
faith by the Manager and reviewed and approved annually by the Board of
Trustees. Direct costs shall include any out-of-pocket expenses of the Manager
incurred in connection with the Services, the salaries and benefits of personnel
of the Manager who are engaged in the Services pursuant to this Agreement and,
with respect to the Services, a reasonable allocation of overhead (to the extent
permitted under the Management Contracts) associated with the performance of the
Bookkeeping Services. The Manager shall estimate such direct costs and overhead
(as appropriate) in good faith and the Funds shall be entitled to such
supporting information as the Trustees shall reasonably request from time to
time. Allocations of reimbursements paid hereunder among the Funds shall be
subject to annual approval of the Board of Trustees.
5. The Manager will not be liable for any error of judgment or mistake
of law in the performance of its services under the Agreement, but nothing
contained herein will be construed to protect the Manager against any liability
to the Funds or its shareholders 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 this Agreement.
6. Either party hereto may, without penalty, terminate this Agreement
by the giving of 60 days' written notice to the other party.
2
<PAGE>
7. The Manager is an independent contractor and not an employee of the
Funds for any purpose. If any occasion should arise in which the Manager gives
any advice to its clients concerning the shares of the Funds, the Manager will
act solely as investment counsel for such clients and not in any way on behalf
of the Funds or any series thereof.
8. This Agreement states the entire agreement of the parties hereto
with respect to the subject matter of this Agreement and its intended to be the
complete and exclusive statement of the terms hereof. It may not be added to or
changed orally, and may not be modified or rescinded except by a writing signed
by the parties hereto and in accordance with the 1940 Act, when applicable.
9. This Agreement and all performance hereunder shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
10. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms or provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
11. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by this duly authorized officers and their seal to be hereto affixed as
of the day and year first above written.
Attest: The Pioneer Funds Listed on Exhibit 1 hereto
By: /s/ John F. Cogan, Jr.
/s/ Joseph P. Barri John F. Cogan, Jr.
Joseph P. Barri President
Secretary
PIONEERING MANAGEMENT CORPORATION
Attest:
/s/ Joseph P. Barri By: /s/ David D. Tripple
Joseph P. Barri David D. Tripple
Secretary President
<PAGE>
EXHIBIT 1
(amended as of September 17, 1999)
Pioneer America Income Trust
Pioneer Balanced Fund
Pioneer Bond Fund
Pioneer Capital Growth Fund
Pioneer Cash Reserves Fund
Pioneer Emerging Markets Fund
Pioneer Equity-Income Fund
Pioneer Europe Fund
Pioneer Fund
Pioneer Gold Shares
Pioneer Growth Shares
Pioneer Independence Fund
Pioneer Indo-Asia Fund
Pioneer Interest Shares
Pioneer Intermediate Tax-Free Fund
Pioneer International Growth Fund
Pioneer Micro-Cap Fund
Pioneer Mid-Cap Fund
Pioneer Real Estate Shares
Pioneer Limited Maturity Bond Fund
Pioneer Small Company Fund
Pioneer Strategic Income Fund
Pioneer Tax-Free Income Fund
Pioneer II
Pioneer Variable Contracts Trust
International Growth Portfolio
Capital Growth Portfolio
Real Estate Growth Portfolio
Equity Income Portfolio
Balanced Portfolio
America Income Portfolio
Money Market Portfolio
Swiss Franc Bond Portfolio
Growth and Income Portfolio
Growth Shares Portfolio
Europe Portfolio
Emerging Markets Portfolio
Strategic Income Portfolio
Pioneer World Equity Fund
Pioneer Tax-Managed Fund
Pioneer High Yield Fund
Updated September, 1999
<PAGE>
EXHIBIT 2
PIONEERING MANAGEMENT CORP.
Fund Accounting, Administration and Custody Services (FAACS)
LIST OF SERVICES PROVIDED TO PIONEER MUTUAL FUNDS
SERVICES LISTED BY FAACS TEAM, OR FUNCTIONAL AREA. PLEASE SEE
ATTACHED CHART FOR ORGANIZATIONAL STRUCTURE.
PERCENTAGES FOLLOWING FAACS TEAM NAMES INDICATE EACH TEAM'S
AGGREGATE COMPENSATION AND BENEFITS PERCENTAGE BILLABLE TO THE FUNDS.
FAACS Administration (70%):
. Provide direction, supervision and administrative support to all FAACS
teams
. Prepare or review and submit all tax reports for Funds
. Oversee fund distributions for regulatory compliance
. Assist in planning for new product introductions
Fund Accounting (91%):
. Maintain all accounting records for Funds
. Calculate and report daily net asset values per share and yields
. Recommend income and capital gains distribution rates
. Prepare funds' financial statements and assist in fund audits
. Maintain accounting records for institutional portfolios
. Perform periodic tests to verify each Fund's compliance with its prospectus
and applicable regulations
GlobalCustody and Settlements Division (20%):
. Enter portfolio trades into Fund Accounting records
. Support corporate actions analyses Validate trade data and communicate them
to Custodian Banks
. Act as liaison with Custodian Banks for trade settlements, security
position reconciliations and relaying global market updates to Investment
Advisor
. Provide daily cash reporting to portfolio managers
. Resolve trade disputes with counter-parties
Pricing and Corporate Actions (95%):
. Ensure accuracy and timeliness of prices supplied by external sources to
provide daily valuations of all security positions held by every Fund
. Validate and communicate corporate/class action information to Fund
Accounting
. Present monthly valuation report to Funds' Board of Trustees
. Provide valuation and corporate actions services for securities held by
institutional portfolios, but not by Funds
PAGE 1
<PAGE>
List of FAACS Services (continued)
- - ----------------------
FAACS Systems (51%):
. Provide systems support to users of fund accounting and portfolio pricing
software, and manage relationships with applicable software and hardware
vendors
. Develop and maintain custom applications and systems interfaces for FAACS
teams
. Manage Year 2000 project
. Provide user support and vendor liaison for trading, compliance and
analysis systems
. Implement and manage systems interfaces with Investment Advisor, Custodian
Banks and other service providers
Shareholder Reporting and Audit Liaison (82%):
. Review and complete Funds' financial statements
. Manage the Fund Audit process to ensure timely completion of shareholder
reports
. Prepare reports related to contract renewals and soft dollar payments for
Board of Trustees' review
. Provide financial information to Legal Department for prospectus updates
and other regulatory filings
. Prepare regulatory reports such as N-SAR, Form S and EDGAR filings
. Provide financial information to Pioneer management and industry trade
groups
. Provide liquidity, commission and soft dollar reporting to Pioneer
management
Funds Controller (93%):
. Manage fund expense payment cycles (e.g., timeliness and accuracy of
payments, allocation of costs among portfolios)
. Coordinate and standardize fund expense accruals and forecasting
. Provide expense reporting to Fund Accounting, FAACS management and auditors
. Compile daily reports of shareholder transactions from all sources (e.g.,
PSC, PMIL, BFDS, variable annuity agents, 401(k) administrators, third
party record keepers) for entry into fund records
. Provide daily reconciliation of receivable, payable and share accounts
between fund records and entities listed above
. Manage the daily estimating process to minimize "as of" gains and losses
to Funds
. Communicate daily fund prices and yields to PSC, PMIL, etc.
. Provide fund-related analyses to Pioneer management
- --------------------------------------------------------------------------------
OVERALL WEIGHTED FAACS AVERAGE COMPENSATION AND BENEFITS RATE = 70%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key:
. Service provided under the Pioneer Funds Administration Agreement,
for which the Investment Advisor is entitled to reimbursement from the
Funds
- --------------------------------------------------------------------------------
PAGE 2
<PAGE>
- --------------------------------------------------------------------------------
. Service provided to the Funds which would fall within the scope of
the Advisory Agreement with the Funds and which is therefore not
directly billable to the Funds
- --------------------------------------------------------------------------------
PAGE 3
<PAGE>
EXHIBIT 3
THE PIONEER GROUP, INC. - LEGAL DEPARTMENT
I. LIST OF REIMBURSABLE LEGAL SERVICES PROVIDED TO PIONEER MUTUAL FUNDS
Filings under Investment Company Act of 1940 and Securities Act of 1933
o Prepare and File (via EDGAR) Rule 24f-2 Notices (coordination with
Pioneer Fund Accounting and Hale and Dorr LLP as necessary)
o SEC Electronic Filing (EDGAR) Responsibilities
o Prepare Fund Registration Statements and Related Filings
for filing on EDGAR and complete filings
o Maintain and develop enhancements to Pioneer's EDGAR
systems and procedures, including contingency planning
o Maintain EDGAR related databases and document archives
o Liaison with third party EDGAR agents when necessary
o Prepare proxy statements and related materials for filing
on EDGAR and complete filings
Blue Sky Administration (State Registration)
o Principal liaison with Blue Sky vendor (Bluesky MLS, Inc.)
o Coordinate SEC filing schedule and fund documentation with Blue Sky
vendor
o Monitor status of state filings with Blue Sky vendor
o Transfer Agent coordination
o Review vendor statements and invoices
o Conduct vendor due diligence, as appropriate
Hiring oversight
In-person meetings
[ ] audit
Miscellaneous Services
o Assist Pioneer Fund Accounting in the preparation of Fund Form N-SARs
o Managing internal participation in prospectus simplification
project. Charge Funds only for portion that relates to Funds--this
excludes work on behalf of distribution or management companies,
including coordination internally.
<PAGE>
II. LIST OF NON-REIMBURSABLE LEGAL SERVICES PROVIDED TO PIONEER MUTUAL FUNDS
Filings under Investment Company Act of 1940 and Securities Act of 1933
o Maintain Pioneer Mutual Funds SEC Filing Calendar
o Interact as necessary with the staff of the investment adviser,
distribution company and transfer agent to ensure awareness of
Fund disclosure requirements
o Coordinate internal review of Prospectuses and SAIs
o Coordinate Hale and Dorr LLP review and internal review of Hale and
Dorr LLP material
o Identify business and other situations that trigger requirement to
supplement Prospectuses and SAIs
Proxy Statements
o Assist Hale and Dorr LLP in the preparation of proxy statements
o Coordinate internal review of proxy statements and related documents
o Review proxy related materials prepared by the distribution
company to ensure compliance with regulatory requirements
o Review the transfer agent's proxy solicitation efforts to ensure
compliance with regulatory requirements
o Act as liaison between Hale and Dorr LLP and transfer agency staff
with respect to the proxy solicitation process
Miscellaneous Services
o Monitor the preparation of shareholder reports by the distribution
company
o Prepare and File (via EDGAR) Section 16 filings (re: Pioneer
Interest Shares)
o Maintain Officer and Trustee Securities Holdings (Fund and non-Fund
related)
o Code of Ethics Administration (as it relates to Disinterested
Trustees)
Regulatory Oversight
o Monitor proposed changes in applicable regulation and inform
appropriate Pioneer personnel of the proposals and impact on Funds
o Act as liaison with Hale and Dorr LLP in the implementation of
changes
Special Projects
o Coordinate implementation of Document Directions software system
(for prospectus production) purchased by Pioneer in late 1997
<PAGE>
o Provide advice with respect to Year 2000 issues
o Prospectus simplification efforts on behalf of distribution or
management companies, including internal coordination
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information of
Pioneer High Yield Fund constituting part of this registration statement of
Pioneer High Yield Fund on Form N-14 (the "N-14 Registration Statement") of our
report dated December 14, 1998, relating to the financial statements and
financial highlights of Third Avenue High Yield Fund (the "Fund"), which appears
in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus of Pioneer High Yield Fund / Proxy
Statement of Third Avenue High Yield Fund (the "Prospectus / Proxy Statement")
and the Statement of Additional Information of Third Avenue High Yield Fund,
which constitute part of this N-14 Registration Statement. We also consent to
the references to us under the headings "Financial Highlights" and "Experts" in
such Prospectus/Proxy Statement, under the heading "Financial Statements" in the
Statement of Additional Information of Pioneer High Yield Fund and under the
headings "Independent Accountants" and "Financial Statements" in the Statement
of Additional Information of Third Avenue High Yield Fund.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
November 1, 1999
POWER OF ATTORNEY
I, the undersigned officer or trustee of the Pioneer mutual funds
listed on Annex A, do hereby constitute and appoint John F. Cogan, Jr., David D.
Tripple, Joseph P. Barri and Eric W. Reckard, and each of them acting singly, to
be my true, sufficient and lawful attorneys, with full power to each of them and
each of them acting singly, to sign for me, in my name and the capacities
indicated below, any Registration Statement on Form N-1A, Form N-14 or any other
applicable registration form and any and all amendments thereto filed by any of
the Pioneer mutual funds of which I am now or on the date of such filing a
Trustee (each a "Trust") under the Investment Company Act of 1940, as amended,
and under the Securities Act of 1933, as amended, with respect to the offering
of its shares of beneficial interest, and any and all other documents and papers
relating thereto, and generally to do all such things in my name and on behalf
of me in the capacities indicated to enable the Trust to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, and thereunder, hereby ratifying and confirming my signature as it may
be signed by said attorneys or each of them to any and all Registration
Statements and amendments to said Registration Statement.
IN WITNESS WHEREOF, I have hereunder set my hand on this 7th day of
September, 1999.
/s/ Mary K. Bush
Mary K. Bush
/s/ Blake Eagle
Blake Eagle
/s/ Richard H. Egdahl
Richard H. Egdahl, M.D.
/s/ Margaret BW Graham
Margaret B.W. Graham
/s/ Stephen G. Kasnet
Stephen G. Kasnet
/s/ John W. Kendrick
John W. Kendrick
/s/ Marguerite A. Piret
Marguerite A. Piret
/s/ Fred N. Pratt, Jr.
Fred N. Pratt, Jr.
/s/ Stephen K. West
Stephen K. West
/s/ John Winthrop
John Winthrop
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.
/s/ David D. Tripple
David D. Tripple
/s/ Eric W. Reckard
Eric W. Reckard
<PAGE>
Power of Attorney
Annex A
Pioneer International Growth Fund
Pioneer Europe Fund
Pioneer World Equity Fund
Pioneer Emerging Markets Fund
Pioneer Indo-Asia Fund
Pioneer Capital Growth Fund
Pioneer Mid-Cap Fund
Pioneer Growth Shares
Pioneer Small Company Fund
Pioneer Independence Fund
Pioneer Micro-Cap Fund
Pioneer Gold Shares
Pioneer Balanced Fund
Pioneer Equity-Income Fund
Pioneer Fund
Pioneer II
Pioneer Real Estate Shares
Pioneer Short-Term Income Trust/
Pioneer Limited Maturity Bond Fund
Pioneer America Income Trust
Pioneer Bond Fund
Pioneer Tax-Free Income Fund
Pioneer Money Market Trust
Pioneer Strategic Income Fund
Pioneer Tax-Managed Equity Fund/
Pioneer Tax-Managed Fund
Pioneer High Yield Fund
Pioneer Interest Shares
Pioneer Variable Contracts Trust
