As filed with the Securities and Exchange Commission on May 3, 1999
File Nos. 2-57653
811-07597
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. ___ /___/
Post-Effective Amendment No. 40 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 / X /
Amendment No. 32 / X /
(Check appropriate box or boxes)
PIONEER TAX-FREE INCOME FUND
(Exact Name of Registrant as Specified in Charter)
60 State Street, Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 742-7825
Joseph P. Barri, Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
X on May 3, 1999 pursuant to paragraph (b)
---
___ 60 days after filing pursuant to paragraph (a)(1)
___ on [date] pursuant to paragraph(a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on [date] pursuant to paragraph (a)(2)of Rule 485.
If appropriate, check the following box:
___This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
[Pioneer logo]
Pioneer Tax-Free Income Fund
Class A, Class B and Class C Shares
Prospectus, May 3, 1999
Contents
Basic information about the fund 1
Management 6
Buying, exchanging and selling shares 7
Dividends, capital gains and taxes 25
Financial highlights 26
Neither the Securities and Exchange
Commission nor any state securities
agency has approved the fund's shares
or determined whether this prospectus is
accurate or complete. Any representation
to the contrary is a crime.
<PAGE>
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An investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
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Contact your investment professional to discuss how the fund fits into your
portfolio.
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<PAGE>
Basic information about the fund
Investment objective
As high a level of current income exempt from federal income taxes as possible
consistent with the preservation of capital.
Investment strategies
The fund invests primarily in high quality securities that provide income
that is exempt from federal tax and not subject to alternative minimum tax
(AMT). These investments include bonds, notes and other debt instruments issued
by or on behalf of states, territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies or
instrumentalities. Normally, the fund invests at least 80% of its net assets in
these securities.
The fund may invest in securities of any maturity. The fund invests in
securities rated in the three highest rating categories by Standard & Poor's
Ratings Group or Moody's Investors Service or determined by Pioneer Investment
Management, Inc., the fund's investment adviser, to be of comparable credit
quality.
The fund may invest 25% or more of its assets in issuers in any one or more
states or securities the payments on which are derived from gas, electric,
telephone, sewer and water segments of the municipal bond market. The fund may
also invest 25% or more of its assets in industrial development bonds.
Pioneer considers both broad economic factors and issuer specific factors
in selecting a portfolio designed to achieve the fund's investment objective. In
assessing the appropriate maturity adn rating 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. Once Pioneer determines the preferable portfolio characteristics,
Pioneer selects individual securities based upon the terms of the securities
(such as yields compared to U.S. Treasuries or comparable issues), liquidity and
rating and issuer diversification. Pioneer also employs fundamental research and
due diligence to assess an issuer's credit quality, taking into account
financial condition, future capital needs and potential for change in rating. 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.
1
<PAGE>
Principal risks of investing in the fund
Even though the fund seeks current income exempt from federal income tax, you
could lose money on your investment or not make as much as if you invested
elsewhere if:
[closed box] Interest rates go up, causing the value of the fund's investments
to decline
[closed box] The issuer of a security owned by the fund defaults on its
obligation to pay principal and/or interestor has its credit rating
downgraded
[closed box] New federal or state legislation adversely affects the tax-exempt
status of securities held by the fund or the financial ability of
municipalities to repay these obligations
[closed box] The issuer of a security owned by the fund may not be able to make
timely payments because of a general economic downturn or increased
governmental costs
[closed box] To the extent the fund concentrates its investments in a single
state or securities the payments on which are dependent upon a
single industry, the fund will be more susceptible to risks
associated with that state or industry
[closed box] Pioneer is incorrect in its expectation of changes in interest
rates or the credit quality of an issuer
Although distributions of interest income from the fund's tax-exempt
securities are generally exempt from federal income tax, distributions from
other sources, including capital gain distributions and any gains on the sale of
your shares, are not.
2
<PAGE>
Basic information about the fund
The fund's past performance
The bar chart and table indicate the risks of investing in the fund by showing
how the fund has performed in the past. The fund's performance varies from year
to year.
The fund's past performance does not necessarily indicate how it will perform in
the future. As a shareowner, you may lose or make money on your investment.
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Fund performance
The chart shows the performance of the fund's Class A shares for each of the
past 10 calendar years. Class B and Class C shares have different performance.
The chart does not reflect any Class A sales charges you may pay when you buy or
sell fund shares. Any sales charge will reduce your return.
The fund's highest calendar quarterly return was 7.11% (12/31/94 to 3/31/95)
The fund's lowest calendar quarterly return was -5.87% (12/31/93 to 3/31/94)
For the calendar quarter ended March 31, 1999 the fund's total return was 0.06%
Annual return Class A shares
(Year ended December 31)
[TABULAR REPRESENTATION OF BAR CHART]
'89 10.12% '94 -6.38%
'90 7.40% '95 16.83%
'91 12.49% '96 3.57%
'92 8.73% '97 8.94%
'93 12.98% '98 6.20%
[END BAR CHART]
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Comparison with Lehman Brothers
Municipal Bond Index
The table shows the average annual total returns for each class of the fund over
time and compares these returns to the returns of Lehman Brothers Municipal Bond
Index, an index of municipal bonds. Unlike the fund, the index is not managed
and does not incur expenses. The table:
[closed box] Reflects sales charges applicable to the class
[closed box] Assumes that you sell your shares at the end of the period
[closed box] Assumes that you reinvest all of your dividends and distributions
<TABLE>
<CAPTION>
Average annual total return (%)
(for periods ended December 31, 1998)
Since Inception
1 Year 5 Years 10 Years Inception Date
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<S> <C> <C> <C> <C> <C>
Class A 1.44 4.59 7.42 6.62 1/18/77
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Class B 1.48 n/a n/a 5.87 4/28/95
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Class C 5.33 n/a n/a 5.40 1/31/96
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Lehman Index 6.48 6.22 8.21 8.06* --
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* Reflects the return of the index since the inception of Class B shares. The
return of the index since the inception of Class C shares is 6.59%. Index
return information is not available for periods prior to January 1980.
</TABLE>
3
<PAGE>
Fees and expenses
These are the fees and expenses, based on the fund's latest fiscal year, you may
pay if you invest in the fund.
<TABLE>
<CAPTION>
Shareowner fees
paid directly from your investment Class A Class B Class C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) when you buy shares as a
percentage of offering price 4.50% None None
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Maximum deferred sales charge (load) as a percentage of
offering price or the amount you receive when you sell
shares, whichever is less None(1) 4% 1%
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Annual fund operating expenses
paid from the assets of the fund
as a percentage of average daily net assets Class A Class B Class C
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Management Fee 0.48% 0.48% 0.48%
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Distribution and Service (12b-1) Fee 0.25% 1.00% 1.00%
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Other Expenses 0.20% 0.16% 0.15%
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Total Annual Fund Operating Expenses 0.93% 1.64% 1.63%
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(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. See "Buying, exchanging and selling
shares."
</TABLE>
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>
Class A $541 $733 $942 $1,542 $541 $733 $942 $1,542
- --------------------------------------------------------------------------------
Class B 567 817 1,092 1,754 167 517 892 1,754
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Class C 266 514 887 1,933 166 514 887 1,933
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</TABLE>
4
<PAGE>
Basic information about the fund
Other investment strategies
As discussed, the fund invests primarily in high quality securities that provide
income that is exempt from federal tax.
This section describes additional investments that the fund may make or
strategies that it may pursue to a lesser degree to achieve the fund's goal.
Some of the fund's 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).
More on rating criteria
If a rating organization downgrades the quality rating assigned to one or more
of the fund's portfolio securities, Pioneer will consider what actions, if any,
are appropriate including selling the downgraded security or purchasing
additional high quality securities as soon as it is prudent to do so.
Taxable investments
The fund may invest up to 20% of its net assets in securities of other
investment companies, high quality commercial paper, U.S. government securities,
U.S. or foreign bank instruments and repurchase agreements.
Temporary investments
Normally, the fund invests substantially all of its assets to meet its
investment objective. The 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, the fund may depart from its
principal investment strategies and invest part or all of its assets in these
securities. During such periods, the fund may not be able to achieve its
investment objective. The fund intends to adopt a defensive strategy only when
Pioneer believes debt securities the fund normally invests in have extraordinary
risks due to political or economic factors.
Short-term trading
The fund usually does not trade for short-term profits. The 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 the fund does a lot of trading,
it may incur additional operating expenses, which would reduce performance, and
could cause shareowners to receive larger distributions of taxable income or
capital gains.
Derivatives
The fund may use futures, options and other derivatives. 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. The fund does not use derivatives as a primary investment
technique and generally limits their use to hedging. However, the fund may use
derivatives for a variety of purposes, including:
[closed box] As a hedge against adverse changes in interest rates
[closed box] As a substitute for purchasing or selling securities
[closed box] 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 the
fund's exposure to interest rates. If changes in a derivative's value do not
correspond to changes in the value of the fund's other investments, the fund may
not fully benefit from or could lose money on the derivative position. In
addition, some derivatives involve risk of loss if the person who issued the
derivative defaults on its obligation. Certain derivatives may be less liquid
and more difficult to value.
5
<PAGE>
Management
Pioneer, the fund's investment adviser,
selects the fund's investments and oversees the fund's operations.
Pioneer Group
The Pioneer Group, Inc. and its subsidiaries are engaged in financial services
businesses in the United States and many foreign countries. As of December 31,
1998, the firm had more than $23 billion in assets under management worldwide
including more than $22 billion in U.S. mutual funds. The firm's U.S. mutual
fund investment history includes creating in 1928 one of the first mutual funds.
John F. Cogan, chairman of the board and president of The Pioneer Group, Inc.,
owns approximately 14% of the firm. He is also an officer and director of each
of the Pioneer mutual funds.
Investment adviser
Pioneer manages a family of U.S. and international stock funds, bond funds and
money market funds. Pioneer is a subsidiary of The Pioneer Group, Inc. Its main
office is at 60 State Street, Boston, Massachusetts 02109.
Portfolio manager
Day-to-day management of the fund's portfolio is the responsibility of a team of
fixed income portfolio managers and analysts supervised by Sherman B. Russ.
Mr. Russ is one of two co-managers jointly responsible for overseeing Pioneer's
U.S. and global fixed income team. Mr. Russ is a senior vice president of
Pioneer. He joined Pioneer in 1983 as an assistant portfolio manager and has
been an investment professional since 1962.
Mr. Russ and his team operate under the supervision of Theresa A. Hamacher. Ms.
Hamacher is chief investment officer of Pioneer. She joined Pioneer in 1997 and
has been an investment professional since 1984; most recently as chief
investment officer at another investment adviser.
Management fee
The fund pays Pioneer a fee for managing the fund and to cover the cost of
providing certain services to the fund. Pioneer's annual fee is equal to 0.50%
of the fund's average daily net assets up to $250 million, 0.48% of the next $50
million and 0.45% on assets over $300 million. The fee is normally computed
daily and paid monthly.
Distributor and transfer agent
Pioneer Funds Distributor, Inc. is the fund's distributor. Pioneering Services
Corporation is the fund's transfer agent. The fund compensates the distributor
and transfer agent for their services. The distributor and the transfer agent
are subsidiaries of The Pioneer Group, Inc.
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 fund and the provision of services to its shareowners.
Pioneer is addressing the Year 2000 problem with respect to its systems and
those used by the distributor and transfer agent. During 1999, Pioneer expects
to finish addressing all material Year 2000 issues and to participate in
industry-wide testing. The fund has obtained assurances from its other service
providers that they are taking appropriate Year 2000 measures and Pioneer is
monitoring their efforts. Although the fund does not expect the Year 2000
problem to adversely impact it, the fund cannot guarantee that its, or the
fund's service providers', efforts will be successful.
6
<PAGE>
Buying, exchanging and selling shares
[BEGIN SIDEBAR]
[MAGNIFYING GLASS GRAPHIC]
Share price
The net asset value per share
calculated on the day of your
transaction, adjusted for any
applicable sales charge, is often
referred to as the share price.
[END SIDEBAR]
Net asset value
The 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. The fund
calculates a net asset value for each class of shares every day the New York
Stock Exchange is open when regular trading closes (normally 4:00 p.m. Eastern
time).
The fund generally values its portfolio securities based on market prices or
quotations. When market prices are not available or are considered by Pioneer 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.
You buy or sell shares at the net asset value per share calculated on the day of
your transaction, adjusted for any applicable sales charge. When you buy Class A
shares, you pay an initial sales charge. When you sell Class B or Class C
shares, you may pay a contingent deferred sales charge depending on how long you
have owned your shares.
Choosing a class of shares
The fund offers three classes of shares through this prospectus. Each class has
different sales charges and expenses, allowing you to choose the class that best
meets your needs.
Factors you should consider include:
[closed box] How long you expect to own the shares
[closed box] The expenses paid by each class
[closed box] Whether you qualify for any reduction or waiver of sales charges
Your investment professional can help you determine which class meets your
goals. Your investment firm may receive different compensation depending upon
which class you choose. If you are not a U.S. citizen and are purchasing shares
outside the U.S., you may pay different sales charges under local laws and
business practices.
Distribution plans
The fund has adopted a distribution plan for each class of shares offered
through this prospectus in accordance with Rule 12b-1 under the Investment
Company Act of 1940. Under each plan the fund pays distribution and service fees
to the distributor. Because these fees are an ongoing expense, over time they
increase the cost of your investment and your shares may cost more than shares
that are not subject to a distribution fee.
7
<PAGE>
<TABLE>
<CAPTION>
Comparing classes of shares
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Why you might prefer Class A shares may be You may prefer Class B You may prefer Class C
each class your best alternative if shares if you do not shares if you do not wish
you prefer to pay an want to pay an initial to pay an initial sales
initial sales charge and sales charge, or if you charge and you would
have lower annual plan to hold your rather pay higher annual
expenses, or if you investment for at least expenses over time.
qualify for any reduction six years. Class B
or waiver of the initial shares are not
sales charge. recommended if you
are investing $250,000
or more.
- --------------------------------------------------------------------------------------------------------------------
Initial sales charge Up to 4.50% of the None None
offering price, which is
reduced or waived for
large purchases and
certain types of
investors. At the time of
your purchase, your
investment firm may
receive a commission
from the distributor of
up to 4%, declining as
the size of your
investment increases.
- --------------------------------------------------------------------------------------------------------------------
Contingent deferred None, except in certain Up to 4% is charged if A 1% charge if you sell
sales charges circumstances when you sell your shares. your shares within one
the initial sales charge The charge is reduced year of purchase. Your
is waived. over time and not investment firm may
charged after six years. receive a commission
Your investment firm from the distributor at the
may receive a time of your purchase of
commission from the up to 1%.
distributor at the time
of your purchase of up
to 4%.
- --------------------------------------------------------------------------------------------------------------------
Distribution and Up to 0.25% of average Up to 1% of average Up to 1% of average daily
service fees daily net assets. daily net assets. net assets.
- --------------------------------------------------------------------------------------------------------------------
Annual expenses Lower than Class B or Higher than Class A Higher than Class A
(including distribution Class C. shares; Class B shares shares; Class C shares
and service fees) convert to Class A do not convert to any
shares after eight other class of shares.
years. You continue to pay
higher annual expenses.
- --------------------------------------------------------------------------------------------------------------------
Exchange privilege Class A shares of other Class B shares of other Class C shares of other
Pioneer mutual funds. Pioneer mutual funds. Pioneer mutual funds.
</TABLE>
8
<PAGE>
Buying, exchanging and selling shares
[BEGIN SIDEBAR]
[MAGNIFYING GLASS GRAPHIC]
Offering price
The net asset value per share plus
any initial sales charge.
[END SIDEBAR]
Sales charges: Class A shares
You pay the offering price when you buy Class A shares unless you qualify to
purchase shares at net asset value. You pay a lower sales charge as the size of
your investment increases. You do not pay a sales charge when you reinvest
dividends or distributions paid by the fund.
Investments of $1 million or more
You do not pay a sales charge when you purchase Class A shares if you are
investing $1 million or more, or you are a participant in certain group plans.
However, you pay a deferred sales charge if you sell your Class A shares within
one year of purchase. The sales charge is equal to 1% of your investment or your
sales proceeds, whichever is less.
Reduced sales charges
You may qualify for a reduced Class A sales charge if you own or are purchasing
shares of Pioneer mutual funds. If you or your investment professional notifies
the distributor of your eligibility for a reduced sales charge at the time of
your purchase, the distributor will credit you with the combined value (at the
current offering price) of all your Pioneer mutual fund shares and the shares of
your spouse and the shares of any children under 21. Certain trustees and
fiduciaries may also qualify for a reduced sales charge. For this purpose,
Pioneer mutual funds include any fund for which the distributor is principal
underwriter and, at the distributor's discretion, may include funds organized
outside the U.S. managed by Pioneer.
See "Qualifying for a reduced sales charge" for more information.
<TABLE>
<CAPTION>
Sales charges for Class A shares
Sales charge as % of
------------------------
Offering Net amount
Amount of purchase price invested
- --------------------------------------------------------------
<S> <C> <C>
Less than $100,000 4.50 4.71
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$100,000 but less than $250,000 3.50 3.63
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$250,000 but less than $500,000 2.50 2.56
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$500,000 but less than $1 million 2.00 2.04
- --------------------------------------------------------------
$1 million or more -0- -0-
- --------------------------------------------------------------
</TABLE>
9
<PAGE>
Sales charges: Class B shares
You buy Class B shares at net asset value per share without paying an initial
sales charge. However, you will pay a contingent deferred sales charge to the
distributor if you sell your Class B shares within six years of purchase. The
contingent deferred sales charge decreases as the number of years since your
purchase increases.
<TABLE>
<CAPTION>
Contingent deferred sales charge
- -----------------------------------------
On shares sold As a % of
before the dollar amount subject
end of year to the sales charge
- ----------------------------------------
<S> <C>
1 4
- ----------------------------------------
2 4
- ----------------------------------------
3 3
- ----------------------------------------
4 3
- ----------------------------------------
5 2
- ----------------------------------------
6 1
- ----------------------------------------
7+ -0-
- ----------------------------------------
</TABLE>
Conversion to Class A shares
Class B shares automatically convert into Class A shares. This helps you because
Class A shares pay lower expenses.
Your Class B shares will convert to Class A shares at the beginning of the
calendar month (calendar quarter for shares purchased before October 1, 1998)
that is eight years after the date of purchase except that:
[closed box] Shares bought by reinvesting dividends and capital gains will
convert to Class A shares at the same time as shares on which the
dividend or distribution was paid
[closed box] Shares purchased by exchanging shares from another fund will
convert on the date that the shares originally acquired would have
converted into Class A shares
Currently, the Internal Revenue Service permits the conversion of shares to take
place without imposing a federal tax. Conversion may not occur if the Internal
Revenue Service deems it a taxable event for federal tax purposes.
- --------------------------------------------------------------------------------
Paying the contingent deferred sales charge (CDSC)
Several rules apply for Class B shares so that you pay the lowest CDSC.
[closed box] The CDSC is calculated on the current market value, or the original
cost, of the shares you are selling, whichever is less
[closed box] You do not pay a CDSC on reinvested dividends or distributions
[closed box] In determining the number of years since your purchase, all
purchases are considered to have been made on the first day of that
month (quarter for shares purchased before October 1, 1998)
[closed box] If you sell only some of your shares, the transfer agent will first
sell your shares that are not subject to any CDSC and then the
shares that you have owned the longest
[closed box] You may qualify for a waiver of the CDSC normally charged. See
"Qualifying for a reduced sales charge"
- --------------------------------------------------------------------------------
[BEGIN SIDEBAR]
[MAGNIFYING GLASS GRAPHIC]
Contingent deferred sales charge
A sales charge that may be deducted
from your sale proceeds.
[END SIDEBAR]
10
<PAGE>
Buying, exchanging and selling shares
[BEGIN SIDEBAR]
[MAGNIFYING GLASS GRAPHIC]
Contingent deferred sales charge
A sales charge that may be deducted
from your sale proceeds.
[END SIDEBAR]
Sales charges: Class C shares
You buy Class C shares at net asset value per share without paying an initial
sales charge. However, if you sell your Class C shares within one year of
purchase, you will pay to the distributor a contingent deferred sales charge of
1% of the current market value, or the original cost, of the shares you are
selling, whichever is less.
- --------------------------------------------------------------------------------
Paying the contingent deferred sales charge (CDSC)
Several rules apply for Class C shares which result in your paying the lowest
CDSC.
[closed box] The CDSC is calculated on the current market value, or the original
cost, of the shares you are selling, whichever is less
[closed box] You do not pay a CDSC on reinvested dividends or distributions
[closed box] In determining the number of years since your purchase, all
purchases are considered to have been made on the first day of that
month (quarter for shares purchased before October 1, 1998)
[closed box] If you sell only some of your shares, the transfer agent will first
sell your shares that are not subject to any CDSC and then the
shares that you have bought most recently
[closed box] You may qualify for a waiver of the CDSC normally charged. See
"Qualifying for a reduced sales charge"
- --------------------------------------------------------------------------------
11
<PAGE>
Qualifying for a reduced sales charge
Initial Class A sales charge waivers
You may purchase Class A shares at net asset value (without a sales charge) or
with a reduced initial sales charge as follows. If you believe you qualify for
any of the waivers discussed below, contact the distributor. You are required to
provide written confirmation of your eligibility. You may not resell these
shares except to or on behalf of the fund.
Class A purchases at net asset value are available to:
[closed box] Current or former trustees and officers of the fund;
[closed box] Current or former partners and employees of legal counsel to the
fund;
[closed box] Current or former directors, officers, employees or sales
representatives of The Pioneer Group, Inc. and its affiliates;
[closed box] Current or former directors, officers, employees or sales
representatives of any subadviser or a predecessor adviser (or
their affiliates) to any investment company for which Pioneer
serves as investment adviser;
[closed box] Current or former officers, partners, employees or registered
representatives of broker-dealers which have entered into sales
agreements with the distributor;
[closed box] Members of the immediate families of any of the persons above;
[closed box] Any trust, custodian, pension, profit sharing or other benefit plan
of the foregoing persons;
[closed box] Insurance company separate accounts;
[closed box] Certain "wrap accounts" for the benefit of clients of financial
planners adhering to standards established by the distributor;
[closed box] Other funds and accounts for which Pioneer or any of its affiliates
serve as investment adviser or manager;
[closed box] In connection with certain reorganization, liquidation or
acquisition transactions involving other investment companies or
personal holding companies;
[closed box] Certain unit investment trusts;
[closed box] Employer-sponsored retirement plans with 100 or more eligible
employees or at least $500,000 in plan assets;
[closed box] Participants in Optional Retirement Programs if (i) your employer
has authorized a limited number of mutual funds to participate in
the program, (ii) all participating mutual funds sell shares to
program participants at net asset value, (iii) your employer has
agreed in writing to actively promote Pioneer mutual funds to
program participants and (iv) the program provides for a matching
contribution for each participant contribution.
12
<PAGE>
Buying, exchanging and selling shares
Class A purchases at a reduced initial sales charge or net asset value are also
available to:
Group Plans if the sponsoring organization
[closed box] recommends purchases of Pioneer mutual funds to,
[closed box] permits solicitation of, or
[closed box] facilitates purchases by
its employees, members or participants.
Letter of intent (Class A)
You can use a letter of intent to qualify for reduced sales charges in two
situations:
[closed box] If you plan to invest at least $50,000 (excluding any reinvestment
of dividends and capital gain distributions) in the fund's Class A
shares during the next 13 months
[closed box] If you include in your letter of intent the value -- at the current
offering price -- of all of your Class A shares of the fund and all
other Pioneer mutual fund shares held of record in the amount used
to determine the applicable sales charge for the fund shares you
plan to buy.
Completing a letter of intent does not obligate you to purchase additional
shares, but if you do not buy enough shares to qualify for the projected level
of sales charges by the end of the 13-month period (or when you sell your
shares, if earlier), the distributor will recalculate your sales charge. You
must pay the additional sales charge within 20 days after you are notified of
the recalculation or it will be deducted from your account (or your sale
proceeds). For more information regarding letters of intent, please contact your
investment professional or obtain and read the statement of additional
information.
Reinvestment (Class A)
If you sold shares of another mutual fund within the past 60 days, you may be
able to reinvest the sale proceeds from that fund in Class A shares of the fund
at net asset value without a sales charge.
To qualify:
[closed box] Your investment firm must have a sales agreement with the
distributor;
[closed box] You must demonstrate that the amount invested is from the proceeds
of the sale of shares from another mutual fund that occurred within
60 days immediately preceding your purchase;
[closed box] You paid a sales charge on the original purchase of the shares
sold; and - The mutual fund whose shares were sold also offers net
asset value purchases to shareowners that sell shares of a Pioneer
mutual fund.
13
<PAGE>
Waiver or reduction of contingent deferred sales charges (CDSC)
Class A shares that are subject to a CDSC
Purchases of Class A shares of $1 million or more, or by participants in a Group
Plan which were not subject to an initial sales charge, may be subject to a CDSC
upon redemption. A CDSC is payable to the distributor in the event of a share
redemption within 12 months following the share purchase, at the rate of 1% 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. However, the
CDSC is waived for redemptions of Class A shares purchased by an
employer-sponsored retirement plan qualified under Section 401 of the Internal
Revenue Code that has 1,000 or more eligible employees or at least $10 million
in plan assets.
Class A, Class B and Class C shares
The distributor may waive or reduce the CDSC for Class A shares that are subject
to a CDSC or for Class B or Class C shares if:
[closed box] The distribution results from the death of all registered account
owners or a participant in an employer-sponsored plan. For UGMAs,
UTMAs and trust accounts, the waiver applies only upon the death of
all beneficial owners;
[closed box] The distribution results from a total and permanent disability (as
defined by Section 72 of the Internal Revenue Code) occurring after
the purchase of the shares being sold. For UGMAs, UTMAs and trust
accounts, the waiver only applies upon the disability of all
beneficial owners;
[closed box] The distribution is made in connection with limited automatic
redemptions as described in "Systematic withdrawal plans" (limited
in any year to 10% of the value of the account in the fund at the
time the withdrawal plan is established);
[closed box] The distribution is from any type of IRA, 403(b) or
employer-sponsored plan and one of the following applies:
- It is part of a series of substantially equal periodic payments
made over the life expectancy of the participant or the joint
life expectancy of the participant and his or her beneficiary
(limited in any year to 10% of the value of the participant's
account at the time the distribution amount is established);
- It is a required minimum distribution due to the attainment of
age 70-1/2, in which case the distribution amount may exceed 10%
(based solely on plan assets held in Pioneer mutual funds);
14
<PAGE>
Buying, exchanging and selling shares
- It is rolled over to or reinvested in another Pioneer fund in the
same class of shares, which will be subject to the CDSC of the
shares originally held;
- It is in the form of a loan to a participant in a plan that
permits loans (each repayment will be subject to a CDSC as though
a new purchase);
[closed box] The distribution is to a participant in an employer-sponsored
retirement plan qualified under section 401 of the Internal Revenue
Code and is:
- A return of excess employee deferrals or contributions;
- A qualifying hardship distribution as defined by the Internal
Revenue Code. For Class B shares, waiver is granted only on
payments of up to 10% of total plan assets held by Pioneer for
all participants, reduced by the total of any prior distributions
made in that calendar year;
- Due to retirement or termination of employment. For Class B
shares, waiver is granted only on payments of up to 10% of total
plan assets held in a Pioneer mutual fund for all participants,
reduced by the total of any prior distributions made in the same
calendar year;
- From a qualified defined contribution plan and represents a
participant's directed transfer, provided that this privilege has
been preauthorized through a prior agreement with the distributor
regarding participant directed transfers (not available to Class
B shares);
[closed box] The distribution is made pursuant to the fund's right to liquidate
or involuntarily redeem shares in a shareholder's account;
[closed box] The selling broker elects, with the distributor's approval, to
waive receipt of the commission normally paid at the time of the
sale.
15
<PAGE>
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 the 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 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.
[BEGIN SIDEBAR]
[TELEPHONE GRAPHIC]
By phone
If you want to place your telephone
transaction by speaking to a shareowner
services representative, call
1-800-225-6292 between 8:00 a.m.
and 9:00 p.m. Eastern time on any
weekday that the New York Stock
Exchange is open. You may use
FactFone(SM) at any time.
[END SIDEBAR]
16
<PAGE>
Buying, exchanging and selling shares
[BEGIN SIDEBAR]
[QUESTION MARK GRAPHIC]
Consult your investment
professional to learn more about
buying, exchanging or selling fund
shares.
[END SIDEBAR]
General rules on buying, exchanging and selling
your 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 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 fund shares at the offering price. 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 must be at least $1,000. Additional investments must be
at least $100 for Class A shares and $500 for Class B or Class C 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.
- --------------------------------------------------------------------------------
Retirement plan accounts
You can purchase fund shares through tax-deferred retirement plans for
individuals, businesses and tax-exempt organizations.
Your initial investment for most types of retirement plan accounts must be at
least $250. Additional investments for most types of retirement plans must be at
least $100.
You may not use the account application accompanying this prospectus to
establish a Pioneer retirement plan. You can obtain retirement plan applications
from your investment firm or by calling the Retirement Plans Department at
1-800-622-0176.
- --------------------------------------------------------------------------------
17
<PAGE>
Exchanging
You may exchange your shares for shares of the same class of another Pioneer
mutual fund.
Your exchange request must be for at least $1,000 unless the fund you are
exchanging into has a different minimum. The fund allows you to exchange your
shares at net asset value without charging you either an initial or contingent
deferred sales charge at the time of the exchange. Shares you acquire as part of
an exchange will continue to be subject to any contingent deferred sales charge
that applies to the shares you originally purchased. When you ultimately sell
your shares, the date of your original purchase will determine your contingent
deferred sales charge.
Before you request an exchange, consider each fund's investment objective and
policies as described in the fund's prospectus.
Selling
Your shares will be sold at net asset value per share next calculated after the
fund receives your request in good order.
If the shares you are selling are subject to a deferred sales charge, it will be
deducted from the sale proceeds. 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 recently sent a check to purchase the shares being
sold, the fund may delay payment of the sale proceeds until your check has
cleared. This may take up to 15 calendar days from the purchase date.
If you are selling shares from a nonretirement 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.
- --------------------------------------------------------------------------------
Good order means that:
[closed box] You have provided adequate instructions
[closed box] There are no outstanding claims against your account - There are no
transaction limitations on your account
[closed box] If you have any fund share certificates, you submit them and they
are signed by each record owner exactly as the shares are
registered
[closed box] 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
- --------------------------------------------------------------------------------
[BEGIN SIDEBAR]
[COLUMN GRAPHIC]
You may have to pay federal income
taxes on a sale or an exchange.
[END SIDEBAR]
18
<PAGE>
Buying, exchanging and selling shares
Buying shares
Through your investment firm
Normally, your investment firm will send your purchase request to the fund's
transfer agent. Consult your investment professional for more information. Your
investment firm 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 if you have an existing non-
retirement account or certain IRAs. You can purchase additional fund shares by
phone if:
[closed box] You established your bank account of record at least 30 days ago
[closed box] Your bank information has not changed for at least 30 days
[closed box] You are not purchasing more than $25,000 worth of shares per
account per day
[closed box] You can provide the proper account 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, by mail or by fax
You can purchase fund shares for an existing fund account by mailing a check to
the transfer agent. Make your check payable to the fund. Neither initial nor
subsequent investments should be made by third party check. Your check must be
in U.S. dollars and drawn on a U.S. bank. Include in your purchase request the
fund's name, the account number and the name or names in the account
registration.
- --------------------------------------------------------------------------------
Exchanging shares
Normally, your investment firm will send your exchange request to the fund's
transfer agent. Consult your investment professional for more information about
exchanging your shares.
- --------------------------------------------------------------------------------
After you establish your fund account, you can exchange fund shares by phone
if:
[closed box] You are using the exchange to establish a new account, provided the
new account has a registration identical to the original account
[closed box] The fund into which you are exchanging offers the same class of
shares
[closed box] You are not exchanging more than $500,000 worth of shares per
account per day
[closed box] You can provide the proper account identification information
- --------------------------------------------------------------------------------
You can exchange fund shares by mailing or faxing a letter of instruction to the
transfer agent. You can exchange fund shares directly through the fund only if
your account is registered in your name. However, you may not fax an exchange
request for more than $500,000. Include in your letter:
[closed box] The names, social security number and signatures of all registered
owners
[closed box] A signature guarantee for each registered owner if the amount of
the exchange is more than $500,000
[closed box] The name of the fund out of which you are exchanging and the name
of the fund into which you are exchanging
[closed box] The class of shares you are exchanging
[closed box] The dollar amount or number of shares you are exchanging
19
<PAGE>
Selling shares
Normally, your investment firm will send your request to sell shares to the
fund's transfer agent. Consult your investment professional for more
information. The fund has authorized the distributor to act as its agent in the
repurchase of fund shares from qualified investment firms. The fund reserves the
right to terminate this procedure at any time.
- --------------------------------------------------------------------------------
You may sell up to $100,000 per account per day. You may sell fund shares held
in a retirement plan account by phone only if your account is an IRA. You may
not sell your shares by phone if you have changed your address (for checks) or
your bank information (for wires and transfers) in the last 30 days.
You may receive your sale proceeds:
[closed box] By check, provided the check is made payable exactly as your
account is registered
[closed box] By bank wire or by electronic funds 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 writing directly to the
fund only if your account is registered in your name. Include in your request
your name, your social security number, the fund's name, your fund account
number, the class of shares to be sold, the dollar amount or number of shares to
be sold and any other applicable requirements as described below. The transfer
agent will send the sale proceeds to your address of record unless you provide
other instructions. Your request must be signed by all registered owners and be
in good order. The transfer agent will not process your request until it is
received in good order. You may not sell more than $100,000 per account per day
by fax.
- --------------------------------------------------------------------------------
How to contact us
By phone [TELEPHONE GRAPHIC]
For information or to request a telephone transaction between 8:00 a.m. and 9:00
p.m. (Eastern time) by speaking with a shareholder services representative call
1-800-225-6292
To request a transaction using FactFone(SM) call 1-800-225-4321
Telecommunications Device for the Deaf (TDD) 1-800-225-1997
By mail [ENVELOPE GRAPHIC]
Send your written instructions to:
Pioneering Services Corporation
P.O. Box 9014
Boston, Massachusetts 02205-9014
By fax [FAX GRAPHIC]
Fax your exchange and sale requests to:
1-800-225-4240
- --------------------------------------------------------------------------------
Exchange privilege
The fund and the distributor reserve the right to refuse any exchange request or
restrict, at any time without notice, the number and/or frequency of exchanges
to prevent abuses of the exchange privilege. Abuses include frequent trading in
response to short-term market fluctuations and a pattern of trading that appears
to be an attempt to "time the market." In addition, the fund and the distributor
reserve the right, at any time without notice, 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.
- -------------------------------------------------------------------------------
20
<PAGE>
Buying, exchanging and selling shares
Account options
See the account application form for more details on each of the following
options.
Automatic investment plans
You can make regular periodic investments in the fund by setting up monthly bank
drafts, government allotments, payroll deduction, a Pioneer Investomatic Plan
and other similar automatic investment plans. You may use an automatic
investment plan to establish a Class A share account with a small initial
investment. If you have a Class B or Class C share account and your balance is
at least $1,000, you may establish an automatic investment plan.
Pioneer Investomatic Plan
If you establish a Pioneer Investomatic Plan, the transfer agent will make a
periodic investment in fund shares by means of a preauthorized electronic funds
transfer from your bank account. Your plan investments are voluntary. You may
discontinue your plan at any time or change the plan's dollar amount, frequency
or investment date by calling or writing to the transfer agent. You should allow
up to 30 days for the transfer agent to establish your plan.
Automatic exchanges
You can automatically exchange your fund shares for shares of the same class of
another Pioneer mutual fund. The automatic exchange will begin on the day you
select when you complete the appropriate section of your account application or
an account options form. In order to use automatic exchange:
[closed box] You must select exchanges on a monthly or quarterly basis
[closed box] Both the originating and receiving accounts must have identical
registrations
[closed box] The originating account has a minimum balance of $5,000
Distribution options
The fund offers three distribution options. Any fund shares you buy by
reinvesting distributions will be priced at the applicable net asset value per
share.
(1) Unless you indicate another option on your account application, any
dividends and capital gain distributions paid to you by the fund will
automatically be invested in additional fund shares.
(2) You may elect to have the amount of any dividends paid to you in cash and
any capital gain distributions reinvested in additional shares.
(3) You may elect to have the full amount of any dividends and/or capital gain
distributions paid to you in cash.
Options (2) or (3) are not available to retirement plan accounts or accounts
with a current value of less than $500.
If your distribution check is returned to the transfer agent or you do not cash
the check for six months or more, the transfer agent may reinvest the amount of
the check in your account and automatically change the distribution option on
your account to option (1) until you request a different option in writing.
These additional shares will be purchased at the then current net asset value.
21
<PAGE>
Directed dividends
You can invest the dividends paid by one of your Pioneer mutual fund accounts in
a second Pioneer mutual fund account. The value of your second account must be
at least $1,000 ($500 for Pioneer Fund or Pioneer II). You may direct the
investment of any amount of dividends. There are no fees or charges for directed
dividends. If you have a retirement plan account, you may only direct dividends
to accounts with identical registrations.
Systematic withdrawal plans
When you establish a systematic withdrawal plan for your account, the transfer
agent will sell the number of fund shares you specify on a periodic basis and
the proceeds will be paid to you or to any person you select. You must obtain a
signature guarantee to direct payments to another person after you have
established your systematic withdrawal plan. Payments can be made either by
check or by electronic transfer to a bank account you designate.
To establish a systematic withdrawal plan:
[closed box] Your account must have a total value of at least $10,000 when you
establish your plan
[closed box] You must request a periodic withdrawal of at least $50
[closed box] You may not request a periodic withdrawal of more than 10% of the
value of any Class B or Class C share account (valued at the time
the plan is implemented)
Systematic sales of fund shares may be taxable transactions for you. If you
purchase Class A shares while you are making systematic withdrawals from your
account, you may pay unnecessary sales charges.
Direct deposit
If you elect to take dividends or dividends and capital gain distributions in
cash, or if you establish a systematic withdrawal plan, you may choose to have
those cash payments deposited directly into your savings, checking or NOW bank
account.
Voluntary tax withholding
You may have the transfer agent withhold 28% of the dividends and capital gain
distributions paid from your fund account (before any reinvestment) and forward
the amount withheld to the Internal Revenue Service as a credit against your
federal income taxes. Voluntary tax withholding is not available for retirement
plan accounts or for accounts subject to backup withholding.
Reinstatement privilege for Class A shares
You may qualify for the reinstatement privilege if you recently sold all or part
of your Class A shares.
22
<PAGE>
Buying, exchanging and selling shares
Shareowner services
FactFone(SM) 1-800-225-4321
You can use FactFone(SM) to:
[closed box] Obtain current information on your Pioneer mutual fund accounts
[closed box] Inquire about the prices and yields of all publicly available
Pioneer mutual funds
[closed box] Make computer-assisted telephone purchases, exchanges and
redemptions for your fund accounts
[closed box] Request account statements
If you plan to use FactFone(SM) to make telephone purchases and redemptions,
first you must activate your personal identification number and establish your
bank account of record. If your account is registered in the name of a
broker-dealer or other third party, you may not be able to use FactFone(SM).
Confirmation statements
The transfer agent maintains an account for each investment firm or individual
shareowner and records all account transactions. You will be sent confirmation
statements showing the details of your transactions as they occur, except
automatic investment plan transactions, which are confirmed quarterly. If you
have more than one Pioneer mutual fund account registered in your name, the
Pioneer combined account statement will be mailed to you each quarter.
Tax information
In January of each year, the fund will mail you information about the tax status
of the dividends and distributions paid to you by the fund.
Pioneer website
www.pioneerfunds.com
The website includes a full selection of information on mutual fund investing.
You can also use the website to get:
[closed box] Your current account information
[closed box] Prices, returns and yields of all publicly available Pioneer mutual
funds
[closed box] Prospectuses for all the Pioneer funds
TDD 1-800-225-1997
If you have a hearing disability and access to TDD keyboard equipment, you can
contact our telephone representatives with questions about your account by
calling our TDD number between 8:30 a.m. and 5:30 p.m. Eastern time any weekday
that the New York Stock Exchange is open.
23
<PAGE>
Shareowner account policies
Signature guarantees and other requirements
You are required to obtain a signature guarantee when you are:
[closed box] Requesting certain types of exchanges or sales of fund shares
[closed box] Redeeming shares for which you hold a share certificate
[closed box] 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.
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.
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 shareowners at any time.
The fund reserves the right to redeem in kind by delivering portfolio
securities to a redeeming shareowner, provided that the fund must pay
redemptions in cash if a shareowner's aggregate redemptions in a 90 day period
are less than $250,000 or 1% of the fund's net assets.
23
<PAGE>
Dividends, capital gains and taxes
[BEGIN SIDEBAR]
[COLUMN GRAPHIC]
Sales and exchanges may be
taxable transactions to
shareowners.
[END SIDEBAR]
Dividends and capital gains
The fund declares a dividend from any net investment income and any net
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. The
fund distributes net long-term capital gains, if any, in November. The fund may
also pay dividends and 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.
Taxes
For federal income tax purposes, your distributions from the fund's tax-exempt
interest, called "exempt-interest dividends," are exempt from regular federal
income tax. Your distributions from the fund's net long-term capital gains are
considered long-term capital gains. Dividends that are not exempt-interest
dividends and short-term capital gain distributions are taxable as ordinary
income. Any taxable 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 (other than exempt-interest 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 state and local income taxation of the fund's
exempt-interest dividends and other distributions. 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 shareowners.
25
<PAGE>
Financial highlights
The financial highlights table helps you understand
the fund's financial performance for the past five years.
Certain information reflects financial results for a single fund share. The
total returns in the table represent the rate that you would have earned on an
investment in the fund (assuming reinvestment of all dividends and
distributions).
This information has been audited by Arthur Andersen LLP, whose report is
included in the fund's annual report along with the fund's financial statements.
The annual report is available upon request.
<TABLE>
<CAPTION>
Pioneer Tax-Free Income Fund
Class A shares
For the year ended December 30
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.17 $ 11.96 $ 12.36 $ 11.24 $ 12.68
--------------------------------------------------------------------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.55 $ 0.59 $ 0.62 $ 0.64 $ 0.64
Net realized and unrealized gain (loss)
on investments 0.19 0.45 (0.21) 1.21 (1.44)
--------------------------------------------------------------------
Net increase (decrease)
from investment operations $ 0.74 $ 1.04 $ 0.41 $ 1.85 $ (0.80)
Distributions to shareholders:
Net investment income (0.55) (0.59) (0.62) (0.64) (0.64)
Net realized gain (0.34) (0.24) (0.19) (0.09) --
--------------------------------------------------------------------
Net increase (decrease) in net asset value $ (0.15) $ 0.21 $ (0.40) $ 1.12 $ (1.44)
--------------------------------------------------------------------
Net asset value, end of period $ 12.02 $ 12.17 $ 11.96 $ 12.36 $ 11.24
====================================================================
Total return* 6.20% 8.94% 3.57% 16.84% (6.38)%
Ratios/Supplemental Data
Ratio of net expenses to average net assets 0.93%+ 0.93%+ 0.92%+ 0.91%+ 0.91%
Ratio of net investment income (loss)
to average net assets 4.48%+ 4.87%+ 5.16%+ 5.37%+ 5.37%
Portfolio turnover rate 52% 22% 44% 35% 55%
Net assets, end of period (in thousands) $ 393,390 $413,856 $441,733 $476,584 $452,661
Ratios assuming reduction for fees paid indirectly:
Net expenses 0.92% 0.91% 0.90% 0.89% --
Net investment income (loss) 4.49% 4.89% 5.18% 5.39% --
- --------------------------------------------------------------------------------
* Assumes initial investment at net asset value at the beginning of each period,
reinvestment of distributions, the complete redemption of the investment at
net asset value at the end of each period and no sales charges. Total return
would be reduced if sales charges were taken into account.
+ Ratio assuming no reduction for fees paid indirectly.
</TABLE>
26
<PAGE>
Financial highlights
<TABLE>
<CAPTION>
Pioneer Tax-Free Income Fund
Class B shares
April 28,
For the year ended December 31 1995 through
----------------------------------------- December 31,
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.09 $11.88 $12.31 $ 11.81
----------------------------------------------------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.46 $ 0.50 $ 0.53 $ 0.35
Net realized and unrealized gain (loss)
on investments 0.18 0.44 (0.22) 0.58
----------------------------------------------------
Net increase (decrease) from
investment operations $ 0.64 $ 0.94 $ 0.31 $ 0.93
Distributions to shareholders:
Net investment income (0.46) (0.49) (0.53) (0.34)
In excess of net investment income -- -- (0.02) --
Net realized gain (0.34) (0.24) (0.19) (0.09)
----------------------------------------------------
Net increase (decrease) in net asset value $ (0.16) $ 0.21 $(0.43) $ 0.50
----------------------------------------------------
Net asset value, end of period $ 11.93 $ 12.09 $ 11.88 $ 12.31
====================================================
Total return* 5.43% 8.16% 2.66% 7.94%
Ratios/Supplemental Data
Ratio of net expenses to average net assets 1.64%+ 1.68%+ 1.67%+ 1.72%**+
Ratio of net investment income (loss)
to average net assets 3.73%+ 4.12%+ 4.38%+ 4.38%**+
Portfolio turnover rate 52% 22% 44% 35%
Net assets, end of period (in thousands) $ 10,790 $ 5,588 $ 4,792 $ 2,069
Ratios assuming reduction for fees paid indirectly:
Net expenses 1.63% 1.66% 1.65% 1.65%**
Net investment income (loss) 3.74% 4.14% 4.40% 4.45%**
- --------------------------------------------------------------------------------
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions, the complete redemption of the
investment at net asset value at the end of each period and no sales charges.
Total return would be reduced if sales charges were taken into account.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Pioneer Tax-Free Income Fund
Class C shares
For the year ended January 31,
December 31 1996 through
--------------------------- December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.11 $ 11.88 $ 12.32
--------------------------------------
Increase (decrease) from investment operations:
Net investment income (loss) $ 0.46 $ 0.49 $ 0.49
Net realized and unrealized gain (loss)
on investments 0.17 0.47 (0.24)
--------------------------------------
Net increase (decrease) from
investment operations $ 0.63 $ 0.96 $ 0.25
Distributions to shareholders:
Net investment income (0.46) (0.49) (0.49)
In excess of net investment income -- -- (0.01)
Net realized gain (0.34) (0.24) (0.19)
--------------------------------------
Net increase (decrease) in net asset value $ (0.17) $ 0.23 $ (0.44)
--------------------------------------
Net asset value, end of period $ 11.94 $ 12.11 $ 11.88
======================================
Total return* 5.33% 8.32% 2.19%
Ratios/Supplemental Data
Ratio of net expenses to average net assets 1.63%+ 1.70%+ 1.71%**+
Ratio of net investment income (loss)
to average net assets 3.72%+ 4.04%+ 4.34%**+
Portfolio turnover rate 52% 22% 44%
Net assets, end of period (in thousands) $ 3,262 $ 1,643 $ 383
Ratios assuming reduction for fees paid indirectly:
Net expenses 1.60% 1.67% 1.69%**
Net investment income (loss) 3.75% 4.07% 4.36%**
- --------------------------------------------------------------------------------
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions, the complete redemption of the
investment at net asset value at the end of each period and no sales charges.
Total return would be reduced if sales charges were taken into account.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
</TABLE>
28
<PAGE>
Notes
29
<PAGE>
Notes
30
<PAGE>
Pioneer
Tax-Free Income Fund
You can obtain more free information about the fund from your investment firm or
by writing to Pioneering Services Corporation, 60 State Street, Boston,
Massachusetts 02109. You may also call 1-800-225-6292.
Shareowner reports
Annual and semiannual reports to shareowners provide information about the
fund's investments. The annual report discusses market conditions and investment
strategies that significantly affected the fund's performance during its last
fiscal year.
Statement of additional information
The statement of additional information provides more detailed information about
the fund. It is incorporated by reference into this prospectus.
Visit our website
www.pioneerfunds.com
You can also review the fund's shareowner reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. or by calling 1-800-SEC-0330 to request a
copy. The Commission charges a fee for this service. You can get the same
information free from the Commission's Internet website (http://www.sec.gov).
(Investment Company Act file no. 811-07597)
[PIONEER GRAPHIC] Pioneer Funds Distributor, Inc.
60 State Street
Boston, MA 02109
www.pioneerfunds.com 0499-6249
(C) Pioneer Funds Distributor, Inc.
<PAGE>
PIONEER TAX-FREE INCOME FUND
60 State Street
Boston, Massachusetts 02109
STATEMENT OF ADDITIONAL INFORMATION
CLASS A, CLASS B AND CLASS C SHARES
MAY 3, 1999
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
dated May 3, 1999, as supplemented or revised from time to time. A copy of the
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. The
fund's financial statements for the fiscal year ended December 31, 1998 are
incorporated into this statement of additional information by reference. The
most recent annual report to shareholders is attached to this statement of
additional information.
TABLE OF CONTENTS
PAGE
1. Fund History..........................................................2
2. Investment Policies, Risks and Restrictions...........................2
3. Management of the Fund...............................................11
4. Investment Adviser...................................................15
5. Principal Underwriter and Distribution Plans.........................17
6. Shareholder Servicing/Transfer Agent.................................21
7. Custodian............................................................21
8. Independent Public Accountants.......................................21
9. Portfolio Transactions...............................................22
10. Description of Shares................................................23
11. Sales Charges........................................................25
12. Redeeming Shares.....................................................28
13. Telephone Transactions...............................................29
14. Pricing of Shares....................................................30
15. Tax Status...........................................................31
16. Investment Results...................................................35
17. Financial Statements.................................................38
18. Appendix A - Annual Fee, Expense and Other Information...............39
19. Appendix B - Description of Short-term Debt, Corporate Bond and
Preferred Stock Ratings..............................................43
20. Appendix C - Performance Statistics..................................49
21. Appendix D - Other Pioneer Information...............................63
<PAGE>
1. FUND HISTORY
The fund is a diversified open-end management investment company. The fund was
organized as a Nebraska corporation in 1968 and reorganized as a Delaware
business trust in June 1994. Prior to December 1, 1993, the fund was called
Mutual of Omaha Tax-Free Income Fund, Inc. and prior to June 30, 1994 was called
Pioneer Tax-Free Income Fund, Inc.
2. INVESTMENT POLICIES, RISKS AND RESTRICTIONS
The prospectus presents the investment objective and the principal investment
strategies and risks of the fund. This section supplements the disclosure in the
fund's prospectus and provides additional information on the fund's investment
policies or restrictions. Restrictions or policies stated as a maximum
percentage of the fund's assets are only applied immediately after a portfolio
investment to which the policy or restriction is applicable. 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
The investment objective of the fund is to seek as high a level of income exempt
from federal income tax as possible, consistent with preservation of capital. To
achieve this objective, the fund intends to invest in a diversified portfolio of
obligations issued by or on behalf of states, counties and municipalities of the
U.S. and their authorities and political subdivisions ("Tax-Exempt Bonds"), the
interest on which is excluded from gross income for federal income tax purposes.
All of the fund's assets will consist of: (1) Tax-Exempt Bonds which are rated
at the time of purchase within the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa or A) or Standard & Poor's Ratings
Group ("S&P") (AAA, AA, A); (2) temporary and/or taxable investments as
described in the prospectus; and (3) cash or cash equivalents. While ratings at
the time of purchase will determine which securities may be acquired, a
subsequent reduction in rating will not require the fund to dispose of the
securities. Investment in lower-quality securities may provide higher yields
than higher-rated securities; however, the added risk of investing in lower
quality securities might not be consistent with preservation of capital. The
ratings of Moody's and S&P represent their opinions as to the quality of the
Tax-Exempt Bonds which they undertake to rate. It should be emphasized, however,
that ratings are general and are not absolute standards of quality.
Consequently, Tax-Exempt Bonds with the same maturity, coupon and rating may
have different yields while bonds of the same maturity and coupon with different
ratings may have the same yield. There is no assurance the fund will attain its
investment objective. See Appendix B for a description of rating categories.
MUNICIPAL OBLIGATIONS
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.
2
<PAGE>
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 fund may invest more than 25% of its total assets in securities of companies
in the gas, electric, telephone, sewer and water, public and private utility
sectors of the municipal bond market. In view of this, an investment in the fund
should be made with an understanding of the characteristics of these economic
sectors and the potential risks of such an investment. Sector-wide problems
include the effects of fluctuating economic conditions, energy conservation
practices on levels of usage, difficulties in obtaining timely and adequate rate
relief, compliance with environmental regulations, increasing capital
expenditures and uncertainties with respect to fuel availability at reasonable
prices. The fund does not consider broader economic sectors of the municipal
bond market such as the utilities sector to be a single industry and will not
purchase securities if more than 25% of its total assets would be invested in
any one industry. For purposes of this limitation, Tax-Exempt Bonds, except
those issued for the benefit of non-governmental users, are not considered to be
part of an industry. The fund may invest 25% or more of its total assets in
Tax-Exempt Bonds of issuers in any one state or it may invest 25% or more of its
total assets in industrial development bonds.
The yields on Tax-Exempt Bonds are dependent on a variety of factors, including
general money market conditions, general conditions of the Tax-Exempt Bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. The value of outstanding Tax-Exempt Bonds will vary as
a result of changing evaluations of the ability of their issuers to meet the
interest and principal payments. Such values will also change in response to
changes in the interest rates payable on new issues of Tax-Exempt Bonds. Should
such interest rates rise, the values of outstanding bonds, including those held
in the fund's portfolio, will decline and (if purchased at principal amount)
would sell at a discount, and, if such interest rates fall, the values of
outstanding bonds will increase and (if purchased at principal amount) would
sell at a premium. Changes in the value of the Tax-Exempt Bonds held in the
fund's portfolio arising from these or other factors will cause changes in the
net asset value per share of the fund.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Tax-Exempt Bonds. It can be expected that similar proposals may be
introduced in the future. If such a proposal were enacted, the availability of
Tax-Exempt Bonds for investment by the fund and the value of the fund's
portfolio would be affected. Additionally, the fund would reevaluate its
investment objective and policies and consider changes in the structure of the
fund.
3
<PAGE>
MUNICIPAL LEASE OBLIGATIONS
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with other Tax-Exempt Bonds (as set forth in the prospectus). Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation ordinarily is
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligations. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. In addition to the
non-appropriation risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. Although non-appropriation lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. The fund will seek to minimize these risks.
In determining the liquidity of municipal lease obligations, Pioneer Investment
Management, Inc. ("Pioneer"), the fund's investment adviser, under guidelines
established by the fund's Board of Trustees, will consider: (1) the essential
nature of the leased property; and (2) the likelihood that the municipality will
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to the operation of the municipality.
If leased property is determined not to be essential in nature or if there is a
likelihood that the municipality will discontinue appropriating funding, then
the following factors will also be considered in determining liquidity:
(1) any relevant factors related to the general credit quality of the
municipality, which may include: (a) whether the lease can be canceled; (b) what
assurance there is that the assets represented by the lease can be sold; (c) the
strength of the lessee's general credit (e.g., its debt, administrative,
economic and financial characteristics); and (d) the legal recourse in the event
of failure to appropriate.
(2) any relevant factors related to the marketability of the municipal lease
obligation which may include: (a) the frequency of trades and quotes for the
obligation; (b) the number of dealers willing to purchase or sell the obligation
and the number of other potential purchasers; (c) the willingness of dealers to
undertake to make a market in the obligation; and (d) the nature of the
marketplace trades, including the time needed to dispose of the obligation, the
method of soliciting offers, and the mechanics of transfer.
ZERO COUPON AND DEFERRED INTEREST BONDS
Tax-Exempt Bonds in which the fund may invest also include zero coupon bonds and
deferred interest bonds. Zero coupon bonds and deferred interest bonds are debt
obligations which are issued at a significant discount from face value. While
zero coupon bonds do not require the periodic payment of interest, deferred
interest bonds provide for a period of delay before the regular payment of
interest begins. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity or the first
interest payment date at a rate of interest reflecting the market rate of the
security at the time of issuance. Zero coupon bonds and deferred interest bonds
benefit the issuer by mitigating its need for cash to meet debt service but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments may experience greater volatility in
value than debt obligations which make regular payments of interest. The fund
will accrue income on such investments for tax and accounting purposes, which is
distributable to shareholders. Since no cash is
4
<PAGE>
received at the time of accrual, the fund may be required to liquidate
other portfolio securities to satisfy its distribution obligations.
RESIDUAL INTERESTS IN MUNICIPAL SECURITIES
Certain municipal securities are divided into short-term and long-term
components. The short-term component has a long-term maturity, but pays interest
at a short-term rate that is reset by means of a "dutch auction" or similar
method at specified intervals (typically 35 days). The long-term component or
"residual interest" pays interest at a rate that is determined by subtracting
the interest paid on the short-term component from the coupon rate on the
municipal securities themselves. Consequently, the interest rate paid on
residual interests will increase when short-term interest rates are declining
and will decrease when short-term interest rates are increasing. This interest
rate adjustment formula results in the market value of residual interests being
significantly more volatile than that of ordinary municipal securities. In a
declining interest rate environment, residual interests can provide the fund
with a means of increasing or maintaining the level of tax-exempt interest paid
to shareholders. However, because of the market volatility associated with
residual interests, the fund will not invest more than 10% of its total assets
in residual interests in municipal securities.
U.S. GOVERNMENT SECURITIES
U.S. government securities in which the fund may invest include debt obligations
of varying maturities issued by the U.S. Treasury or issued or guaranteed by an
agency or instrumentality of the U.S. government, including the Federal Housing
Administration, Federal Financing Bank, Farmers Home Administration,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association ("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 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
5
<PAGE>
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 also 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.
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."
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
6
<PAGE>
any institution which enters into a repurchase agreement with the fund. The
counterparty's obligations under the repurchase agreement are collateralized
with U.S. Treasury and/or agency obligations with a market value of not less
than 100% of the obligations, valued daily. Collateral is held by the fund's
custodian in a segregated, safekeeping account for the benefit of the fund.
Repurchase agreements afford the fund an opportunity to earn income on
temporarily available cash at low risk. In the event of commencement of
bankruptcy or insolvency proceedings with respect to the seller of the security
before repurchase of the security under a repurchase agreement, the fund may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If the
court characterizes the transaction as a loan and the fund has not perfected a
security interest in the security, the fund may be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the fund would be at risk of losing some or
all of the principal and interest involved in the transaction.
SHORT SALES AGAINST THE BOX
The fund may sell securities "short against the box." A short sale involves the
fund borrowing securities from a broker and selling the borrowed securities. The
fund has an obligation to return securities identical to the borrowed securities
to the broker. In a short sale against the box, the fund at all times owns an
equal amount of the security sold short or securities convertible into or
exchangeable for, with or without payment of additional consideration, an equal
amount of the security sold short. The fund intends to use short sales against
the box to hedge. For example, when the fund believes that the price of a
current portfolio security may decline, the fund may use a short sale against
the box to lock in a sale price for a security rather than selling the security
immediately. In such a case, any future losses in the fund's long position
should be offset by a gain in the short position and, conversely, any gain in
the long position should be reduced by a loss in the short position.
If the fund effects a short sale against the box at a time when it has an
unrealized gain on the security, it may be required to recognize that gain as if
it had actually sold the security (a "constructive sale") on the date it effects
the short sale. However, such constructive sale treatment may not apply if the
fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale provided that certain other
conditions are satisfied. Uncertainty regarding 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
The fund will limit portfolio turnover to the extent practicable and consistent
with its investment objective and policies. While it does not intend to engage
in short-term trading, the fund will not preclude itself from taking advantage
of short-term trends and yield disparities that might occur from time to time. A
higher portfolio turnover rate will result in correspondingly higher transaction
costs. See Appendix A for the fund's annual portfolio turnover rate.
7
<PAGE>
FUTURES CONTRACTS
To hedge against changes in securities prices or interest rates or to seek to
increase total return, the fund may purchase and sell various kinds of futures
contracts. The fund may also enter into closing purchase and sale transactions
with respect to any of such contracts. The futures contracts may be based on
various securities (such as U.S. government securities), securities indices and
other financial instruments and indices. The fund will engage in futures
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.
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, the fund may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures on securities are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to establish
with more certainty the effective price and rate of return on portfolio
securities and securities that the fund owns or proposes to acquire. The fund
may, for example, take a "short" position in the futures market by selling
futures contracts in order to hedge against an anticipated rise in interest
rates or a decline in market prices that would adversely affect the value of the
fund's portfolio securities. Such futures contracts may include contracts for
the future delivery of securities held by the fund or securities with
characteristics similar to those of the fund's portfolio securities. If, in the
opinion of 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.
8
<PAGE>
On other occasions, the fund may take a "long" position by purchasing futures
contracts. This may be done, for example, when the fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices or rates that are currently available.
OTHER CONSIDERATIONS. The fund will engage in futures 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 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 that the fund owns, or futures
contracts will be purchased to protect the fund against an increase in the price
of securities 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 position, the fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures 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 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 entered into for non-hedging purposes would not
exceed 5% of the market value of the fund's total assets. The fund will engage
in transactions in futures contracts 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 involve brokerage costs, require margin deposits and, in the
case of contracts obligating the fund to purchase securities, require the fund
to segregate assets to cover such contracts.
While transactions in futures contracts may reduce certain risks, such
transactions themselves entail certain other risks. Thus, while the fund may
benefit from the use of futures, unanticipated changes in interest rates or
securities prices may result in a poorer overall performance for the fund than
if it had not entered into any futures contracts. 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.
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 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
9
<PAGE>
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 30% of the value of the fund's total assets.
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 includes 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
In compliance with an informal position taken by the staff of the SEC regarding
leverage, the fund will not purchase securities during the coming year at any
time that outstanding borrowings exceed 5% of the fund's total assets.
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. For
this purpose, a majority of the outstanding shares of the fund means the vote of
the lesser of:
1. 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
2. more than 50% of the outstanding shares of the fund.
The fund may not:
1. Purchase any security (other than obligations of the U.S. government, its
agencies or instrumentalities), if as a result: (a) more than 25% of the value
of the fund's total assets would then be invested in securities of any single
issuer; or (b) as to 75% of the value of the fund's total assets, more than 5%
of the value of the fund's total assets would then be invested in securities of
any single issuer.
10
<PAGE>
For the purpose of this limitation, the fund will regard each state and
each political subdivision, agency or instrumentality of such state and each
multi-state agency of which such state is a member as a separate issuer;
2. Borrow money, except from a bank for temporary or emergency purposes and not
for investment purposes, and then only in an amount not exceeding 5% of the
value of the fund's total assets at the time of borrowing;
3. Pledge, mortgage or hypothecate its assets, except that, to secure borrowings
permitted by subparagraph (2) above, it may pledge securities having a market
value at the time of pledge not exceeding 5% of the value of the fund's total
assets;
4. Knowingly purchase or otherwise acquire any securities which are subject to
legal or contractual restrictions on resale or which are not readily marketable,
or purchase the securities of any other investment company, except that it may
make purchases of securities of investment companies in accordance with its
investment objective, policies, and restrictions or as part of a merger,
consolidation or acquisition of assets;
5. Underwrite any issue of securities, except in connection with the purchase of
securities in accordance with its investment objective, policies and
limitations, or participate on a joint or joint-and-several basis in any
securities trading account;
6. Purchase or sell real estate (or real estate limited partnerships), but this
shall not prevent the fund from investing in Tax-Exempt Bonds or other permitted
obligations secured by real estate or interests therein;
7. Purchase or sell commodities or commodity contracts except options, financial
futures or options on financial futures contracts in accordance with its
investment objective, policies, and restrictions, or invest in oil, gas or other
mineral leases, exploration or development programs, or write or purchase puts,
calls, straddles, spreads or any combination thereof;
8. Make loans, except through the purchase of securities, including repurchase
agreements, in accordance with its investment objective, policies and
limitations;
9. Make short sales of securities or purchase any securities on margin, except
for such short-term credits as are necessary for the clearance of transactions
and margin payments in connection with options, financial futures contracts and
options on financial futures contracts; or
10. Purchase or retain the securities of any issuer other than the securities of
the fund, if, to the fund's knowledge, those officers and trustees of the fund,
or of the investment adviser or underwriter, who own individually or
beneficially more than 1/2 of 1% of the outstanding securities of such issuer
together own beneficially more than 5% of such outstanding securities.
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.
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<PAGE>
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 "Udinskoye" and
Closed Joint-Stock Company "Tas-Yurjah" Mining Company; Director of Pioneering
Services Corporation ("PSC"), 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.,
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 and Pioneer U.S.
Growth 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 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;
Professor of Operations Management and Management of Technology and Associate
Dean, Boston University School of Management, from 1989 to 1993; and Trustee of
all the Pioneer mutual funds, except Pioneer Variable Contracts Trust.
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<PAGE>
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.
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 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 (mutual funds), AMVESCAP PLC (investment managers) since 1997 and
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.
JOHN A. BOYNTON, TREASURER, DOB: JANUARY 1954
Executive Vice President, Treasurer and Chief Financial Officer of PGI;
Treasurer of Pioneer, PFD, PSC, PIntl, PREA, Pioneer Omega and all of the
Pioneer mutual funds. Prior to joining PGI in November 1998, Mr. Boynton was a
Senior Vice President of The Quaker Oats Company.
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.
ERIC W. RECKARD, ASSISTANT TREASURER, DOB: JUNE 1956
Vice President-Corporate Finance of PGI since February 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 Assistant Treasurer of all of
the Pioneer mutual funds.
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<PAGE>
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.
<TABLE>
<CAPTION>
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.
INVESTMENT PRINCIPAL
FUND NAME ADVISER UNDERWRITER
<S> <C> <C>
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 Gold Shares 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 Short-Term Income Trust 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 Strategic Income Fund Pioneer PFD
Pioneer Interest Shares Pioneer Note 2
Pioneer Variable Contracts Trust Pioneer Note 3
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.
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<PAGE>
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.
</TABLE>
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.
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 countries, including the preparation of
prospectuses and statements of additional information for filing with the SEC;
(g) all expenses of shareholders' and Trustees' meetings and of preparing,
printing and distributing prospectuses, notices, proxy statements and all
15
<PAGE>
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 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 to the expenses described above, 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, the fund pays Pioneer
a fee at the annual rate of 0.50% of the fund's average daily net assets up to
$250 million, 0.48% of the next $50 million and 0.45% on assets over $300
million. This fee is normally computed and accrued daily and paid monthly.
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.
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 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.
16
<PAGE>
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.
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") and a plan of
distribution with respect to its Class B shares (the
17
<PAGE>
"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. 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 3.75% 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 Class B shares,
dealers will become eligible for additional annual service fees of up to 0.25%
of the net
18
<PAGE>
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 were amended effective September 30,
1998 to 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 amendments, 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 in each case enacted, issued or promulgated after
September 30, 1998;
(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.
19
<PAGE>
In the amendments to 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 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 in
effect on September 30, 1998, 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
September 30, 1998.
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.
20
<PAGE>
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.
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 and Class C
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
Arthur Andersen LLP, 225 Franklin Street, Boston, Massachusetts 02110, 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.
21
<PAGE>
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. 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
22
<PAGE>
that invest primarily in U.S. equity securities may incur lower custody
fees by directing brokerage to third-party broker-dealers. Pursuant to expense
offset arrangements, the funds incur lower transfer agency expenses by
maintaining their cash balances with the custodian. See "Financial highlights"
in the prospectus.
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 or Class C shares.
The fund's Agreement and Declaration of Trust, dated as of June 16, 1994 (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 and Class C
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 and Class B 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.
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<PAGE>
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 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
24
<PAGE>
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 Trustees who is not an "interested person" of
Pioneer shall be considered to be independent for purposes of Delaware law
notwithstanding the fact that such trustees receive compensation for serving as
a trustee of the fund or other investment companies for which Pioneer acts as
investment adviser.
11. SALES CHARGES
The fund continuously offers three classes of shares designated as Class A,
Class B and Class C shares as described in the prospectus.
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
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
</TABLE>
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
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<PAGE>
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 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
26
<PAGE>
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.
<TABLE>
<CAPTION>
The CDSC for Class B shares subject to a CDSC upon redemption will be determined
as follows:
CDSC AS A % OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CDSC
<S> <C>
First ......... 4.0
Second ......... 4.0
Third ......... 3.0
Fourth ......... 3.0
Fifth ......... 2.0
Sixth ......... 1.0
Seventh and thereafter 0.0
</TABLE>
<TABLE>
<CAPTION>
On March 31, 1999, in accordance with a tax-free reorganization approved by
shareholders of Pioneer Intermediate Tax-Free Fund, Pioneer Intermediate Tax
Free Fund transferred all of its assets to the fund, and the fund assumed
Pioneer Intermediate Tax-Free Fund's liabilities. Class A, Class B and Class C
shares of the fund were issued proportionately to the respective holders of
shares of Pioneer Intermediate Tax-Free Fund on the reorganization date. Such
Class B shares redeemed within four years of purchase will be subject to a CDSC
at the rates shown in the table below.
CDSC AS A % OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CDSC
<S> <C>
First ......... 3.0
Second ......... 3.0
Third ......... 2.0
Fourth ......... 1.0
Fifth and thereafter 0.0
</TABLE>
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 that is eight years (five years in the case of Class B
shares issued to former shareowners of Pioneer Intermediate Tax-Free Fund in
connection with the reorganization described above) 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
27
<PAGE>
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.
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
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<PAGE>
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 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. See the prospectus for more information. For personal assistance,
call 1-800-225-6292 between 8:00 a.m. and 9:00 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
29
<PAGE>
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. 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
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 and Class C 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.
30
<PAGE>
In determining the value of the assets of the fund for the purpose of obtaining
the net asset value, securities for which reliable quotations are readily
available shall be valued on the basis of valuations furnished by pricing
services which utilize electronic data processing techniques to determine the
valuations for normal institutional-size trading units of such securities.
Securities not valued by the pricing service for which reliable quotations are
readily available, shall be valued at market values furnished by recognized
dealers in such securities. Short-term obligations with remaining maturities of
60 days or less shall be valued at amortized cost. Securities and other assets
for which reliable quotations are not readily available, shall be valued at
their fair value as determined in good faith under consistently applied
guidelines established by and under the general supervision of the Board of
Trustees of the fund, although the actual calculations may be made by persons
acting pursuant to the direction of the Board.
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 and Class
C 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).
15. TAX STATUS
The fund has elected to be treated, has qualified and intends 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 income and any net
short-term capital gains each business day. Dividends are normally paid on the
last business day of the month or shortly thereafter. The fund distributes net
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.
31
<PAGE>
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.
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.
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
32
<PAGE>
distributions, reduced below the investor's cost for such shares and the
distributions economically represent a return of a portion of the investment.
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 reinvestment privilege, 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
reinvestment 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
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<PAGE>
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 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 continues to qualify 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.
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<PAGE>
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 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, yield or 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 Lehman Brothers Municipal Bond Index, an unmanaged measure of approximately
15,000 municipal bonds; or other comparable indices or investment vehicles.
In addition, the performance of the classes of the fund may be compared to
alternative investment or savings vehicles and/or to indexes 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
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<PAGE>
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.
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.
36
<PAGE>
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 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.
TAXABLE EQUIVALENT YIELD
The fund may also from time to time advertise its taxable equivalent yield which
is determined by dividing that portion of the fund's yield (calculated as
described above) that is tax exempt by one minus the stated federal income tax
rate and adding the product to that portion, if any, of the fund's yield that is
not tax exempt.
See Appendix A for the taxable equivalent yield 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:
37
<PAGE>
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
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 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
The fund's audited financial statements for the fiscal year ended December 31,
1998 from the fund's annual report filed with the SEC on February 24, 1999
(Accession No. 0000202679-99-000002) are incorporated by reference into this
statement of additional information. Those financial statements, including the
financial highlights in the prospectus, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
to the financial statements and are included in reliance upon the authority of
Arthur Andersen LLP as experts in accounting and auditing in giving their
report.
The fund's annual report includes the financial statements referenced above and
is available without charge upon request by calling Shareholder Services at
1-800-225-6292. To the extent permitted by the SEC, if members of the same
family hold shares of the fund and have the same address of record, the fund
will only send one copy of its shareholder reports to such address, unless the
shareholders at such address request otherwise.
38
<PAGE>
18. APPENDIX A - ANNUAL FEE, EXPENSE AND OTHER INFORMATION
PORTFOLIO TURNOVER
The fund's annual portfolio turnover rate was 52% for the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
SHARE OWNERSHIP
As of March 31, 1999, the Trustees and officers of the fund owned beneficially
in the aggregate less than 1% of the outstanding shares of the fund. The
following is a list of the holders of 5% or more of any class of the fund's
outstanding shares as of March 31, 1999:
NUMBER OF
RECORD HOLDER SHARE CLASS SHARES % OF CLASS
<S> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated for Class B 220,741 18.19
the Sole Benefit of its Customers Class C 143,262 32.32
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Salomon Smith Barney Inc Class C 70,169 13.57
333 West 34th Street, 3rd Floor
New York, NY 10001-2402
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION OF OFFICERS AND TRUSTEES
The following table sets forth certain information with respect to the
compensation of each Trustee of the fund.
PENSION OR TOTAL COMPENSATION
RETIREMENT FROM THE FUND AND
BENEFITS ACCRUED OTHER PIONEER MUTUAL
AGGREGATE AS PART OF FUND FUNDS**
COMPENSATION FROM EXPENSES
NAME OF TRUSTEE FUND*
<S> <C> <C> <C>
John F. Cogan, Jr.*** $ 750.00 $0 $ 18,750.00
Mary K. Bush 2,730.00 0 77,125.00
Richard H. Egdahl, M.D. 2,730.00 0 79,125.00
Margaret B.W. Graham 2,820.00 0 81,750.00
John W. Kendrick 2,263.00 0 65,900.00
Marguerite A. Piret 3,199.00 0 98,750.00
David D. Tripple*** 750.00 0 18,750.00
Stephen K. West 2,815.00 0 85,050.00
John Winthrop 2,983.00 0 85,875.00
-------- - ---------
$21,040.00 $0 $611,075.00
* For the fiscal year ended December 31, 1998.
** For the calendar year ended December 31, 1998.
*** Under the management contract, Pioneer reimburses the fund for any
Trustees fees paid by the fund.
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE MANAGEMENT FEES THE FUND PAID OR OWED PIONEER
FOR THE FISCAL YEARS ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C>
$1,992,000 $2,064,000 $2,197,
</TABLE>
CARRYOVERS OF DISTRIBUTION PLAN EXPENSES
As of December 31, 1998 there was a carryover of distribution expenses in the
amount of $56,915 under the Class A Plan.
<TABLE>
<CAPTION>
APPROXIMATE NET UNDERWRITING COMMISSIONS RETAINED BY PFD
FOR THE FISCAL YEARS ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C>
$50,000 $51,000 $77,000
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE COMMISSIONS REALLOWED TO DEALERS
FOR THE FISCAL YEARS ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C>
$398,000 $349,000 $531,000
</TABLE>
<TABLE>
<CAPTION>
FUND EXPENSES UNDER THE DISTRIBUTION PLANS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
CLASS A PLAN CLASS B PLAN CLASS C PLAN
<S> <C> <C>
$1,009,074 $77,180 $25,457
</TABLE>
CDSCS
During the fiscal year ended December 31, 1998, CDSCs in the amount of $20,659
were paid to PFD.
<TABLE>
<CAPTION>
BROKERAGE AND UNDERWRITING COMMISSIONS (PORTFOLIO TRANSACTIONS)
FOR THE FISCAL YEARS ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C>
$0 $0 $0
</TABLE>
CAPITAL LOSS CARRYFORWARDS AS OF DECEMBER 31, 1998
As of the end of its most recent taxable year, the fund had no capital loss
carryforwards.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (DECEMBER 31, 1998)
AVERAGE ANNUAL TOTAL RETURN (%)
SINCE INCEPTION
CLASS OF SHARES ONE YEAR FIVE YEARS TEN YEARS INCEPTION DATE
<S> <C> <C> <C> <C> <C>
Class A Shares 1.44 4.59 7.42 6.00 1/18/77
Class B Shares 1.48 N/A N/A 5.87 4/28/95
Class C Shares 5.33 N/A N/A 5.40 1/31/96
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
STANDARDIZED 30-DAY YIELD (DECEMBER 31, 1998)
CLASS OF SHARES YIELD (%)
<S> <C>
Class A Shares 3.69
Class B Shares 3.14
Class C Shares 3.12
</TABLE>
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD (39.6% FEDERAL INCOME TAX BRACKET) (DECEMBER 31, 1998)
CLASS OF SHARES YIELD (%)
<S> <C>
Class A Shares 6.11
Class B Shares 5.20
Class C Shares 5.17
</TABLE>
42
<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
- --------
1 The ratings indicated herein are believed to be the most recent ratings
available at the date of this statement of additional information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which will be given to these securities on the
date of the fund's fiscal year-end.
43
<PAGE>
denomination. In addition, risks associated with bilateral conflicts
between an investor's home 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.
44
<PAGE>
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 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.
45
<PAGE>
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.
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.
46
<PAGE>
C: A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
STANDARD & POOR'S LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based, in varying degrees, on the following
considerations:
Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not conform exactly with the category definition.
AAA: An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
47
<PAGE>
BB: An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated C is CURRENTLY HIGHLY
VULNERABLE to nonpayment. The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action 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.
48
<PAGE>
<TABLE>
<CAPTION>
20. APPENDIX C - PERFORMANCE STATISTICS
PIONEER TAX-FREE INCOME 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>
1/18/77 $10,000 $15.79 4.50% 633.312 $15.08 $9,550
</TABLE>
<TABLE>
<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>
12/31/86 $7,403 $887 $8,951 $17,241
12/31/87 $6,776 $812 $9,384 $16,972
12/31/88 $7,074 $848 $11,129 $19,051
12/31/89 $7,263 $871 $12,845 $20,979
12/31/90 $7,296 $884 $14,352 $22,532
12/31/91 $7,593 $1,302 $16,451 $25,346
12/31/92 $7,650 $1,800 $18,108 $27,558
12/31/93 $8,031 $2,534 $20,571 $31,136
12/31/94 $7,119 $2,254 $19,778 $29,151
12/31/95 $7,828 $2,719 $23,511 $34,058
12/31/96 $7,574 $3,188 $24,512 $35,274
12/31/97 $7,707 $3,987 $26,733 $38,428
12/31/98 $7,613 $5,051 $28,145 $40,809
</TABLE>
<TABLE>
<CAPTION>
CLASS B 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>
4/28/95 $10,000 $11.81 0.00% 846.74 $11.81 $10,000
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>
49
<PAGE>
<TABLE>
<CAPTION>
PIONEER TAX-FREE INCOME FUND
CLASS B SHARES
VALUE OF SHARES
(DIVIDENDS AND CAPITAL GAINS REINVESTED)
FROM CAPITAL FROM
FROM GAINS REINVESTED DIVIDENDS CDSC IF REDEEMED TOTAL VALUE
DATE INVESTMENT REINVESTED CDSC %
<S> <C> <C> <C> <C> <C> <C>
12/31/95 $10,423 $77 $294 $400 $10,394 4.00
12/31/96 $10,059 $250 $771 $400 $10,680 4.00
12/31/97 $10,237 $488 $1,260 $300 $11,685 3.00
12/31/98 $10,102 $829 $1,704 $300 $12,335 3.00
</TABLE>
<TABLE>
<CAPTION>
CLASS C 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>
1/31/96 $10,000 $12.32 0.00% 811.688 $12.32 $10,000
</TABLE>
<TABLE>
<CAPTION>
VALUE OF SHARES
(DIVIDENDS AND CAPITAL GAINS REINVESTED)
FROM CAPITAL FROM
FROM GAINS REINVESTED DIVIDENDS CDSC IF REDEEMED TOTAL
DATE INVESTMENT REINVESTED VALUE CDSC %
<S> <C> <C> <C> <C> <C> <C>
12/31/96 $9,642 $163 $414 $96 $10,123 1.00
12/31/97 $9,830 $381 $859 $0 $11,070 0.00
12/31/98 $9,691 $696 $1,273 $0 $11,660 0.00
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>
50
<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.
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 of the maturity and first call dates minus the current date. The
bond was "held" for the calendar year and returns were computed.
51
<PAGE>
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' index, using Salomon
Brothers' monthly yield data with a methodology similar to that used by Salomon
52
<PAGE>
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.
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.
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.
53
<PAGE>
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
54
<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>
55
<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
</TABLE>
56
<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 T-BILL
BONDS BONDS TAXES) CDS BONDS (30-DAY)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dec 1925 N/A N/A N/A N/A N/A N/A
Dec 1926 7.77 5.38 N/A N/A 7.37 3.27
Dec 1927 8.93 4.52 N/A N/A 7.44 3.12
Dec 1928 0.10 0.92 N/A N/A 2.84 3.56
Dec 1929 3.42 6.01 N/A N/A 3.27 4.75
Dec 1930 4.66 6.72 N/A N/A 7.98 2.41
Dec 1931 -5.31 -2.32 N/A N/A -1.85 1.07
Dec 1932 16.84 8.81 N/A N/A 10.82 0.96
Dec 1933 -0.07 1.83 N/A N/A 10.38 0.30
Dec 1934 10.03 9.00 N/A N/A 13.84 0.16
Dec 1935 4.98 7.01 N/A N/A 9.61 0.17
Dec 1936 7.52 3.06 N/A N/A 6.74 0.18
Dec 1937 0.23 1.56 N/A N/A 2.75 0.31
Dec 1938 5.53 6.23 N/A N/A 6.13 -0.02
Dec 1939 5.94 4.52 N/A N/A 3.97 0.02
Dec 1940 6.09 2.96 N/A N/A 3.39 0.00
Dec 1941 0.93 0.50 N/A N/A 2.73 0.06
Dec 1942 3.22 1.94 N/A N/A 2.60 0.27
Dec 1943 2.08 2.81 N/A N/A 2.83 0.35
Dec 1944 2.81 1.80 N/A N/A 4.73 0.33
Dec 1945 10.73 2.22 N/A N/A 4.08 0.33
Dec 1946 -0.10 1.00 N/A N/A 1.72 0.35
Dec 1947 -2.62 0.91 N/A N/A -2.34 0.50
Dec 1948 3.40 1.85 N/A N/A 4.14 0.81
Dec 1949 6.45 2.32 N/A N/A 3.31 1.10
Dec 1950 0.06 0.70 N/A N/A 2.12 1.20
Dec 1951 -3.93 0.36 N/A N/A -2.69 1.49
Dec 1952 1.16 1.63 N/A N/A 3.52 1.66
Dec 1953 3.64 3.23 N/A N/A 3.41 1.82
Dec 1954 7.19 2.68 N/A N/A 5.39 0.86
Dec 1955 -1.29 -0.65 N/A N/A 0.48 1.57
Dec 1956 -5.59 -0.42 N/A N/A -6.81 2.46
Dec 1957 7.46 7.84 N/A N/A 8.71 3.14
Dec 1958 -6.09 -1.29 N/A N/A -2.22 1.54
Dec 1959 -2.26 -0.39 N/A N/A -0.97 2.95
Dec 1960 13.78 11.76 N/A N/A 9.07 2.66
</TABLE>
57
<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 T-BILL
BONDS BONDS TAXES) CDS BONDS (30-DAY)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dec 1961 0.97 1.85 N/A N/A 4.82 2.13
Dec 1962 6.89 5.56 N/A N/A 7.95 2.73
Dec 1963 1.21 1.64 N/A N/A 2.19 3.12
Dec 1964 3.51 4.04 N/A 4.17 4.77 3.54
Dec 1965 0.71 1.02 N/A 4.68 -0.46 3.93
Dec 1966 3.65 4.69 N/A 5.76 0.20 4.76
Dec 1967 -9.18 1.01 N/A 5.47 -4.95 4.21
Dec 1968 -0.26 4.54 N/A 6.45 2.57 5.21
Dec 1969 -5.07 -0.74 N/A 8.70 -8.09 6.58
Dec 1970 12.11 16.86 -11.66 7.06 18.37 6.52
Dec 1971 13.23 8.72 29.59 5.36 11.01 4.39
Dec 1972 5.69 5.16 36.35 5.39 7.26 3.84
Dec 1973 -1.11 4.61 -14.92 8.60 1.14 6.93
Dec 1974 4.35 5.69 -23.16 10.20 -3.06 8.00
Dec 1975 9.20 7.83 35.39 6.51 14.64 5.80
Dec 1976 16.75 12.87 2.54 5.22 18.65 5.08
Dec 1977 -0.69 1.41 18.06 6.11 1.71 5.12
Dec 1978 -1.18 3.49 32.62 10.21 -0.07 7.18
Dec 1979 -1.23 4.09 4.75 11.90 -4.18 10.38
Dec 1980 -3.95 3.91 22.58 12.33 -2.76 11.24
Dec 1981 1.86 9.45 -2.28 15.50 -1.24 14.71
Dec 1982 40.36 29.10 -1.86 12.18 42.56 10.54
Dec 1983 0.65 7.41 23.69 9.65 6.26 8.80
Dec 1984 15.48 14.02 7.38 10.65 16.86 9.85
Dec 1985 30.97 20.33 56.16 7.82 30.09 7.72
Dec 1986 24.53 15.14 69.44 6.30 19.85 6.16
Dec 1987 -2.71 2.90 24.63 6.59 -0.27 5.47
Dec 1988 9.67 6.10 28.27 8.15 10.70 6.35
Dec 1989 18.11 13.29 10.54 8.27 16.23 8.37
Dec 1990 6.18 9.73 -23.45 7.85 6.78 7.81
Dec 1991 19.30 15.46 12.13 4.95 19.89 5.60
Dec 1992 8.05 7.19 -12.17 3.27 9.39 3.51
Dec 1993 18.24 11.24 32.56 2.88 13.19 2.90
Dec 1994 -7.77 -5.14 7.78 5.40 -5.76 3.90
Dec 1995 31.67 16.80 11.21 5.21 27.20 5.60
Dec 1996 -0.93 2.10 6.05 5.21 1.40 5.21
Dec 1997 15.85 8.38 1.78 5.71 12.95 5.26
Dec 1998 13.06 10.21 20.00 5.34 10.76 4.86
</TABLE>
58
<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>
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>
59
<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>
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
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
MSCI ALL COUNTRY
MSCI ALL COUNTRY (AC) (AC) ASIA PACIFIC LEHMAN BROTHERS
ASIA FREE EX JAPAN FREE EX JAPAN AGGREGATE BOND INDEX
- ----------------------------------------------------------------------------------
<S> <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>
61
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
MSCI ALL COUNTRY
MSCI ALL COUNTRY (AC) (AC) ASIA PACIFIC LEHMAN BROTHERS
ASIA FREE EX JAPAN FREE EX JAPAN AGGREGATE BOND INDEX
- ----------------------------------------------------------------------------------
<S> <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
Source: Lipper, Inc.
</TABLE>
62
<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, 1998, Pioneer employed a professional investment staff of 75.
Total assets of all Pioneer mutual funds at December 31, 1998, were
approximately $22 billion representing 1,363,446 shareholder accounts, 890,148
non-retirement accounts and 473,298 retirement accounts.
g:\edgar\sai\current\tf0599sa.doc
63
<PAGE>
PART C - OTHER INFORMATION
Item 23. Exhibits
Amended Form N-1A
Exhibit Reference
(a) (1) Agreement and Declaration of Trust.(1)
(a) (1)(a) Establishment and Designation of Class B Shares.(1)
(a) (1)(b) Establishment and Designation of Class C Shares.(2)
(b) (2) By-Laws.(1)
(c) (4) None.
(d) (5) Management Contract with Pioneer Investment Management,
Inc., (formerly Pioneering Management Corporation).(1)
(e) (6)(a) Form of Underwriting Agreement with Pioneer
Funds Distributor, Inc.(3)
(e) (6)(b) Form of Dealer Sales Agreement(2)
(f) (7) None.
(g) (8) Custodian Agreement.(1)
(h) (9) Investment Company Service Agreement with Pioneering
Services Corporation.(5)
(h) (9)(a) Administration Agreement with Pioneer Investment
Management, Inc. (formerly Pioneering Management
Corporation).(4)
(i) (10) Opinion of Counsel.(5)
(j) (11) Consent of Independent Public Accountants.(5)
(k) (12) None.
(l) (13) None.
(m) (15)(a) Class A Plan of Distribution.(1)
(m) (15)(b) Form of Class B Plan of Distribution.(3)
(m) (15)(c) Class C Plan of Distribution.(2)
(n) (17) Financial Data Schedules.(5)
(o) (18) Multiple Class Plan Pursuant to Rule 18f-3.(2)
N/A (19) Powers of Attorney.(4)
- -------------------------
(1) Previously filed. Incorporated herein by reference from the exhibits filed
with Post-Effective Amendment No. 34 to the Registration Statement (File No.
2-57653) as filed with the Securities and Exchange Commission (the "SEC") on
April 26, 1995 (Accession No. 0000202679-95-000010).
(2) Previously filed. Incorporated herein by reference from the exhibits filed
with Post-Effective Amendment No. 35 to the Registration Statement as
filed with the SEC on April 26, 1996 (Accession No. 0000202679-96-000011).
(3) Previously filed. Incorporated herein by reference from the exhibits filed
with Post-Effective Amendment No. 38 to the Registration Statement as
filed with the SEC on October 30, 1998 (Accession No. 0000950146-98-001807).
(4) Previously filed. Incorporated herein by reference from the exhibits filed
with Post-Effective Amendment No. 39 to the Registration Statement as
filed with the SEC on February 22, 1999 (Accession No. 0001016964-99-000043).
(5) Filed herewith.
Item 24. Persons Controlled by or Under Common Control with the Fund
None.
Item 25. Indemnification
Except for the Agreement and Declaration of Trust, dated
June 16, 1994 (the "Declaration"), establishing the Fund 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 Fund is
insured or indemnified. The Declaration provides that no Trustee or officer
C-1
<PAGE>
will be indemnified against any liability to which the Fund 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 Fund pursuant to the foregoing provisions, or
otherwise, the Fund has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Fund of expenses incurred or
paid by a Trustee, officer or controlling person of the Fund 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
Fund 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 26. Business and Other Connections of Investment Adviser
Pioneer Investment Management, Inc. ("Pioneer Investments") is a registered
investment adviser under the Investment Advisers Act of 1940, as amended, and is
a wholly owned subsidiary of The Pioneer Group, Inc. ("Pioneer"). Pioneer
Investments manages investment companies, pension and profit sharing plans,
trusts, estates or charitable organizations and other corporations or
business entities.
To the knowledge of the Fund, none of Pioneer Investments' directors
or executive officers is or has been during their employment with Pioneer
Investments engaged in any other business, profession, vocation or employment
of a substantial nature for the past two fiscal years, except as noted below.
Certain directors and officers, however, may hold or may have held various
positions with, and engage or have engaged in business for, the investment
companies that Pioneer Investments manages, Pioneer and/or other Pioneer
subsidiaries.
OTHER BUSINESS, PROFESSION, VOCATION OR
EMPLOYMENT OF SUBSTANTIAL NATURE WITHIN LAST TWO
NAME OF DIRECTOR/OFFICER FISCAL YEARS
John F. Cogan, Jr. Senior Partner, Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109
Joseph P. Barri Senior Partner, Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109
Item 27. Principal Underwriters
(a) See "Management of the Fund" in the Statement of Additional
Information.
(b) Directors and officers of Pioneer Funds Distributor, Inc.:
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
NAME UNDERWRITER FUND
John F. Cogan, Jr. Director and Chairman Chairman of the Board,
President and Trustee
David D. Tripple Director and President Executive Vice President and
Trustee
Stephen W. Long Director and Executive
Vice President None
Steven M. Graziano Executive Vice President None
William A. Misata Senior Vice President None
Constance D. Spiros Senior Vice President None
C-2
<PAGE>
Marcy L. Supovitz Senior Vice President None
Mark R. Kiniry Vice President, Regional
Director, Sales None
Barry G. Knight Vice President None
William H. Spencer Vice President, Regional
Director, Sales None
Elizabeth A. Watson Vice President, Compliance None
Steven R. Berke Assistant Vice President,
Blue Sky None
John A. Boynton Treasurer Treasurer
Roy P. Rossi Assistant Treasurer None
Joseph P. Barri Clerk Secretary
Robert P. Nault Assistant Clerk Assistant Secretary
The principal business address of each of these individuals is 60 State Street,
Boston, Massachusetts 02109-1820.
(c) Not applicable.
Item 28. Location of Accounts and Records
The accounts and records are maintained at the Fund's office at
60 State Street, Boston, Massachusetts 02109; contact the Treasurer.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund certifies that it meets all of the
requirements for effectiveness of this registration statement under Rule 485(b)
under the Securities Act of 1933 and has duly caused this registration statement
to be signed on its behalf by the undersigned, duly authorized, in the City of
Boston and The Commonwealth of Massachusetts on the 3rd day of May 1999.
PIONEER TAX-FREE INCOME FUND
By: /s/ David D. Tripple
David D. Tripple
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title
John F. Cogan, Jr.* Chairman of the Board )
John F. Cogan, Jr. and President )
(Principal Executive )
Officer) )
)
)
/s/ John A. Boynton Chief Financial Officer )
John A. Boynton and Treasurer (Principal )
Financial and Accounting )
Officer) )
)
)
Trustees: )
)
)
Mary K. Bush* )
Mary K. Bush )
)
)
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 )
)
)
/s/ David D. Tripple )
David D. Tripple )
)
)
Stephen K. West* )
Stephen K. West )
)
)
John Winthrop* )
John Winthrop )
)
)
*By: /s/ David D. Tripple Dated: May 3, 1999)
David D. Tripple
Attorney-in-fact
<PAGE>
Exhibit Index
Exhibit
Number Document Title
(9) Investment Company Service Agreement with
Pioneering Services Corporation
(10) Opinion of counsel
(11) Consent of Independent Public Accountants
(17) Financial Data Schedules
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
-1-
<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
-2-
<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.
-3-
<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.
-4-
<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
-5-
<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).
-6-
<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.
-7-
<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.
-8-
<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.
-9-
<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.
-10-
Hale and Dorr LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 [bullet] fax 617-526-5000
April 28, 1999
Pioneer Tax-Free Income Fund
60 State Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
Pioneer Tax-Free Income Fund (the "Trust") was established as a
Delaware business trust under an Agreement and Declaration of Trust dated, June
16, 1994, as amended from time to time (as so amended, the "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.
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
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 Tax-Free Income Fund
April 28, 1999
Page 2
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, or shareholders of a particular series, to
pay certain custodian, transfer, servicing or similar agent charges by setting
off the same against declared but 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
<PAGE>
Pioneer Tax-Free Income Fund
April 28, 1999
Page 3
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. Further, we are expressing no opinion as to shares
previously issued by the Trust and currently outstanding.
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 any amendments to the Trust's
registration statement with the Commission. 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
/LegalOZ/Rogato_Lynn/Legal/719.76.104/opn4_99.wpf
Arthur Andersen LLP
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
on Pioneer Tax-Free Income Fund dated February 12, 1999 (and to all references
to our firm) included in or made a part of Post-Effective Amendment No. 40 and
Amendment No. 32 to Registration Statement File Nos. 2-57653 and 811-07597,
respectively.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
April 28, 1999
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<NAME> PIONEER TAX-FREE INCOME FUND CLASS A
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<NAME> PIONEER TAX-FREE INCOME FUND CLASS B
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<NAME> PIONEER TAX-FREE INCOME FUND CLASS C
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</TABLE>
