[PIONEER LOGO]
Pioneer
Income
Fund
Prospectus
Class A and B Shares
April 28, 1995
(revised October 9, 1995)
Pioneer Income Fund (the "Fund") seeks current income consistent with the
preservation and conservation of capital. Growth of capital is a secondary
consideration. The Fund invests in dividend-paying common stocks, preferred
stocks, bonds and debentures which may or may not be convertible into common
stocks.
Fund returns and share prices fluctuate and the value of your account upon
redemption may be more or less than your purchase price. Shares in the Fund
are not deposits or obligations of, or guaranteed or endorsed by, any bank or
other depository institution, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
government agency.
This Prospectus (Part A of the Registration Statement) provides the
information about the Fund that you should consider before investing. Please
read and retain it for future reference. More information about the Fund is
included in the Statement of Additional Information (Part B of the
Registration Statement), dated April 28, 1995 (revised October 9, 1995),
which is incorporated by reference into this Prospectus. A copy of the
Statement of Additional Information may 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. Other information about the
Fund has been filed with the Securities and Exchange Commission (the "SEC")
and is available upon request and without charge.
TABLE OF CONTENTS PAGE
- --------------------------------------------------------------------
I. EXPENSE INFORMATION 2
II. FINANCIAL HIGHLIGHTS 3
III. INVESTMENT OBJECTIVE, POLICIES AND RISKS 4
IV. MANAGEMENT OF THE FUND 6
V. FUND SHARE ALTERNATIVES 7
VI. SHARE PRICE 7
VII. HOW TO BUY FUND SHARES 8
Class A Shares 8
Class B Shares 9
VIII. HOW TO SELL FUND SHARES 10
IX. HOW TO EXCHANGE FUND SHARES 11
X. DISTRIBUTION PLANS 12
XI. DIVIDENDS, DISTRIBUTIONS AND TAXATION 13
XII. SHAREHOLDER SERVICES 13
Account and Confirmation Statements 13
Additional Investments 13
Automatic Investment Plans 13
Financial Reports and Tax Information 14
Distribution Options 14
Directed Dividends 14
Direct Deposit 14
Voluntary Tax Withholding 14
Telephone Transactions and Related Liabilities 14
FactFone(SM) 14
Retirement Plans 14
Telecommunications Device for the Deaf (TDD) 14
Systematic Withdrawal Plans 15
Reinstatement Privilege (Class A only) 15
XIII. THE FUND 15
XIV. INVESTMENT RESULTS 15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
I. EXPENSE INFORMATION
This table is designed to help you understand the charges and expenses that
you, as a shareholder, will bear directly or indirectly when you invest in
the Fund. The table reflects estimated annual operating expenses based on
actual expenses of the Class A shares for the fiscal year ended December 31,
1994.
Shareholder Transaction Expenses: Class A Class B+
Maximum Initial Sales Charge on Purchases
(as a percentage of offering price) 4.50%(1) None
Maximum Sales Charge on Reinvestment of
Dividends None None
Maximum Deferred Sales Charge None(1) 4.00%
Redemption Fee(2) None None
Exchange Fee None None
Annual Operating Expenses
(as a Percentage of Net Assets):(3)
Management Fees 0.48% 0.48%
12b-1 Fees 0.25% 1.00%
Other Expenses
(including accounting and transfer agent
fees, custodian fees and printing
expenses) 0.38% 0.38%
------ ---------
Total Operating Expenses: 1.11% 1.86%
====== =========
+ Class B shares are a new class of shares, first offered on April 28, 1995.
(1) Purchases of $1,000,000 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 as further described under "How to
Sell Fund Shares."
(2) Separate fees (currently $10 and $20, respectively) apply to domestic and
international wire transfers of redemption proceeds.
(3) For Class B shares, operating expenses are based on estimated expenses
that would have been incurred during the previous fiscal year had Class B
shares been outstanding.
Example:
You would pay the following dollar amounts on a $1,000 investment in the
Fund, assuming 5% annual return and redemption at the end of each of the time
periods:
1 Year 3 Years 5 Years 10 Years
Class A Shares $56 $79 $103 $ 174
Class B Shares
- --Assuming complete redemption at
end of period $59 $88 $121 $199*
- --Assuming no redemption $19 $58 $101 $199*
*Class B shares convert to Class A shares eight years after purchase;
therefore, Class A expenses are used after year eight.
The example above assumes reinvestment of all dividends and distributions
and that the percentage amounts listed under "Annual Operating Expenses"
remain the same each year.
The example is designed for information purposes only, and should not be
considered a representation of future expenses or return. Actual Fund
expenses and return will vary from year to year and may be higher or lower
than those shown.
For further information regarding management fees, 12b-1 fees and other
expenses of the Fund, including information regarding the basis upon which
management fees and 12b-1 fees are paid, see "Management of the Fund,"
"Distribution Plans" and "How To Buy Fund Shares" in this Prospectus and
"Management of the Funds" and "Underwriting Agreement and Distribution Plans"
in the Statement of Additional Information. The Fund's imposition of a Rule
12b-1 fee may result in long-term shareholders indirectly paying more than
the economic equivalent of the maximum sales charge permitted under the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
("NASD").
The maximum initial sales charge is reduced on purchases of specified
larger amounts of Class A shares and the value of shares owned in other
Pioneer mutual funds is taken into account in determining the applicable
initial sales charge. See "How to Buy Fund Shares." No sales charge is
applied to exchanges of shares of the Fund for shares of other publicly
available Pioneer mutual funds. See "How to Exchange Fund Shares."
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<PAGE>
II. FINANCIAL HIGHLIGHTS
The following information for the year ended December 31, 1994 has been
derived from financial statements of the Fund which have been audited by
Arthur Andersen LLP, independent public accountants, in connection with their
examination of the Fund's financial statements. Arthur Andersen LLP's report
on the Fund's financial statements as of December 31, 1994 appears in the
Fund's Annual Report which is incorporated by reference into the Statement of
Additional Information. The information for the years from 1985 through 1993
has been derived from financial statements which have been audited by the
Fund's then independent public accountants, Coopers & Lybrand. Class B shares
are a new class of shares; no financial highlights exist for Class B shares.
The Annual Report includes more information about the Fund's performance and
is available free of charge by calling Shareholder Services at
1-800-225-6292.
PIONEER INCOME FUND
Selected Data For a Class A Share Outstanding For The Years Presented
<TABLE>
<CAPTION>
For the Year Ended December 31,+
---------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.21 $ 10.13 $ 10.14 $ 9.14 $ 9.53
------- ------- ------- ------- --------
Income from investment operations--
Net investment income $ 0.66 $ 0.65 $ 0.65 $ 0.65 $ 0.70
Net realized and unrealized
gain (loss) on investments (1.09) 0.37 0.09 1.00 (0.38)
------- ------- ------- ------- --------
Total income (loss) from
investment operations $ (0.43) $ 1.02 $ 0.74 $ 1.65$ 0.32
Distribution to shareholders from--
Net investment income (0.67) (0.64) (0.66) (0.65) (0.71)
Net realized capital gains 0.00 (0.30) (0.09) 0.00 0.00
------- ------- ------- ------- --------
Net increase (decrease) in net asset value $ (1.10) $ 0.08 $ (0.01) $ 1.00 $ (0.39)
------- ------- ------- ------- --------
Net asset value, end of year $ 9.11 $ 10.21 $ 10.13 $ 10.14 $ 9.14
======= ======= ======= ======= ========
Total return(1) (4.31%) 10.24% 7.59% 18.62% 3.59%
Ratio of net operating expenses to average
net assets 1.11% 1.06% 0.99% 1.04% 0.94%
Ratio of net investment income to average
net assets 7.07% 6.52% 6.47% 6.73% 7.67%
Portfolio turnover rate 50% 69% 54% 43% 44%
Net assets end of year
(in thousands) $259,970 $296,699 $250,033 $197,184 $166,205
</TABLE>
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.92 $ 8.67 $ 8.94 $ 9.17 $ 8.28
------- ------- ------- ------- ---------
Income from investment operations--
Net investment income $ 0.74 $ 0.77 $ 0.76 $ 0.80 $ 0.80
Net realized and unrealized
gain (loss) on investments 0.63 0.27 (0.14) 0.04 1.09
------- ------- ------- ------- ---------
Total income (loss) from
investment operations $ 1.37 $ 1.04 $ 0.62 $ 0.84 $ 1.89
Distribution to shareholders from--
Net investment income (0.75) (0.76) (0.76) (0.80) (0.80)
Net realized capital gains (0.01) (0.03) (0.13) (0.27) (0.20)
------- ------- ------- ------- ---------
Net increase (decrease) in net asset value $ 0.61 $ 0.25 $ (0.27) $ (0.23) $ 0.89
------- ------- ------- ------- ---------
Net asset value, end of year $ 9.53 $ 8.92 $ 8.67 $ 8.94 $ 9.17
======= ======= ======= ======= =========
Total return(1) 15.89% 12.29% 6.82% 9.29% 23.84%
Ratio of net operating expenses to average
net assets 0.78% 0.80% 0.79% 0.77% 0.80%
Ratio of net investment income to average
net assets 7.98% 8.55% 8.29% 8.46% 9.05%
Portfolio turnover rate 69% 87% 115% 76% 136%
Net assets end of year
(in thousands) $169,607 $159,212 $149,659 $118,760 $75,365
</TABLE>
+ Prior to December 1, 1993, Mutual of Omaha Fund Management Company ("FMC")
acted as the investment adviser to the Fund.
(1) Assumes initial investment at net asset value at the beginning of each
year, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of each year, and no sales
charges. Total return would be reduced if sales charges were taken into
account.
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<PAGE>
III. INVESTMENT OBJECTIVE, POLICIES AND RISKS
The investment objective of the Fund is to seek current income consistent
with the preservation and conservation of capital. Growth of capital is a
secondary consideration. The Fund invests in dividend-paying common stocks,
together with preferred stocks, bonds and debentures which may or may not be
convertible into common stocks. In selecting securities for investment, the
investment adviser attempts to identify companies that have
better-than-average earnings potential and those industries that stand to
enjoy the greatest benefit from the predicted economic environment. The Fund
seeks to purchase the securities of companies that are thought to be best
situated in those industry groupings. Since capital appreciation is a
secondary consideration, the growth potential of companies is also
considered. The Fund invests in many different companies in a variety of
industries in an attempt to reduce its overall exposure to investment and
market risks.
In pursuing its objective, the Fund purchases portfolio securities with
the view of retaining them on a long-term basis. However, in its review of
individual securities, the market and general economic conditions, the Fund
may sell any security without regard to the period of time it has been held.
Such sales may cause the Fund's portfolio turnover rate to exceed 100% and
may cause it to incur greater brokerage commissions than would otherwise be
the case.
Part or all of the Fund's assets may be temporarily invested in securities
of the U.S. government, its agencies or instrumentalities, commercial paper,
bank certificates of deposit and time deposits, bankers' acceptances, other
fixed income securities and repurchase agreements with banks and
broker-dealers with respect to any of the foregoing instruments. At times,
the investment adviser may believe that such investments are desirable due to
present or anticipated market or economic conditions which are affecting or
could affect the values of the Fund's investments, as well as for liquidity
purposes or as a temporary investment, pending investment in primary
securities.
Risk Factors
The Fund may invest up to 35% of its net assets in lower rated or unrated
debt securities. These securities involve greater risk of default or price
declines due to changes in the issuer's creditworthiness than
investment-grade securities. Because of its investment in lower rated
securities, the Fund may be more dependent upon the investment adviser's
credit analysis in seeking to achieve its investment objective than a fund
that only invested in higher rated securities. Because the market for such
securities may be thinner and less active than for higher rated securities,
there may be market price volatility for these securities and limited
liquidity in the resale market. These factors may have the effect of limiting
the ability of the Fund to sell such securities at their fair value either in
response to changes in the economy or the financial markets or to meet
redemption requests. An investment in the Fund may involve greater risk than
an investment in a fund which can invest only in investment-grade securities.
The market for high yield, non-investment grade securities (commonly
referred to as junk bonds) grew primarily during a period of long economic
expansion and it is uncertain how such market would perform during a severe
or prolonged economic downturn. An economic downturn or an increase in
interest rates could severely disrupt the market for these securities and
adversely affect the value of outstanding securities and the ability of the
issuers to repay principal and interest. In addition, provisions of current
tax law limit the tax advantages of certain high yield securities, which may
limit their supply. Future legislation could adversely affect the market
value of these securities and, consequently, the Fund's net asset value.
If market quotations are not readily available for the Fund's lower rated
or unrated securities, these securities will be valued by a method that the
Board of Trustees of the Fund believes accurately reflects their fair value.
Judgment plays a greater role in valuation of lower rated securities and such
valuation becomes more difficult because there is less reliable, objective
data available on such securities. For year-end 1994, 32% of the Fund's net
assets were invested in equity securities, 2% in cash and equivalents and 66%
in debt securities. Of the Fund's net assets, 21% were invested in debt
securities rated AAA/Aaa by Standard & Poor's Ratings Group ("S&P") and/or
Moody's Investors Service, Inc. ("Moody's"), 2% rated AA/Aa, 4% rated A/A,
17% rated BBB/Baa, 13% rated BB/Ba and 5% rated B/B. Only 4% of the Fund's
net assets were unrated and they were determined to be comparable in quality
to AAA/Aaa and BB/Ba rated debt securities. Securities rated BB/Ba or below
(or comparable unrated securities) are considered speculative, and payments
of principal and interest thereon may be questionable. See Appendix A to the
Fund's Statement of Additional Information for a discussion of bond ratings.
Writing Covered Call Options
The Fund does not invest in puts, calls, straddles, spreads or any
combination thereof. However, in order to preserve capital and increase
income, the Fund may write covered call options on securities if: (1) such
calls are listed on a national securities exchange, (2) when any such call is
written and at all times prior to a closing purchase transaction as to such
call, or its lapse or exercise, the Fund owns the securities which are
subject to the call or has the right to acquire such securities without the
payment of further consideration, and (3) after any such call is written, not
more than 25% of the value of the Fund's total assets would be subject to
calls. Calls may be purchased only to effect a "closing purchase transaction"
as to any call written in accordance with the foregoing.
The Fund will write only call options which are covered, which means that
the Fund will own, so long as the option is outstanding, the underlying
security, or own securities convertible into or carrying rights to acquire
such securities without payment of additional consideration. The Fund's
obligation with respect to an option is extinguished by its exercise or
expiration or by the Fund's purchase of a call option covering the same
underlying securities and having the same exercise price and expiration date
as the option that the Fund has written. The Fund will receive a premium for
writing a call
4
<PAGE>
option, but gives up, until the expiration date, the opportunity to profit
from an increase in the underlying security price above the exercise price.
The Fund will retain the risk of loss from a decrease in the price of the
underlying security.
Restricted and Illiquid Securities
The Fund may purchase securities that are not registered or are offered in
an exempt non-public offering ("restricted securities") under the Securities
Act of 1933 ("1933 Act"), including securities eligible for resale to
"qualified institutional buyers" in accordance with Rule 144A under the 1933
Act. However, the Fund will not invest more than 15% of its net assets in
illiquid investments, which includes repurchase agreements maturing in more
than seven days, securities that are not readily marketable and restricted
securities, unless the Board of Trustees of the Fund determines, based upon a
continuing review of the trading markets for the specific restricted
security, that such restricted security eligible for resale in accordance
with Rule 144A is liquid. The Board of Trustees of the Fund may adopt
guidelines and delegate to the investment adviser the daily function of
determining and monitoring the liquidity of restricted securities. The Board
of Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations. Since it is not possible to predict with
assurance exactly how the market for restricted securities eligible for
resale pursuant to Rule 144A will continue to develop, the Board of Trustees
will carefully monitor the Fund's investments in these securities, focusing
on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect
of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
The purchase price and subsequent valuation of restricted securities
normally reflect a discount from the price at which such securities trade
when they are not restricted, to the extent that the restriction makes them
less liquid. The amount of the discount from the prevailing market price is
expected to vary depending upon the type of security, the character of the
issuer, the party who will bear the expenses of registering the restricted
securities and prevailing supply and demand conditions.
Foreign Securities
The Fund may invest up to 30% of its assets at the time of investment in
listed and unlisted foreign securities. While such investments are intended
to reduce risk by permitting greater diversification of the Fund's
portfolios, investments in securities of foreign issuers entail certain risks
not associated with investments in domestic issuers. Such risks include
fluctuations in foreign currency exchange rates; possible expropriation or
nationalization of foreign companies; imposition of exchange control
regulations; currency blockage or dividends or interest withheld at the
source; unfavorable price spreads on currency exchanges; higher transaction
costs; less public information about issuers of securities; lack of uniform
auditing, accounting and financial reporting standards; less governmental
regulation of foreign stock exchanges and brokers; less liquidity and greater
volatility of securities of foreign companies; or imposition of foreign
taxes. Therefore, the Fund intends to invest primarily in the companies
organized under the laws of those nations which are considered as having
relatively stable and friendly governments, e.g., major industrialized
nations such as the United Kingdom, France, Canada, Germany and Japan.
Lending of Portfolio Securities
The Fund may seek to increase its income by lending portfolio securities,
provided that the value of the securities loaned would not exceed one-third
of the value of the total assets of the Fund. Under present regulatory
policies, such loans may be made to institutions, such as certain broker-
dealers, and are required to be secured continuously by collateral in cash,
cash equivalents, or U.S. government securities maintained on a current basis
in an amount at least equal to the market value of the securities loaned. The
Fund may experience loss or delay in the recovery of its securities if the
institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
When Issued Securities
The Fund may also purchase and sell securities on a "when issued" and
"delayed delivery" basis. These transactions are subject to market
fluctuation; the value at the time of delivery may be more or less than the
purchase price. Since the Fund will rely on the buyer or seller, as the case
may be, to consummate the transaction, failure by the other party to complete
the transaction may result in the Fund missing the opportunity of obtaining a
price or yield considered to be advantageous. No interest accrues to the Fund
prior to delivery. When the Fund is the buyer in such a transaction, however,
it will maintain, in a segregated account with its custodian, cash, U.S.
government securities, or high-grade, liquid debt obligations having an
aggregate value equal to the amount of such purchase commitments until
payment is made. The Fund will make commitments to purchase securities on
such basis only with the intention of actually acquiring these securities,
but the Fund may sell such securities prior to the settlement date if such
sales are considered to be advisable. To the extent the Fund engages in "when
issued" and "delayed delivery" transactions, it will do so for the purpose of
acquiring securities for the Fund's portfolio consistent with the Fund's
investment objective and policies and not for the purpose of investment
leverage.
Repurchase Agreements
A repurchase agreement is an instrument under which the purchaser acquires
ownership of the obligation but the seller agrees, at the time of sale, to
repurchase the obligation at a mutually agreed upon time and price. The
resale price is in excess of the purchase price and reflects an agreed upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford an opportunity for the Fund to invest temporarily
available cash. In the event of the insolvency of the seller, or an order to
stay execution of an agreement by a court or regulatory authority, the Fund
could incur costs before being able to sell the underlying obligations and
the Fund's realization
5
<PAGE>
of the underlying obligations could be delayed or limited, which could
adversely affect the price the Fund receives for such obligations. There is
also a risk that the seller may fail to repurchase the underlying obligations
in which case the Fund may incur possible disposition costs and a loss if the
proceeds of the sale of such obligations to a third party are less than the
repurchase price. To guard against these possibilities, the investment
adviser, under guidelines established by the Fund's Board of Trustees, will
evaluate the creditworthiness of the seller. The Fund will enter into
repurchase agreements only with those institutions that the investment
adviser believes present minimal credit risks and which furnish collateral at
least equal in value or market price to the amount of the repurchase
obligations. Repurchase agreements maturing in more than seven days are
considered by the Fund to be illiquid.
Price Fluctuation
Because prices of securities fluctuate from day to day, the value of an
investment in the Fund will vary based upon the Fund's investment
performance. The value of your shares in the Fund may, at any time, be higher
or lower than your original cost. The Fund may invest in debt securities with
varying maturities. In general, the longer the maturity of a security, the
higher the yield and the greater the potential for price fluctuations. A
decline in interest rates generally produces an increase in the value of debt
securities in the Fund's portfolio, while an increase in interest rates
usually reduces the value of these securities.
Additional Restrictions
In addition to the investment objective and policies discussed above, the
Fund's investments are subject to other restrictions which are described in
its Statement of Additional Information. Unless otherwise stated, the Fund's
investment objective and restrictions are considered fundamental and cannot
be changed without shareholder approval. Unless expressly designated as a
fundamental policy, the Fund's investment policies may be changed without
shareholder approval by the Board of Trustees of the Fund.
IV. MANAGEMENT OF THE FUND
The Board of Trustees of the Fund has overall responsibility for
management and supervision of such Fund. There are currently eight Trustees,
six of whom are not "interested persons" of the Fund as defined in the
Investment Company Act of 1940 (the "1940 Act"). The Board meets at least
quarterly. By virtue of the functions performed by Pioneering Management
Corporation ("PMC") as investment adviser, the Fund requires no employees
other than its executive officers, all of whom receive their compensation
from PMC or other sources. The Statement of Additional Information contains
the names of and general background information regarding each Trustee and
executive officer of the Fund.
Each domestic fixed income portfolio managed by PMC, including the Fund,
is overseen by the Domestic Fixed Income Portfolio Management Committee,
which consists of PMC's most senior domestic fixed income professionals. The
committee is chaired by Mr. David Tripple, PMC's President and Chief
Investment Officer and Executive Vice President of each of the Pioneer mutual
funds. Mr. Tripple joined PMC in 1974 and has had general responsibility for
PMC's investment operations and specific portfolio assignments for over five
years. Fixed income investments at PMC, including those made on behalf of the
Fund, are under the general supervision of Mr. Sherman Russ, a Senior Vice
President of PMC. Mr. Russ joined PMC in 1983. Messrs. John A. Carey and Russ
have been the investment managers primarily responsible for the day-to-day
management of the Fund since December 1, 1993. Mr. Carey joined PMC in 1979
and is Vice President of PMC and the Fund.
The Fund is managed under a contract with PMC. PMC serves as investment
adviser to the Fund and is responsible for the overall management of the
Fund's business affairs, subject only to the authority of the Fund's Board of
Trustees. PMC is a wholly owned subsidiary of The Pioneer Group, Inc.
("PGI"), a Delaware corporation. Pioneer Funds Distributor, Inc. ("PFD"), an
indirect wholly-owned subsidiary of PGI, is the principal underwriter of
shares of the Fund. Prior to December 1, 1993, FMC acted as investment
adviser and principal underwriter to the Fund.
In addition to the Fund, PMC also manages and serves as the investment
adviser for other mutual funds and is an investment adviser to certain other
institutional accounts. PMC's and PFD's executive offices are located at 60
State Street, Boston, Massachusetts 02109.
Under the terms of its contract with the Fund, PMC provides the Fund with
an investment program consistent with its investment objective and policies.
PMC furnishes the Fund with office space, equipment and personnel for
managing the affairs of the Fund. PMC also pays all expenses in connection
with the management of the affairs of the Fund except (i) charges and
expenses for fund accounting, pricing and appraisal services and related
overhead, including, to the extent such services are performed by personnel
of PMC or its affiliates, office space and facilities and personnel
compensation, training and benefits; (ii) the charges and expenses of
auditors; (iii) the charges and expenses of any custodian, transfer agent,
plan agent, dividend disbursing agent and registrar appointed by the Fund;
(iv) issue and transfer taxes, chargeable to the Fund in connection with
securities transactions to which the Fund is a party; (v) insurance premiums,
interest charges, dues and fees for membership in trade associations and all
taxes and corporate fees payable by the Fund to federal, state or other
governmental agencies; (vi) 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; (vii) all expenses of shareholders' and Trustees'
meetings and of preparing, printing and distributing prospectuses, notices,
proxy statements and all reports to shareholders and to governmental
agencies; (viii) charges and expenses of legal counsel to the Fund and the
Trustees; (ix) distribution fees paid by the Fund in accordance with Rule
12b-1 promulgated by the SEC pursuant to the 1940 Act; (x) compensation
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<PAGE>
of those Trustees of the Fund who are not affiliated with or interested
persons of PMC, the Fund (other than as Trustees), PGI or PFD; (xi) the cost
of preparing and printing share certificates; and (xii) interest on borrowed
money, if any. In addition to the expenses described above, the Fund shall
pay all brokers' and underwriting commissions chargeable to the Fund in
connection with securities transactions to which the Fund is a party.
Orders for the Fund's portfolio securities transactions are placed by PMC,
which strives to obtain the best price and execution for each transaction. In
circumstances where two or more broker-dealers are in a position to offer
comparable prices and execution, consideration may be given to whether the
broker-dealer provides investment research or brokerage services or sells
shares of the Fund or other Pioneer mutual funds. See the Statement of
Additional Information for a further description of PMC's brokerage
allocation practices.
As compensation for its management services for the Fund and certain
expenses which PMC incurs, PMC is entitled to a management fee from the Fund
at the annual rates set forth below as a percentage of average daily net
assets:
Net Assets Annual Fee
- ------------------------------------------------------- -------------
For assets up to $250,000,000 .50%
For assets in excess of $250,000,000 to $300,000,000 .48%
Over $300,000,000 .45%
PMC has agreed that until December 1, 1995, its fee shall not exceed the
fee that would have been payable under the prior management contract with
FMC. See the Statement of Additional Information for a discussion of the fee
payable under the prior management agreement.
For the fiscal year ended December 31, 1994, the Fund paid a management
fee of $ 1,341,020 to PMC.
John F. Cogan, Jr., Chairman and President of the Fund, Chairman of PFD,
President and a Director of PGI and Chairman and a Director of PMC, owned
approximately 15% of the outstanding capital stock of PGI as of January 31,
1995.
V. FUND SHARE ALTERNATIVES
The Fund continuously offers two Classes of shares designated as Class A
and Class B shares, as described more fully in "How to Buy Fund Shares." If
you do not specify in your instructions to the Fund which Class of shares you
wish to purchase, exchange or redeem, the Fund will assume that your
instructions apply to Class A shares.
Class A Shares. If you invest less than $1 million in Class A shares, you will
pay an initial sales charge. Certain purchases may qualify for reduced initial
sales charges. If you invest $1 million or more in Class A shares, no sales
charge will be imposed at the time of purchase, however, shares redeemed within
12 months of purchase may be subject to a contingent deferred sales charge
("CDSC"). Class A shares are subject to distribution and service fees at a
combined annual rate of up to 0.25% of the Fund's average daily net assets
attributable to Class A shares.
Class B Shares. If you plan to invest up to $250,000, Class B shares are
available to you. Class B shares are sold without an initial sales charge, but
are subject to a CDSC of up to 4% if redeemed within six years. Class B shares
are subject to distribution and service fees at a combined annual rate of 1.00%
of the Fund's average daily net assets attributable to Class B shares. Your
entire investment in Class B shares is available to work for you from the time
you make your investment, but the higher distribution fee paid by Class B shares
will cause your Class B shares (until conversion) to have a higher expense ratio
and to pay lower dividends, to the extent dividends are paid, than Class A
shares. Class B shares will automatically convert to Class A shares, based on
relative net asset value, eight years after the initial purchase. Purchasing
Class A or Class B Shares. The decision as to which Class to purchase depends on
the amount you invest, the intended length of the investment and your personal
situation. If you are making an investment that qualifies for reduced sales
charges, you might consider Class A shares. If you prefer not to pay an initial
sales charge on an investment of $250,000 or less and you plan to hold the
investment for at least six years, you might consider Class B shares.
Investment dealers or their representatives may receive different
compensation depending on which Class of shares they sell. Shares may be
exchanged only for shares of the same Class of another Pioneer fund and
shares acquired in the exchange will continue to be subject to any CDSC
applicable to the shares of the Fund originally purchased. Shares sold
outside the U.S. to persons who are not U.S. citizens may be subject to
different sales charges, CDSCs and dealer compensation arrangements in
accordance with local laws and business practices.
VI. SHARE PRICE
Shares of the Fund are sold at the public offering price, which is the net
asset value per share plus the applicable sales charge. Net asset value per
share of a Class of the Fund is determined by dividing the value of its
assets, less liabilities attributable to that Class, by the number of shares
of that Class outstanding. The net asset value is computed once daily, on
each day the New York Stock Exchange (the "Exchange") is open, as of the
close of regular trading on the Exchange.
Securities are valued at the last sale price on the principal exchange or
market where they are traded. Securities which have not traded on the date of
valuation or securities for which sales prices are not generally reported are
valued at the mean between the current bid and asked prices. Securities
quoted in foreign currencies are converted to U.S. dollars utilizing foreign
exchange rates employed by the Fund's independent pricing services.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the Exchange. Occasionally, events
which affect the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the Exchange
and will therefore not be reflected in
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the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
are valued at their fair value as determined in good faith by the Trustees.
All assets of the Fund for which there is no other readily available
valuation method are valued at their fair value as determined in good faith
by the Trustees.
VII. HOW TO BUY FUND SHARES
You may buy Fund shares at the public offering price from any securities
broker-dealer which has a sales agreement with PFD. If you do not have a
securities broker-dealer, please call 1-800-225-6292 for assistance.
The minimum initial investment is $1,000 for Class A and Class B shares
except as specified below. The minimum initial investment is $50 for Class A
accounts being established to utilize monthly bank drafts, government
allotments, payroll deduction and other similar automatic investment plans.
Separate minimum investment requirements apply to retirement plans and to
telephone and wire orders placed by broker-dealers; no sales charges or
minimum requirements apply to the reinvestment of dividends or capital gains
distributions. The minimum subsequent investment is $50 for Class A shares
and $500 for Class B shares except that the subsequent minimum investment
amount for Class B share accounts may be as little as $50 if an automatic
investment plan is established (see "Automatic Investment Plans").
Telephone Purchases. Your account is automatically authorized to have the
telephone purchase privilege unless you indicated otherwise on your Account
Application or by writing to Pioneering Services Corporation ("PSC"). The
telephone purchase option may be used to purchase additional shares for an
existing fund account; it may not be used to establish a new account. Proper
account identification will be required for each telephone purchase. A maximum
of $25,000 per account may be purchased by telephone each day. The telephone
purchase privilege is available to IRA accounts but may not be available to
other types of retirement plan accounts. Call PSC for more information.
You are strongly urged to consult with your financial representative prior to
requesting a telephone purchase. To purchase shares by telephone, you must
establish your bank account of record by completing the appropriate section of
your Account Application or an Account Options Form. PSC will electronically
debit the amount of each purchase from this pre-designated bank account.
Telephone purchases may not be made for 30 days after the establishment of your
bank of record or any change to your bank information.
Telephone purchases will be priced at the net asset value plus any applicable
sales charge next determined after PSC's acceptance of a telephone purchase
instruction and receipt of good funds (usually three days after the purchase
instruction). You may always elect to deliver purchases to PSC by mail. See
"Telephone Transactions and Related Liabilities" for additional information.
Class A Shares
You may buy Class A shares at the public offering price, that is, at the
net asset value per share next computed after receipt of a purchase order,
plus a sales charge as follows:
Sales Charge as a % of
----------------------
Dealer
Allowance
Net as a % of
Offering Amount Offering
Amount of Purchase Price Invested Price
- ------------------------------ ------ ------- -----------
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- -0- See below
No sales charge is payable at the time of purchase on investments of
$1,000,000 or more or for 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. See "How to Sell
Fund Shares." 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; and 0.25% on the
excess over $50 million. These commissions will not be paid 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 commission paid or a pro rata portion thereof
if the retirement plan redeems its shares within 12 months of purchase. See
also "How to Sell Fund Shares." In connection with PGI's acquisition of FMC
and contingent upon the achievement of certain sales objectives, PFD pays 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.
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 Section 401 or 408 of the Internal Revenue Code of 1986, as
amended (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 (except direct purchases of Pioneer Money Market Trust's Class A
Shares), 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. See
the "Letter of Intention" section of the Account Application.
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Qualifying for a Reduced Sales Charge. Class A shares of the Fund may be sold at
a reduced or eliminated sales charge to certain group plans ("Group Plans")
under which a sponsoring organization makes recommendations to, permits group
solicitation of, or otherwise facilitates purchases by, its employees, members
or participants.Class A shares of a Fund may be sold at net asset value per
share without a sales charge to Optional Retirement Program participants if (i)
the employer has authorized a limited number of investment company providers for
the Program, (ii) all authorized investment company providers offer their shares
to Program participants at net asset value, (iii) the employer has agreed in
writing to actively promote the authorized investment providers to Program
participants and (iv) the Program provides for a matching contribution for each
participant contribution. Information about such arrangements is available from
PFD.
Class A shares of the Fund may also be sold at net asset value per share
without a sales charge to: (a) current or former Trustees and officers of the
Fund and partners and employees of its legal counsel; (b) current or former
directors, officers, employees or sales representatives of PGI or its
subsidiaries; (c) current or former directors, officers, employees or sales
representatives of any subadviser or predecessor investment adviser to any
investment company for which PMC serves as investment adviser, and the
subsidiaries or affiliates of such persons; (d) current or former officers,
partners, employees or registered representatives of broker-dealers which
have entered into sales agreements with PFD; (e) members of the immediate
families of any of the persons above; (f) any trust, custodian, pension,
profit-sharing or other benefit plan of the foregoing persons; (g) insurance
company separate accounts; (h) certain "wrap accounts" for the benefit of
clients of financial planners adhering to standards established by PFD; (i)
other funds and accounts for which PMC or any of its affiliates serves as
investment adviser or manager; and (j) certain unit investment trusts. Shares
so purchased are purchased for investment purposes and may not be resold
except through redemption or repurchase by or on behalf of the Fund. The
availability of this privilege is conditioned upon the receipt by PFD of
written notification of eligibility. Class A shares of the Fund may also be
sold at net asset value without a sales charge in connection with certain
reorganization, liquidation or acquisition transactions involving other
investment companies or personal holding companies.
Reduced sales charges for Class A shares are available through an
agreement to purchase a specified quantity of Fund shares over a designated
13-month period by completing the "Letter of Intention" section of the
Account Application. Information about the Letter of Intention procedure,
including its terms, is contained in the Statement of Additional Information.
Investors who are clients of a broker-dealer with a current sales agreement
with PFD may purchase Class A shares of the Fund at net asset value, without
a sales charge, to the extent that the purchase price is paid out of proceeds
from one or more redemptions by the investor of shares of certain other
mutual funds. In order for a purchase to qualify for this privilege, the
investor must document to the broker-dealer that the redemption occurred
within the 60 days immediately preceding the purchase of Class A shares; that
the client paid a sales charge on the original purchase of the shares
redeemed; and that the mutual fund whose shares were redeemed also offers net
asset value purchases to redeeming shareholders of any of the Pioneer funds.
Further details may be obtained from PFD.
Class B Shares
You may buy Class B shares at net asset value 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,
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.
Year Since CDSC as a Percentage of Dollar
Purchase Amount Subject to CDSC
- ------------------------- --------------------------------
First 4.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter none
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 end
of the calendar quarter that is eight years after the purchase date, except
as noted below. Class B shares acquired by exchange from Class B shares of
another Pioneer fund will convert into Class A shares based on the date of
the initial purchase and the applicable CDSC. Class B shares acquired through
reinvestment of distributions will convert into Class A shares based on the
date of the initial purchase to which such shares relate. For this purpose,
Class B shares acquired through reinvestment of distributions will be
attributed to particular purchases of Class B shares in accordance with such
procedures as the Trustees may determine from time to time. The conversion of
Class B shares to Class A shares is subject to the continuing availability of
a ruling from the Internal Revenue Service ("IRS"), for which the Fund is
applying, or an opinion of counsel that
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<PAGE>
such conversions will not constitute taxable events for federal tax purposes.
There can be no assurance that such ruling or opinion will be available at
the time any particular conversion would normally occur. 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.
Waiver or Reduction of Contingent Deferred Sales Charge.
The CDSC on Class B shares and on any Class A shares subject to a CDSC may
be waived or reduced for non-retirement accounts if: (a) the redemption
results from the death of all registered owners of an account (in the case of
UGMAs, UTMAs and trust accounts, the waiver applies upon the death of all
beneficial owners) or a total and permanent disability (as defined in Section
72 of the Code) of all registered owners occurring after the purchase of the
shares being redeemed or (b) the redemption is made in connection with
limited automatic redemptions as set forth 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).
The CDSC on Class B shares and on any Class A shares subject to a CDSC may
be waived or reduced for retirement plan accounts if: (a) the redemption
results from the death or a total and permanent disability (as defined in
Section 72 of the Code) occurring after the purchase of the shares being
redeemed of a shareholder or participant in an employer-sponsored retirement
plan; (b) the distribution is to a participant in an Individual Retirement
Account ("IRA"), 403(b) or employer-sponsored retirement plan, is part of a
series of substantially equal payments made over the life expectancy of the
participant or the joint life expectancy of the participant and his or her
beneficiary or as scheduled periodic payments to a participant (limited in
any year to 10% of the value of the participant's account at the time the
distribution amount is established; a required minimum distribution due to
the participant's attainment of age 70-1/2 may exceed the 10% limit only if
the distribution amount is based on plan assets held by Pioneer); (c) the
distribution is from a 401(a) or 401(k) retirement plan and is a return of
excess employee deferrals or employee contributions or a qualifying hardship
distribution as defined by the Code or results from a termination of
employment (limited with respect to a termination to 10% per year of the
value of the plan's assets in the Fund as of the later of the prior December
31 or the date the account was established unless the plan's assets are being
rolled over to or reinvested in the same class of shares of a Pioneer mutual
fund subject to the CDSC of the shares originally held); (d) the distribution
is from an IRA, 403(b) or employer-sponsored retirement plan and is to be
rolled over to or reinvested in the same class of shares in a Pioneer mutual
fund and which will be subject to the applicable CDSC upon redemption; (e)
the distribution is in the form of a loan to a participant in a plan which
permits loans (each repayment of the loan will constitute a new sale which
will be subject to the applicable CDSC upon redemption); or (f) the
distribution is from a qualified defined contribution plan and represents a
participant's directed transfer (provided that this privilege has been pre-
authorized through a prior agreement with PFD regarding participant directed
transfers).
The CDSC on Class B shares and on any Class A shares subject to a CDSC may
be waived or reduced for either non-retirement or retirement plan accounts
if: (a) the redemption is made by any state, county, or city, or any
instrumentality, department, authority, or agency thereof, which is
prohibited by applicable laws from paying a CDSC in connection with the
acquisition of shares of any registered investment management company; or (b)
the redemption is made pursuant to the Fund's right to liquidate or
involuntarily redeem shares in a shareholder's account.
Broker-Dealers. An order for either Class of Fund shares received by PFD from a
broker-dealer prior to the close of regular trading on the Exchange is confirmed
at the price appropriate for that Class as determined at the close of regular
trading on the Exchange on the day the order is received, provided the order is
received by PFD prior to PFD's close of business (usually, 5:30 p.m. Eastern
Time). It is the responsibility of broker-dealers to transmit orders so that
they will be received by PFD prior to its close of business.
General. The Fund reserves the right in its sole discretion to withdraw all or
any part of the offering of shares when, in the judgment of the Fund's
management, such withdrawal is in the best interest of the Fund. An order to
purchase shares is not binding on, and may be rejected by, PFD until it has been
confirmed in writing by PFD and payment has been received.
VIII. HOW TO SELL FUND SHARES
You can arrange to sell (redeem) fund shares on any day the Exchange is
open by selling either some or all of your shares to the Fund.
You may sell your shares either through your broker-dealer or directly to
the Fund. Please note the following:
(bullet) If you are selling shares from a retirement account, you must make
your request in writing (except for exchanges to other Pioneer funds
which can be requested by phone or in writing). Call 1-800-622-0176
for more information.
(bullet) If you are selling shares from a non-retirement account, you may use
any of the methods described below.
Your shares will be sold at the share price next calculated after your
order is received and accepted less any applicable CDSC. Sale proceeds
generally will be sent to you in cash, normally within seven days after your
order is accepted. The Fund reserves the right to withhold payment of the
sale proceeds until checks received by the Fund in payment for the shares
being sold have cleared, which may take up to 15 calendar days from the
purchase date.
In Writing. You may sell your shares by delivering a written request, signed by
all registered owners, in good order to PSC, however, you must use a written
request, including a signature guarantee, to sell your shares if any of the
following situations applies:
(bullet) you wish to sell over $50,000 worth of shares,
(bullet) your account registration or address has changed within the last 30
days,
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(bullet) the check is not being mailed to the address on your account
(address of record),
(bullet) the check is not being made out to the account owners, or
(bullet) the sale proceeds are being transferred to a Pioneer account with a
different registration.
Your request should include your name, the Fund's name, your fund account
number, the Class of shares to be redeemed, the dollar amount or number of
shares to be redeemed, and any other applicable requirements as described
below. Unless instructed otherwise, Pioneer will send the proceeds of the
sale to the address of record. Fiduciaries or corporations are required to
submit additional documents. For more information, contact PSC at
1-800-225-6292.
Written requests will not be processed until they are received in good
order and accepted by PSC. Good order means that there are no outstanding
claims or requests to hold redemptions on the account, certificates are
endorsed by the record owner(s) exactly as the shares are registered and the
signature(s) are guaranteed by an eligible guarantor. You should be able to
obtain a signature guarantee from a bank, broker, dealer, credit union (if
authorized under state law), securities exchange or association, clearing
agency or savings association. A notary public cannot provide a signature
guarantee. Signature guarantees are not accepted by facsimile ("fax"). For
additional information about the necessary documentation for redemption by
mail, please contact PSC at 1-800-225-6292.
By Telephone or by Fax. Your account is automatically authorized to have the
telephone redemption privilege unless you indicated otherwise on your Account
Application or by writing to PSC. You may redeem up to $50,000 of your shares by
telephone or fax and receive the proceeds by check or by bank wire or electronic
funds transfer. The redemption proceeds must be made payable exactly as the
account is registered. To receive the proceeds by check: the check must be sent
to the address of record which must not have changed in the last 30 days. To
receive the proceeds by bank wire or by electronic funds transfer: the proceeds
must be sent to your bank address of record which must have been properly pre-
designated either on your Account Application or on an Account Options Form and
which must not have changed in the last 30 days. To redeem by fax send your
redemption request to 1-800-225-4240. The telephone redemption option is not
available to retirement plan accounts. You may always elect to deliver
redemption instructions to PSC by mail. See "Telephone Transactions and Related
Liabilities" below. Telephone and fax redemptions will be priced as described
above. You are strongly urged to consult with your financial representative
prior to requesting a telephone redemption.
Selling Shares Through Your Broker-Dealer. The Fund authorized PFD to act as its
agent in the repurchase of shares of the Fund from qualified broker-dealers and
reserves the right to terminate this procedure at any time. Your broker-dealer
must receive your request before the close of business on the Exchange and
transmit it to PFD before PFD's close of business to receive that day's
redemption price. Your broker-dealer is responsible for providing all necessary
documentation to PFD and may charge you for its services.
Small Accounts. The minimum account value is $500. If you hold shares of the
Fund in an account with a net asset value of less than the minimum required
amount due to redemptions or exchanges, the Fund may redeem the shares held in
this account at net asset value if you have not increased the net asset value of
the account to at least the minimum required amount within six months of notice
by the Fund to you of the Fund's intention to redeem the shares.
CDSC on Class A Shares. Purchases of Class A shares of $1,000,000 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 PFD on these
investments 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. Shares subject to the CDSC which are exchanged
into another Pioneer fund will continue to be subject to the CDSC until the
original 12-month period expires. However, no CDSC is payable upon redemption
with respect to Class A shares purchased by 401(a) or 401(k) retirement plans
with 1,000 or more eligible participants or with at least $10 million in plan
assets.
General. 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 to shareholders. 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.
IX. HOW TO EXCHANGE FUND SHARES
Written Exchanges. You may exchange your shares by sending a letter of
instruction to PSC. Your letter should include your name, the name of the
Pioneer mutual fund out of which you wish to exchange and the name of the
Pioneer mutual fund into which you wish to exchange, your fund account
number(s), the Class of shares to be exchanged and the dollar amount or
number of shares to be exchanged. Written exchange requests must be signed by
all record owner(s) exactly as the shares are registered.
Telephone Exchanges. Your account is automatically authorized to have the
telephone exchange privilege unless you indicated otherwise on your Account
Application or by writing to the PSC. Proper account identification will be
required for each telephone exchange. Telephone exchanges may not exceed
$500,000 per account per day. Each telephone exchange request, whether by
voice or by FactFone, will be recorded. You are strongly urged to consult
with your
11
<PAGE>
financial representative prior to requesting a telephone exchange. See
"Telephone Transactions and Related Liabilities" below.
Automatic Exchanges. You may automatically exchange shares from one
Pioneer account for shares of the same Class in another Pioneer account on a
monthly or quarterly basis. The accounts must have identical registrations
and the originating account must have a minimum balance of $5,000. The
exchange will be effective on the 18th day of the month.
General. Exchanges must be at least $1,000. You may exchange your investment
from one Class of Fund shares at net asset value, without a sales charge, for
shares of the same Class of any other Pioneer mutual fund. Not all Pioneer
mutual funds offer more than one Class of shares. A new Pioneer account opened
through an exchange must have a registration identical to that on the original
account.
Class A or Class B shares which would normally be subject to a CDSC upon
redemption will not be charged the applicable CDSC at the time of an
exchange. Shares acquired in an exchange will be subject to the CDSC of the
shares originally held. For purposes of determining the amount of any
applicable CDSC, the length of time you have owned Class B shares acquired by
exchange will be measured from the date you acquired the original shares and
will not be affected by any subsequent exchange.
Exchange requests received by PSC before 4:00 p.m. Eastern Time will be
effective on that day if the requirements above have been met, otherwise,
they will be effective on the next business day. PSC will process exchanges
only after receiving an exchange request in good order. There are currently
no fees or sales charges imposed at the time of an exchange. An exchange of
shares may be made only in states where legally permitted. For federal and
(generally) state income tax purposes, an exchange is considered to be a sale
of the shares of the Fund exchanged and a purchase of shares in another
Pioneer mutual fund. Therefore, an exchange could result in a gain or loss on
the shares sold, depending on the tax basis of these shares and the timing of
the transaction, and special tax rules may apply.
You should consider the differences in objectives and policies of the
Pioneer mutual funds, as described in each fund's current prospectus, before
making any exchange. To prevent abuse of the exchange privilege to the
detriment of other Fund shareholders, the Fund and PFD reserve the right to
limit the number and/or frequency of exchanges and/or to charge a fee for
exchanges. The exchange privilege may be changed or discontinued and may be
subject to additional limitations, including certain restrictions on
purchases by market timer accounts.
X. DISTRIBUTION PLANS
The Fund has adopted a Plan of Distribution for both Class A shares
("Class A Plan") and Class B shares ("Class B Plan") in accordance with Rule
12b-1 under the 1940 Act pursuant to which certain distribution and service
fees are paid.
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 Fund's Board of Trustees. As of the date of this Prospectus,
the Board of Trustees has approved the following categories of expenses for
Class A shares of the Fund: (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 (See
"How to Buy Fund Shares"); 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 was prohibited from acting in any capacity or providing
any of the described services, management would consider what action, if any,
would be appropriate.
Expenditures of the Fund pursuant to the Class A Plan are accrued daily
and may not exceed 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 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.
The Class B Plan provides that the Fund will pay a distribution fee at the
annual rate of 0.75% of the Fund's average daily net assets attributable to
Class B shares and will pay PFD a service fee at the annual rate of 0.25% of
the Fund's average daily net assets attributable to Class B shares. The
distribution fee is intended to compensate PFD for its distribution services
to the Fund. The service fee is intended to be additional compensation for
personal services and/or account maintenance services with respect to Class B
shares. PFD also receives the proceeds of any CDSC imposed on the redemption
of Class B shares.
Commissions of 4%, equal to 3.75% of the amount invested and a first
year's service fee equal to 0.25% of the amount invested in Class B shares,
are paid to broker-dealers who have selling agreements with PFD. PFD may
advance to dealers the first year service fee at a rate up to 0.25% of the
purchase price of such shares and, as compensation therefore, PFD may retain
the service fee paid by the Fund with respect to such shares for the first
year after purchase. Dealers will become eligible for additional service fees
with respect to such shares commencing in the 13th month following the
purchase. Dealers may from time to time be required to meet certain 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.
12
<PAGE>
XI. DIVIDENDS, DISTRIBUTIONS AND TAXATION
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 taxes on income and capital gains
distributed to shareholders at least annually.
Under the Code, the Fund will be subject to a nondeductible 4% federal
excise tax on a portion of its undistributed 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's policy is to pay to shareholders dividends from net investment
income, if any, quarterly in March, June, September and December and to make
distributions from net long-term capital gains, if any, usually in December.
Distributions from net short-term capital gains, if any, may be paid with
such dividends; distributions from income and/or capital gains may also be
made at such times as may be necessary to avoid federal income or excise tax.
Dividends from the Fund's net investment income, certain net foreign exchange
gains and net short-term capital gains realized by the Fund are taxable as
ordinary income. Dividends from the Fund's net long-term capital gains are
taxable as long-term capital gains.
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
above whether a shareholder takes them in cash or reinvests them in
additional shares of the Fund. Information as to the federal tax status of
dividends and distributions will be provided annually. For further
information on the distribution options available to shareholders, see
"Distribution Options" and "Directed Dividends" below.
Distributions by the Fund of the dividend income it receives from U.S.
domestic corporations, if any, may qualify for the corporate
dividends-received deduction for corporate shareholders, subject to minimum
holding-period requirements and debt-financing restrictions under the Code.
The Fund may be subject to foreign withholding taxes or other foreign
taxes on income (possibly including, in some cases, capital gains) from
certain foreign investments, which will reduce its return from those
investments. The Fund will not qualify to pass such taxes through to its
shareholders, who accordingly will neither treat such taxes as additional
income nor be entitled to any foreign tax credits or deductions with respect
to such taxes.
Dividends and other distributions and the proceeds of redemptions,
exchanges or repurchases of Fund shares paid to individuals and other
non-exempt payees will be subject to a 31% backup withholding of federal
income tax if the Fund is not provided with the shareholder's correct
taxpayer identification number and certification that the number is correct
and the shareholder is not subject to backup withholding or if the Fund
receives notice from the IRS or a broker that such withholding applies.
Please refer to the Account Application for additional information.
The description 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. Non-U.S. shareholders and tax-exempt shareholders
are subject to different tax treatment that is not described above.
Shareholders should consult their own tax advisers regarding state, local and
other applicable tax laws.
XII. SHAREHOLDER SERVICES
PSC is the shareholder services and transfer agent for shares of the Fund.
PSC, a Massachusetts corporation, is a wholly-owned subsidiary of PGI. PSC's
offices are located at 60 State Street, Boston, Massachusetts 02109, and
inquiries to PSC should be mailed to Pioneering Services Corporation, P.O.
Box 9014, Boston, Massachusetts 02205-9014. Brown Brothers Harriman & Co.
(the "Custodian") serves as custodian of the Fund's portfolio securities and
other assets. The principal business address of the mutual fund division of
the Custodian is 40 Water Street, Boston, Massachusetts 02109.
Account and Confirmation Statements
PSC maintains an account for each shareholder and all transactions of the
shareholder are recorded in this account. Confirmation statements showing
details of transactions are sent to shareholders as transactions occur,
except Automatic Investment Plan transactions which are confirmed quarterly.
The Combined Account Statement, mailed quarterly, is available to
shareholders who have more than one Pioneer account.
Shareholders whose shares are held in the name of an investment
broker-dealer or other party will not normally have an account with the Fund
and might not be able to utilize some of the services available to
shareholders of record. Examples of services which might not be available are
investment or redemption of shares by mail, automatic reinvestment of
dividends and capital gains distributions, withdrawal plans, Letters of
Intention, Rights of Accumulation, telephone exchanges and redemptions, and
newsletters.
Additional Investments
You may add to your account by sending a check (minimum of $50 for Class A
shares and $500 for Class B shares) to PSC (account number and Class of
shares should be clearly indicated). The bottom portion of a confirmation
statement may be used as a remittance slip to make additional investments.
Additions to your account, whether by check or through a Pioneer Investomatic
Plan, are invested in full and fractional shares of the Fund at the
applicable offering price in effect as of the close of the Exchange on the
day of receipt.
Automatic Investment Plans
You may arrange for regular automatic investments of $50 or more through
government/military allotments, payroll deduction or through a Pioneer
Investomatic Plan. A Pioneer Investomatic Plan provides for a monthly or
quarterly investment by means of a pre-authorized draft drawn on a checking
account. Pioneer Investomatic Plan investments are volun-
13
<PAGE>
tary, and you may discontinue the Plan at any time without penalty upon 30
days' written notice to PSC. PSC acts as agent for the purchaser, the
broker-dealer and PFD in maintaining these plans.
Financial Reports and Tax Information
As a shareholder, you will receive financial reports at least
semiannually. In January of each year, the Fund will mail you information
about the tax status of dividends and distributions.
Distribution Options
Dividends and capital gains distributions, if any, will automatically be
invested in additional shares of the same class of the Fund, at the
applicable net asset value per share, unless you indicate another option on
the Account Application. Two other options available are (a) dividends in
cash and capital gains distributions in additional shares; and (b) all
dividends and capital gains distributions in cash. These two options are not
available, however, for retirement plans or for an account with a net asset
value of less than $500. Changes in your distribution options may be made by
written request to PSC.
Directed Dividends
You may elect (in writing) to have the dividends paid by one Pioneer fund
account invested in a second Pioneer fund account. The value of this second
account must be at least $1,000 ($500 for Pioneer Fund or Pioneer II).
Invested dividends may be in any amount, and there are no fees or charges for
this service. Retirement plan shareholders may only direct dividends to
accounts with identical registrations, i.e., PGI IRA Cust for John Smith may
only go into another account registered PGI IRA Cust for John Smith.
Direct Deposit
If you have elected to take distributions, whether dividends or dividends
and capital gains, in cash, or have established a Systematic Withdrawal Plan,
you may choose to have those cash payments deposited directly into your
savings, checking or NOW bank account. You may establish this service by
completing the appropriate section on the Account Application when opening a
new account or the Account Options Form for an existing account.
Voluntary Tax Withholding
You may request (in writing) that PSC withhold 28% of the dividends and
capital gains distributions paid from your account (before any reinvestment)
and forward the amount withheld to the IRS as a credit against your federal
income taxes. This option is not available for retirement plan accounts or
for accounts subject to backup withholding.
Telephone Transactions and Related Liabilities
Your account is automatically authorized to have telephone transaction
privileges unless you indicated otherwise on your Account Application or by
writing to PSC. You may purchase, sell or exchange Fund shares by telephone. See
"Share Price" for more information. For personal assistance, call 1-800-225-6292
between 8:00 a.m. and 8:00 p.m. Eastern Time on weekdays. Computer-assisted
transactions may be available to shareholders who have pre-recorded certain bank
information (see "FactFone(SM)"). You are strongly urged to consult with your
financial representative prior to requesting any telephone transaction. To
confirm that each transaction instruction received by telephone is genuine, the
Fund will record each telephone transaction, require the caller to provide the
personal identification number ("PIN") for the account and send you a written
confirmation of each telephone transaction. Different procedures may apply to
accounts that are registered to non-U.S. citizens or that are held in the name
of an institution or in the name of an investment broker-dealer or other
third-party. If reasonable procedures, such as those described above, are not
followed, the Fund may be liable for any loss due to unauthorized or fraudulent
instructions. The Fund may implement other procedures from time to time. In all
other cases, neither the Fund, PSC or 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 redemption or exchange. You should communicate
with the Fund in writing if you are unable to reach the Fund by telephone.
FactFone(SM)
FactFone is an automated inquiry and telephone transaction system
available to Pioneer shareholders by dialing 1-800-225-4321. FactFone allows
you to obtain current information on your Pioneer mutual fund accounts and to
inquire about the prices and yields of all publicly available Pioneer mutual
funds. In addition, you may use FactFone to make computer-assisted telephone
purchases, exchanges and redemptions from your Pioneer accounts if you have
activated your PIN. Telephone purchases and redemptions require the
establishment of a bank account of record. You are strongly urged to consult
with your financial representative 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 FactFone. See "How
to Buy Fund Shares," "How to Exchange Fund Shares," "How to Sell Fund Shares"
and "Telephone Transactions and Related Liabilities." Call PSC for
assistance.
Retirement Plans
You should contact the Retirement Plans Department of PSC at
1-800-622-0176 for information relating to retirement plans for businesses,
age-weighted profit sharing plans, Simplified Employee Pension Plans, IRAs,
and Section 403(b) retirement plans for employees of certain non-profit
organizations and public school systems, all of which are available in
conjunction with investments in the Fund. The Pioneer Mutual Funds Account
Application accompanying this Prospectus should not be used to establish any
of these plans. Separate applications are required.
Telecommunications Device for the Deaf (TDD)
If you have a hearing disability and your own TDD keyboard equipment, you
can call our TDD number toll-free at 1-800-225-1997, weekdays from 8:30
a.m. to 5:30 p.m. Eastern Time to contact our telephone representatives with
questions about your account.
14
<PAGE>
Systematic Withdrawal Plans
If your account has a total value of at least $10,000 you may establish a
Systematic Withdrawal Plan ("SWP") providing for fixed payments at regular
intervals. Withdrawals from Class B shares accounts are limited to 10% of the
value of the account at the time the plan is implemented. See "Waiver or
Reduction of Contingent Deferred Sales Charge" for more information. Periodic
checks of $50 or more will be sent to you, or any person designated by you,
monthly or quarterly, and your periodic redemptions of shares may be taxable
to you. If you direct that withdrawal checks be paid to another person after
you have opened your account, a signature guarantee must accompany your
instructions. 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. You may obtain additional information by
calling PSC at 1-800-225-6292 or by referring to the Statement of Additional
Information.
Reinstatement Privilege (Class A Shares Only)
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 in effect immediately 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
reinvestment occurs. Subject to the provisions outlined under "How to
Exchange Fund Shares" above, 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.
The options and services available to shareholders, including the terms of
the Exchange Privilege and the Pioneer Investomatic Plan, may be revised,
suspended or terminated at any time by PFD or by the Fund. You may establish
the services described in this section when you open your account. You may
also establish or revise many of them on an existing account by completing an
Account Options Form, which you may request by calling 1-800-225-6292.
XIII. THE FUND
The Fund, an open-end management investment company (commonly referred to
as a mutual fund), was established as a Nebraska corporation on January 19,
1968 and reorganized as a Delaware business trust on June 30, 1994. The Fund
has authorized an unlimited number of shares of beneficial interest. 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 then current net asset value per share.
See "How to Sell Fund Shares." The Fund is not required, and does not intend,
to hold annual shareholder meetings although special meetings may be called
for the purpose of electing or removing Trustees, changing fundamental
investment restrictions or approving a management contract.
The Fund reserves the right to create and issue additional series of
shares. The Trustees have the authority, without further shareholder
approval, to classify and reclassify the shares of the Fund, or any new
series, into one or more classes. As of the date of this Prospectus, the
Trustees have authorized the issuance of two classes of shares, designated as
Class A and Class B. 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
distribution plans adopted by holders of those shares in connection with the
distribution of shares.
In addition to the requirements under Delaware law, the Declaration of
Trust 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.
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 certificates.
XIV. INVESTMENT RESULTS
The Fund may from time to time include yield information for each Class of
Fund shares in advertisements or in information furnished generally to
existing or proposed shareholders. Whenever yield information is provided, it
includes a standardized yield calculation computed by dividing the Fund's net
investment income per share for each Class of Fund shares during a base
period of 30 days, or one month, by the maximum offering price per share for
each Class of Fund shares on the last day of such base period. (The Fund's
net investment income per share for each Class is determined by dividing the
Fund's net investment income for each Class during the base period by the
Class's average number
15
<PAGE>
of shares of the Fund entitled to receive dividends during the base period).
The Class's 30-day yield is then "annualized" by a computation that assumes
that the Class's net investment income is earned and reinvested for a
six-month period at the same rate as during the 30-day base period and that
the resulting six-month income will be generated over an additional six
months.
The average annual total return (for a designated period of time) on an
investment in the Fund may also be included in advertisements, and furnished
to existing or prospective shareholders. The average annual total return for
each Class is computed in accordance with the SEC's standardized formula. The
calculation for all Classes assumes the reinvestment of all dividends and
distributions at net asset value and does not reflect the impact of federal
or state income taxes. In addition, for Class A shares the calculation
assumes the deduction of the maximum sales charge of 4.50%; for Class B
shares the calculation reflects the deduction of any applicable CDSC. The
periods illustrated would normally include one, five and ten years (or since
the commencement of the public offering of the shares of a Class, if shorter)
through the most recent calendar quarter.
One or more additional measures and assumptions, including but not limited
to historical total returns; distribution returns; results of actual or
hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data may also be used. These data
may cover any period of the Fund's existence and may or may not include the
impact of sales charges, taxes or other factors.
Other investments or savings vehicles and/or unmanaged market indexes,
indicators of economic activity or averages of mutual funds results may be
cited or compared with the investment results of the Fund. Rankings or
listings by magazines, newspapers or independent statistical or rating
services, such as Lipper Analytical Services, Inc., may also be referenced.
The Fund's yield and investment results will be calculated separately for
each class of shares and will vary from time to time depending on market
conditions, the composition of the Fund's portfolio, operating expenses of
the Fund and expenses allocated to a specific class of Fund shares. All
quoted investment results are historical and should not be considered
representative of what an investment in the Fund may earn in any future
period. For further information about the calculation methods and uses of the
Fund's investment results, see the Statement of Additional Information.
16
<PAGE>
Notes
17
<PAGE>
Notes
18
<PAGE>
THE PIONEER FAMILY OF MUTUAL FUNDS
International Growth Funds
Pioneer India Fund
Pioneer Emerging Markets Fund
Pioneer International Growth Fund
Pioneer Europe Fund
Growth Funds
Pioneer Gold Shares
Pioneer Growth Shares
Pioneer Capital Growth Fund
Growth and Income Funds
Pioneer Three
Pioneer II
Pioneer Fund
Pioneer Real Estate Shares
Pioneer Equity-Income Fund
Income Funds
Pioneer Income Fund
Pioneer Bond Fund
Pioneer America Income Trust
Pioneer Short-Term Income Trust
Tax-Free Income Funds
Pioneer California Double Tax-Free Fund*
Pioneer Massachusetts Double Tax-Free Fund*
Pioneer New York Triple Tax-Free Fund*
Pioneer Tax-Free Income Fund*
Pioneer Intermediate Tax-Free Fund*
Money Market Funds
Pioneer Tax-Free Money Fund*
Pioneer Cash Reserves Fund
Pioneer U.S. Government Money Fund
*Not suitable for retirement accounts
19
<PAGE>
[PIONEER LOGO]
Pioneer
Income
Fund
60 State Street
Boston, Massachusetts 02109
OFFICERS
JOHN F. COGAN, JR., Chairman and President
DAVID D. TRIPPLE, Executive Vice President
WILLIAM H. KEOUGH, Treasurer
JOSEPH P. BARRI, Secretary
INVESTMENT ADVISER
PIONEERING MANAGEMENT CORPORATION
PRINCIPAL UNDERWRITER
PIONEER FUNDS DISTRIBUTOR, INC.
CUSTODIAN
BROWN BROTHERS HARRIMAN & CO.
INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
LEGAL COUNSEL
HALE AND DORR
SHAREHOLDER SERVICES AND TRANSFER AGENT
PIONEERING SERVICES CORPORATION
60 State Street
Boston, Massachusetts 02109
Telephone: 1-800-225-6292
SERVICES INFORMATION
If you would like information on the following, please call:
Existing and new accounts, prospectuses,
applications, service forms
and telephone transactions .................................... 1-800-225-6292
FactFone(SM)
Automated fund yields, automated prices and
account information ........................................... 1-800-225-4321
Retirement plans ............................................... 1-800-622-0176
Toll-free fax .................................................. 1-800-225-4240
Telecommunications Device for the Deaf (TDD) ................... 1-800-225-1997
1095-2767
(C)Pioneer Funds Distributor, Inc.
PIONEER INCOME FUND
60 State Street
Boston, Massachusetts 02109
STATEMENT OF ADDITIONAL INFORMATION
Class A and Class B Shares
April 28, 1995
(revised October 9, 1995)
This Statement of Additional Information (Part B of the Registration
Statement) is not a Prospectus, but should be read in conjunction with the
Prospectus (the "Prospectus") dated April 28, 1995 (revised October 9, 1995) of
Pioneer Income Fund (the "Fund"). 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.
TABLE OF CONTENTS
Page
1. Investment Objective and Policies.................................B-2
2. Investment Restrictions...........................................B-4
3. Management of the Fund............................................B-5
4. Investment Adviser................................................B-10
5. Underwriting Agreement and Distribution Plans.....................B-12
6. Shareholder Servicing/Transfer Agent..............................B-14
7. Custodian.........................................................B-14
8. Principal Underwriter.............................................B-14
9. Independent Public Accountant.....................................B-15
10. Portfolio Transactions.............................................B-15
11. Tax Status and Dividends...........................................B-17
12. Shares of the Fund.................................................B-20
13. Determination of Net Asset Value...................................B-21
14. Systematic Withdrawal Plan.........................................B-22
15. Letter of Intention................................................B-23
16. Investment Results.................................................B-23
17. General Information................................................B-27
18. Financial Statements...............................................B-27
Appendix A........................................................B-28
Appendix B........................................................B-32
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED
OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
1. INVESTMENT OBJECTIVE AND POLICIES
See "Investment Objective, Policies and Risks" in the Prospectus for more
information concerning the investment objective and policies of the Fund.
Restricted and Illiquid Securities
In determining the liquidity of Rule 144A securities, the Fund's officers, under
guidelines established by the Fund's Board of Trustees, will consider: (1) the
unregistered nature of a Rule 144A security; and (2) any relevant factors
related to the marketability of the Rule 144A security, which may include: (a)
the frequency of trades and quotes for the security; (b) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (c) the willingness of dealers to undertake to make a market in the
security; and (d) the nature of the marketplace trades, including the time
needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer.
Since it is not possible to predict with assurance exactly how the market for
restricted securities sold and offered under Rule 144A will develop, the Board
will carefully monitor the Fund's investments in these securities, focusing on
such important factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
Writing Covered Call Options
The Fund does not invest in puts, calls, straddles, spreads or any combination
thereof. However, in order to attempt to preserve capital and increase income,
the Fund may write covered call options on securities if: (i) such calls are
listed on a national securities exchange; (ii) when any such call is written and
at all times prior to a closing purchase transaction as to such call, or its
lapse or exercise the Fund owns the securities which are subject to the call or
has the right to acquire such securities without the payment of further
consideration; and (iii) after any such call is written, not more than 25% of
the value of the Fund's total assets would be subject to calls; calls may be
purchased only to effect a "closing purchase transaction" as to any call written
in accordance with the foregoing.
The Fund will write only call options which are covered, which means that the
Fund will own the underlying security, or own securities convertible into or
carrying rights to acquire such securities without payment of additional
consideration, which are acceptable for escrow, when it writes the call option
and until the Fund's obligation to sell the underlying security is extinguished
by exercise or expiration of the call option or the purchase of a call option
covering the same underlying securities and having the same exercise price and
expiration date. The Fund will receive a premium for writing a call option, but
gives up, until the expiration date, the opportunity to profit from an increase
in the underlying security price above the exercise price. The Fund will retain
the risk of loss from a decrease in the price of the underlying security. The
writing of covered call options is a highly specialized activity which involves
investment techniques and risks different from those ordinarily associated with
investment companies. However, the restrictions and guidelines outlined on
writing covered call options tend to reduce such risks.
B-2
<PAGE>
The premium received by the Fund for writing a covered call option will be
recorded as a liability in the Fund's statement of assets and liabilities. This
liability will be adjusted daily to the option's current market value, which
will be the latest sale price at the close of the New York Stock Exchange, or,
in the absence of such sale, at the latest ask quotation. The liability will be
extinguished upon expiration of the option, the purchase of an identical option
in a closing transaction, or delivery of the underlying security upon exercise
of the option.
The Options Clearing Corporation ("OCC") is the issuer of, and the obligor on,
the covered call options written by the Fund. In order to secure the Fund's
obligation to deliver to the OCC the underlying security of a covered call
option which the Fund writes, it will be required to make escrow arrangements.
The Fund's Custodian, or a securities depository acting for the Custodian, will
act as the Fund's escrow agent, through the facilities of the OCC, as to the
securities on which the Fund has written calls or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC will
release the securities on the expiration of the calls or upon the Fund's
entering into a closing purchase transaction.
The Fund will purchase call options only to close out a covered call option it
has written. In instances where the Fund believes it is appropriate to close a
covered call option it has written, the Fund can close out the previously
written call option by purchasing a call option on the same underlying security
with the same exercise price and expiration date, a "closing purchase
transaction." A previously written call option can be closed out by purchasing
an identical call option on a national securities exchange which provides a
secondary market in the call option. There is no assurance that a liquid
secondary market will exist for a particular option at such time. If the Fund
cannot effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even though it
might otherwise be advantageous to do so. The Fund may also be able to transfer
a previously written call option if there is a secondary market for such an
option. There is no assurance that a liquid secondary market will exist for a
particular call option at such time.
If a substantial number of the call options written by the Fund are exercised,
the Fund's rate of portfolio turnover may exceed historical levels. This would
result in higher transaction costs, including brokerage commissions. The Fund
will pay brokerage commissions in connection with the writing of covered call
options and the purchase of call options to close out previously written
options. Such brokerage commissions are normally higher than those applicable to
purchases and sales of portfolio securities.
In the past the Fund has qualified for, and elected to receive, the special tax
treatment afforded regulated investment companies under Subchapter M of the
Internal Revenue Code. Although the Fund intends to continue to qualify for such
tax treatment, in order to do so it must, among other things, derive less than
30% of its annual gross income from gains from the sale or other disposition of
stocks, securities and options held for less than three months. Because of this,
the Fund may be restricted in the writing of call options where the underlying
securities have been held less than three months, the writing of covered call
options which expire in less than three months, and in effecting closing
purchase transactions with respect to options which were written less than three
months earlier. As a result, the Fund may elect to forego otherwise favorable
investment opportunities and may elect to avoid or delay effecting closing
purchase transactions or selling portfolio securities, with the risk that a
potential loss may be increased or a potential gain may be reduced or turned
into a loss.
B-3
<PAGE>
Portfolio Turnover Rate
The Fund will limit portfolio turnover to the extent practicable and consistent
with its investment objective and policies. In any event, the Fund does not
consider the rate of portfolio turnover a limiting factor where management
considers changes necessary. However, it is the Fund's general policy to achieve
its investment objective through long-term holdings of securities, and
therefore, it does not intend to engage generally in short-term trading. A
higher portfolio turnover rate may result in correspondingly higher transaction
costs.
2. INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The Fund considers the investment
objective, the investment policies under the captions "Restricted and Illiquid
Securities" and "Writing Covered Call Options," and the following restrictions
to be fundamental policies which cannot be changed without approval by a
"majority" of the Fund's outstanding voting securities (as such vote is defined
in Section 2(a)(42) of the Investment Company Act of 1940, as amended (the "1940
Act")) which means: (a) 67% or more of the voting securities present at a
special or annual meeting if the holders of more than 50% of the outstanding
voting securities of the Fund are present or represented by proxy; or (b) more
than 50% of the outstanding voting securities of the Fund, whichever is less.
All other investment policies are considered non-fundamental and may be changed
by approval of the Trustees without the vote of shareholders.
The Fund may not:
1. Concentrate the investment of its assets in any one industry or group of
industries and therefore will not invest more than 25% of its assets in any
one industry;
2. Purchase securities on margin, but it may obtain such short-term credits as
may be necessary for clearance of purchases and sales of securities;
3. Make short sales of securities unless at the time of such sale it owns or
has the right to acquire as a result of the ownership of convertible or
exchangeable securities, and without the payment of further consideration,
an equal amount of such securities which it will retain so long as it is in
a short position. At no time will more than 10% of the value of the Fund's
assets be committed to short sales;
4. Make loans of its assets, except that the Fund may purchase a portion of an
issue of bonds or other obligations of types commonly distributed publicly
to financial institutions, may purchase repurchase agreements in accordance
with its investment objective, policies and restrictions, and may make both
short-term (nine months or less) and long-term loans of its portfolio
securities to the extent of 40% of the value of the Fund's total assets
computed at the time of making such loans;
5. Borrow money except for temporary or emergency purposes in an amount up to
5% of the value of the Fund's assets;
6. Act as a securities underwriter or invest in real estate, commodities or
commodity contracts;
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7. Participate on a joint or joint-and-several basis in any securities trading
account;
8. 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: (i) more than 5% of the value of the Fund's total assets would then
be invested in securities of any single issuer, or (ii) the Fund would own
more than 10% of the voting securities of any single issuer;
9. Purchase securities of any company with a record of less than three years
continuous operation (including that of predecessors) if such purchase
would cause the Fund's investments in such companies taken at cost to
exceed 5% of the value of the Fund's assets, except holding companies or
companies formed by merger, where the operating companies have had at least
three years of continuous operation;
10. Purchase or retain the securities of any issuer if the officers and
trustees of the Fund or of its Investment Adviser who own individually or
beneficially more than 1/2 of 1% of the securities of such issuer together
own more than 5% of the securities of such issuer;
11. Purchase the securities of any other investment company, except that it may
make such a purchase as part of a merger, consolidation or acquisition of
assets; or
12. Enter into transactions with officers, trustees or other affiliated
persons of the Fund or its Investment Adviser or Underwriter, or any
organization affiliated with such persons, except securities transactions on an
agency basis at standard commission rates, as limited by the provisions of the
Investment Company Act of 1940, as amended.
Non-Fundamental Investment Restrictions. In addition to the foregoing
restrictions, the Fund may not purchase warrants of any issuer, if, as a result
of such purchases, more than 2% of the value of the Fund's total assets would be
invested in warrants which are not listed on the New York Stock Exchange or the
American Stock Exchange or more than 5% of the value of the total assets of the
Fund would be invested in warrants generally, whether or not so listed. For
these purposes, warrants are to be valued at the lesser of cost or market, but
warrants acquired by the Fund in units with or attached to debt securities shall
be deemed to be without value.
The Fund will not invest in oil, gas or other mineral exploration or development
programs or leases or purchase or sell real estate, including real estate
limited partnerships.
If a percentage restriction on investment or utilization of assets set forth in
any of the above is adhered to at the time an investment is made, a later change
in percentage resulting from changing values or a change in the rating of a
portfolio security will not be considered a violation of policy.
3. MANAGEMENT OF THE FUND
The 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
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and executive officers of the Fund are listed below, together with their
principal occupations during the past five years. An asterisk indicates those
Trustees who are interested persons of the Fund within the meaning of the 1940
Act.
JOHN F. COGAN, JR.*, President and Director of The
Chairman of the Board, Pioneer Group, Inc. ("PGI");
President and Trustee Chairman and
Director of Pioneering Management
Corporation ("PMC"); Chairman of the
Board and Chief Executive Officer of
Pioneer Winthrop Advisers ("PWA")
since 1993; Chairman of the Board of
Pioneer Funds Distributor, Inc.
("PFD"); Director of Pioneering
Services Corporation ("PSC") and
Pioneer Capital Corporation ("PCC");
President and Director of Pioneer
Plans Corporation ("PPC"), Pioneer
Investment Corp. ("PIC"), Pioneer
International Corp. ("PIntl"), and
Pioneer Metals & Technology, Inc.
("PMT"); Chairman of the Board and
Director of Teberebie Goldfields
Limited; President and Director of
Pioneer Goldfields Limited ("PGL");
Chairman of the Supervisory Board of
Pioneer Fonds Marketing GmbH;
Chairman and President of the
Pioneeer mutual funds and Chairman
and Partner, Hale and Dorr (counsel
to the Fund).
RICHARD H. EGDAHL, M.D., Professor of Management, Boston
Trustee University School of Management,
Boston University since 1988; Professor of Public
Health Policy Health, Boston University School of
Institute Public Health; Professor of Surgery,
53 Bay State Road Boston University School of Medicine
Boston, Massachusetts and Boston
University Health Policy Institute;
Director, Boston University Medical
Center; Executive Vice President and
Vice Chairman of the Board,
University Hospital; Academic Vice
President for Health Affairs, Boston
University; Director, Essex
Investment Management Company, Inc.
(investment adviser), Health Payment
Review, Inc. (health care containment
software firm), Mediplex Group, Inc.
(nursing care facilities firm), Peer
Review Analysis, Inc. (health care
utilization management firm);
Springer-Verlag New York, Inc.
(publisher); Honorary Trustee,
Franciscan Children's Hospital and
Trustee of all the Pioneer mutual
funds.
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<PAGE>
MARGARET B.W. GRAHAM, Manager of Research Operations,
Trustee Xerox Palo Alto Research Center,
The Keep since September 1991; Professor of
Post Office Box 110 Operations Management and Management
Little Deer Isle, Maine of
Technology, Boston University School
of Management ("BUSM"), since 1989;
Associate Dean, BUSM, 1988 to 1990;
previously, Associate Professor,
Department of Operations Management,
BUSM and Trustee of all the Pioneer
mutual funds, except Pioneer Variable
Contracts Trust.
JOHN W. KENDRICK, Professor Emeritus and Adjunct
Trustee Scholar, George Washington
6363 Waterway Drive University; Economic Consultant and
Falls Church, Virginia Director, American Productivity
and Quality Center; American
Enterprise Institute and Trustee of
all the Pioneer mutual funds, except
Pioneer Variable Contracts Trust.
MARGUERITE A. PIRET, President, Newbury, Piret & Company,
Trustee Inc. (a merchant banking firm);
One Boston Place, Trustee of all the Pioneer mutual
Suite 2363 funds.
Boston, Massachusetts
DAVID D. TRIPPLE*, Executive Vice President and
Trustee and Executive Director of PGI and PWA since 1993;
Vice President Director of PFD, since
1989; Director of PCC, PIC, Pintl,
and Corporation; President (since
1993); Director, President and, Chief
Investment Officer of PMC and Trustee
of all the Pioneer mutual funds.
STEPHEN K. WEST, Partner, Sullivan & Cromwell (a law
Trustee firm); Trustee, The Winthrop Focus
125 Broad Street Funds (mutual funds) and Trustee of
New York, New York all the Pioneer mutual funds.
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<PAGE>
JOHN WINTHROP, President, John Winthrop & Co., Inc.
Trustee (a private investment firm); Director
One North Adgers Wharf of NUI Corp; Trustee of
Charleston, South Carolina Alliance
Capital Reserves, Alliance Government
Reserves and Alliance Tax Exempt
Reserves and Trustee of all the
Pioneer mutual funds, except Pioneer
Variable Contracts Trust.
JOHN A. CAREY Vice President, PMC.
Vice President
WILLIAM H. KEOUGH, Senior Vice President, Chief
Treasurer Financial Officer and
Treasurer of PGI; Treasurer of PFD,
PMC, PSC, PCC, PPC, and Pioneer SBIC
Corporation; Treasurer and Director
of PPC and Treasurer of all the
Pioneer mutual funds.
JOSEPH P. BARRI, Secretary of PGI, PMC, PPC,
Secretary PIC and PCC; Clerk of PFD
and PSC and Partner, Hale and Dorr
(counsel to the Fund) and Secretary
of all the Pioneer mutual funds.
ROBERT NAULT, General Counsel of PGI since 1995;
Assistant Secretary formerly of
Hale and Dorr (counsel to the Trust)
where he most recently served as a
junior partner; Assistant Secretary
of all the Pioneer mutual funds.
ERIC W. RECKARD, Manager of Fund Accounting and
Assistant Treasurer Compliance of PMC
since 1994; Manager of Auditing and
Business Analysis of PGI (until
1994); Assistant Treasurer of all the
Pioneer mutual funds.
The Fund's Declaration of Trust provides that the holders of two-thirds of its
outstanding shares may vote to remove a Trustee of the Fund at any special
meeting of shareholders. The business address of all officers is 60 State
Street, Boston, Massachusetts 02109.
All of the outstanding capital stock of PMC and PSC is owned by PGI, a Delaware
corporation. All the outstanding capital stock of PFD is indirectly owned by
PGI. The table below lists all the Pioneer Funds, including the Fund, currently
offered to the public and the investment adviser and principal underwriter for
each fund.
B-8
<PAGE>
The table below lists all the Pioneer mutual funds currently offered to the
public and the investment adviser and principal underwriter for each fund.
Investment Principal
Fund Name Adviser Underwriter
Pioneer Fund PMC PFD
Pioneer II PMC PFD
Pioneer Three PMC PFD
Pioneer Growth Shares PMC PFD
Pioneer Capital Growth Fund PMC PFD
Pioneer Equity-Income Fund PMC PFD
Pioneer Gold Shares PMC PFD
Pioneer Real Estate Shares PMC PFD
Pioneer Europe Fund PMC PFD
Pioneer International Growth Fund PMC PFD
Pioneer India Fund Note 1 PFD
Pioneer Emerging Markets Fund PMC PFD
Pioneer Bond Fund PMC PFD
Pioneer America Income Trust PMC PFD
Pioneer Short-Term Income Fund PMC PFD
Pioneer Income Fund PMC PFD
Pioneer Tax-Free Income Fund PMC PFD
Pioneer Intermediate Tax-Free Fund PMC PFD
Pioneer California Double Tax-Free Fund PMC PFD
Pioneer New York Triple Tax-Free Fund PMC PFD
Pioneer Massachusetts Double Tax-Free Fund PMC PFD
Pioneer Cash Reserves Fund PMC PFD
Pioneer U.S. Government Money Fund PMC PFD
Pioneer Tax-Free Money Fund PMC PFD
Pioneer Interest Shares, Inc. PMC Note 2
Pioneer Variable Contracts Trust PMC Note 3
- -------------
Note 1 ITI Pioneer AMC Ltd. manages the Fund's investments in India, and PMC
manages all of the Fund's other investments
Note 2 This is a closed-end fund and it is underwritten by Mellon Bank.
Note 3 This is a series of seven 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.
PMC, the Fund's investment adviser, also manages the investments of certain
institutional private accounts. Messrs. Cogan, Tripple, Keough and Barri,
officers and/or Trustees of the Fund, are also officers and/or directors of PFD,
PMC, PSC and PGI. As of March 31, 1995, to the knowledge of the Fund, no officer
or Trustee of the Fund owned 5% or more of the issued and outstanding shares of
PGI, except Mr. Cogan who then owned approximately 15% of such shares. As of
March 31, 1995, the officers and trustees held in aggregate less than 1% of the
outstanding shares of the Fund. As of March 31, 1995, to the knowledge of the
Fund, no person beneficially owned 5% or more of the outstanding shares of the
Fund.
B-9
<PAGE>
Compensation of Officers and Trustees
The Fund pays no salaries or compensation to any of its officers. The Fund pays
an annual fee of $1,000 plus $100 per meeting attended to each Trustee who is
not affiliated with PMC, PFD or PSC. The Fund pays the Chairman of the Audit
Committee an annual fee of $250 and pays each member of the Audit Committee an
annual fee of $200. All Trustees are reimbursed for expenses incurred in
attending Trustee and committee meetings. The Fund also pays an annual trustees'
fee of $500 plus expenses to each Trustee affiliated with PMC, PSC or PFD. Any
such fees and expenses paid to affiliates or interested persons of PMC, PFD or
PSC are reimbursed to the Fund under its Management Contract.
The following table sets forth certain information with respect to the
compensation of each Trustee of the Fund:
Pension or Total
Retirement Compensation
Benefits from Fund and
Aggregate Accrued as Pioneer
Name of Trustee Compensation Fund's Expenses of Funds **
John F. Cogan, Jr. $ 500 $0 $11,750
David D. Tripple 500 0 11,750
Richard H. Egdahl, M.D. 3,200 0 55,650
Margaret B.W. Graham 3,200 0 55,650
John W. Kendrick 3,200 0 55,650
Marguerite A. Piret 3,500 0 66,650
Stephen K. West 3,400 0 63,650
John Winthrop 3,400 0 63,650
* As of Fund's fiscal year end.
** As of December 31, 1994 (calendar year end for all Pioneer Funds).
4. INVESTMENT ADVISER
As stated in the Prospectus, PMC, 60 State Street, Boston, Massachusetts, serves
as the Fund's investment adviser. PMC became the Fund's investment adviser on
December 1, 1993. Prior to that date, Mutual of Omaha Fund Management Company
("FMC") served as the Fund's investment adviser. The management contract with
PMC is renewable annually by the vote of a majority of the Board of Trustees of
the Fund (including a majority of the Board of Trustees who are not parties to
the contract or interested persons of any such parties) cast in person at a
meeting called for the purpose of voting on such renewal. This contract
terminates if assigned and may be terminated without penalty by either party by
vote of its Board of Trustees or a majority of its outstanding voting securities
and the giving of 60 days' written notice.
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<PAGE>
As compensation for its management services and expenses incurred, PMC is
entitled to a management fee at the following rates per annum of the Fund's
average daily net assets. The fee is computed and accrued daily and paid
monthly.
Net Assets Annual Rate
For assets up to $250,000,000..................................0.50%
For assets in excess of $250,000,000 to $300,000,000...........0.48%
Over $300,000,000..............................................0.45%
PMC has agreed that until December 1, 1995, its fee shall not exceed the fee
that would have been payable under the previous management contact with FMC,
without giving effect to any expense limitation. Under the previous management
contract with FMC, which was terminated on December 1, 1993, the Fund paid FMC a
management fee at an annual rate equal to the following percentages of the
Fund's average daily net assets:
Net Assets Annual Rate
For assets up to and including $100,000,000...................0.50%
For assets over $100,000,000 but not over $200,000,0000.......0.48%
For assets over $200,000,000 but not over $300,000,000........0.46%
For assets over $300,000,000 but not over $400,000,000........0.44%
For assets over $400,000,000 but not over $500,000,000........0.42%
For assets over $500,000,000..................................0.40%
PMC has agreed that if in any fiscal year the aggregate expenses of the Fund
exceed the expense limitation established by any state having jurisdiction over
the Fund, PMC will reduce its management fee to the extent required by state
law. The most restrictive state expense limit currently applicable to the Fund
provides that the Fund's expenses in any fiscal year may not exceed 2.5% of the
first $30 million of average daily net assets, 2.0% of the next $70 million of
such assets and 1.5% of such assets in excess of $100 million.
The Fund paid $1,079,037 in management fees to FMC for the fiscal year ended
December 31, 1992 and $1,228,585 for the period from January 1 to November 30,
1993. The Fund paid $121,129 in management fees to PMC for the period from
December 1 to December 31, 1993. The Fund paid $1,341,020 in management fees to
PMC for the fiscal year ended December 31, 1994.
Under the previous management contract with FMC, FMC agreed to reimburse the
Fund quarterly for all expenses (excluding interest, brokerage commissions,
taxes and extraordinary expenses) incurred in each year by the Fund in excess of
1.50% of the first $30,000,000 of the Fund's average daily net assets plus 1.00%
of any net additional net assets, up to an amount not exceeding its management
fees for the period for which reimbursements, if any, is made. No excess
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<PAGE>
reimbursement was paid by FMC or PMC to the Fund for the fiscal years ended
December 31, 1992, 1993 or 1994.
5.UNDERWRITING AGREEMENT AND DISTRIBUTION PLANS
The Fund entered into an Underwriting Agreement with PFD. Prior to that date,
FMC served as the Fund's principal underwriter. The Underwriting Agreement will
continue from year to year if annually approved by the Trustees. The
Underwriting Agreement provides that PFD will bear certain distribution expenses
not borne by the Fund.
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.
The Fund and PFD have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Under the Underwriting Agreement, PFD will use its best efforts in rendering
services to the Fund.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act with respect to Class A Shares (the "Class A Plan") and a plan of
distribution with respect to Class B Shares (the "Class B Plan") (together, the
"Plans").
Class A Plan
Pursuant to the Class A Plan, the Fund may reimburse PFD for its expenditures in
financing any activity primarily intended to result in the sale of Fund shares.
Certain categories of such expenditures have been approved by the Board of
Trustees and are set forth in the Prospectus under the caption "Distribution
Plans." The expenses of the Fund pursuant to the Class A Plan are accrued on a
fiscal year basis and may not exceed the annual rate of 0.25% of the Fund's
average daily net assets attributable to Class A.
Class B Plan
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. 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. Dealers will become eligible for additional service fees with
respect to such shares commencing in the thirteenth month following purchase.
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<PAGE>
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 to 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 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 CDSCs
attributable to Class B shares. (See "Distributions Plans" in the Prospectus.)
General
In accordance with the terms of the Plans, PFD provides to the Fund for review
by the Trustees a quarterly written report of the amounts expended under the
respective Plan and the purpose for which such expenditures were made. In the
Trustees' quarterly review of the Plans, they will consider the continued
appropriateness and the level of reimbursement or compensation the Plans
provide.
No interested person of the Fund, nor any Trustee of the Fund who is not an
interested person of the Trust, 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.
The Plans were adopted by a majority vote of the Board of Trustees, including
all of the Trustees who are not, and were not at the time they voted, interested
persons of the Fund, as defined in the 1940 Act (none of whom had or have any
direct or indirect financial interest in the operation of the Plan), cast in
person at a meeting called for the purpose of voting on the Plans. In approving
the Plans, the Trustees identified and considered a number of potential benefits
which the Plans may provide. The Board of Trustees believes that there is a
reasonable likelihood that the Plans will benefit the Fund and its current and
future shareholders. Under their terms, the Plans remain in effect from year to
year provided such continuance is approved annually by vote of the Trustees in
the manner described above. 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 to the Plans must also be approved by
the Trustees in the manner described above. A Plan may be terminated at any
time, without payment of any penalty, by vote of the majority of the Trustees
who are not interested persons of the Fund and have no direct or indirect
financial interest in the operations of the Plan, or by a vote of a majority of
the outstanding voting securities of the respective Class of the Fund (as
defined in the 1940 Act). The Plan will automatically terminate in the event of
its assignment (as defined in the 1940 Act). In the Trustees' quarterly review
of the Plan, they will consider its continued appropriateness and the level of
compensation it provides.
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<PAGE>
During the fiscal year ended December 31, 1994, the Fund incurred total
distribution fees pursuant to the Fund's Class A Plan of $696,271. Distribution
fees were paid by the Fund to PFD in reimbursement of expenses related to
servicing of shareholder accounts and to compensate dealers and sales personnel.
6.SHAREHOLDER SERVICING/TRANSFER AGENT
The Fund has contracted with PSC, 60 State Street, Boston, Massachusetts, to act
as shareholder servicing agent and transfer agent for the Fund. This contract
terminates if assigned and may be terminated without penalty by either party by
vote of its Board of Trustees or a majority of its outstanding voting securities
and the giving of ninety days' written notice.
Under the terms of its contract with the Fund, PSC will service shareholder
accounts, and its duties will include: (i) processing sales, redemptions and
exchanges of shares of the Fund; (ii) distributing dividends and capital gains
associated with Fund portfolio accounts; and (iii) maintaining account records
and responding to routine shareholder inquiries.
PSC receives an annual fee of $22.00 per Class A and Class B shareholder account
from the Fund as compensation for the services described above. This fee is set
at an amount determined by vote of a majority of the Trustees (including a
majority of the Trustees who are not parties to the contract with PSC or
interested persons of any such parties) to be comparable to fees for such
services being paid by other investment companies.
7.CUSTODIAN
Brown Brothers Harriman & Co. (the "Custodian"), 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. The Custodian also provides
fund accounting, bookkeeping and pricing assistance to the Fund.
The Custodian does not determine the investment policies of the Fund or decide
which securities it will buy or sell. The Fund may invest in securities issued
by the Custodian, deposit cash in the Custodian and deal with the Custodian as a
principal in securities transactions. Portfolio securities may be deposited into
the federal Reserve-Treasury Department Book Entry System or the Depository
Trust Company.
8.PRINCIPAL UNDERWRITER
PFD, 60 State Street, Boston, Massachusetts, serves as the principal underwriter
for the Fund in connection with the continuous offering of the Class A and Class
B shares of each Fund. Under the Fund's previous underwriting agreement with
FMC, FMC received $2,537,827 and $2,376,000 in aggregate underwriting
commissions for the fiscal year ended December 31, 1992, for the period from
January 1 to November 30, 1993, of which $329,153 and $216,280 was retained,
respectively. Under the Fund's current Underwriting Agreement with PFD, PFD
received $123,000 and $1,501,540, respectively, in aggregate underwriting
commissions for the period from December 1 through December 31, 1993 and for the
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<PAGE>
fiscal year ended December 31, 1994 of which $15,107 and $120,501, respectively,
was retained.
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 (other than
municipal debt securities issued by state political subdivisions or their
agencies or instrumentalities) provided (i) the securities meet the investment
objective and policies of the Fund; (ii) the securities are acquired by the Fund
for investment and not for resale; (iii) the securities are not restricted as to
transfer either by law or liquidity of market; and (iv) the securities have a
value which is readily ascertainable (and not established only by evaluation
procedures) as evidenced by a listing on the American Stock Exchange or the New
York Stock Exchange or the NASDAQ National Market.
9.INDEPENDENT PUBLIC ACCOUNTANT
Effective January 1, 1994, Arthur Andersen LLP (formerly Arthur Andersen & Co.),
One International Place, Boston, MA 02110, was selected as the independent
public accountant for the Fund. Previously, Coopers & Lybrand had served as
independent public accountant to the Fund. Arthur Andersen's election as
independent public accountant was approved, at a meeting called for the purpose
of voting on such approval, by the vote of a majority of those Trustees on the
Board of Trustees who are not interested persons of the Fund.
10.PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on behalf
of the Fund by PMC pursuant to authority contained in the Fund's management
contract. In selecting broker-dealers, PMC will consider various relevant
factors, including, but not limited to, the size and type of the transaction;
the nature and character of the markets for the security to be purchased or
sold; the execution efficiency, settlement capability, and financial condition
of the broker-dealer; the broker-dealer's execution services rendered on a
continuing basis; and the reasonableness of any broker-dealer spreads.
PMC may select broker-dealers which provide brokerage and/or research services
to the Fund and/or other investment companies managed by PMC or who sell shares
of the Pioneer Funds. In addition, if PMC 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-dealer,
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; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). PMC maintains a listing
of broker-dealers who provide such services on a regular basis. However, because
it is anticipated that many transactions on behalf of the Fund and other
investment companies managed by PMC are placed with broker-dealers (including
broker-dealers on the listing) without regard to the furnishing of such
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<PAGE>
services, it is not possible to estimate the proportion of such transactions
directed to such broker-dealers solely because such services were provided.
The research received from broker-dealers may be useful to PMC in rendering
investment management services to the Fund as well as other investment companies
managed by PMC, 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 PMC clients may be useful to PMC in
carrying out its obligations to the Fund. The receipt of such research has not
reduced PMC's normal independent research activities; however, it enables PMC 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 or accounts managed by
PMC. This policy does not imply a commitment to execute all portfolio
transactions through all broker-dealers that sell shares of the Fund.
The Board of Trustees periodically reviews PMC's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund.
In addition to the Fund, PMC also acts as investment adviser or subadviser to
the other Pioneer Funds and certain private accounts with investment objectives
similar to that of the Fund. Securities frequently meet the investment objective
of the Fund, such other 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 Fund,
another Pioneer Fund, Pioneer Interest Shares, Inc. or a private account managed
by PMC may not be able to acquire as large a position in such security as it
desires, 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 PMC 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 or the account. 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.
The Fund paid brokerage or underwriting commissions of approximately $8,300,
$66,000, and $78,278, respectively, for the fiscal years ended December 31,
1992, 1993 and 1994.
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11.TAX STATUS AND DIVIDENDS
The Fund's policy is to pay dividends quarterly from net investment income to
shareholders of record in the latter part of March, June, September and December
and to distribute net realized capital gains, if any, once a year. Additional
distributions may be made for the purpose of avoiding liability for federal
income or excise tax.
It is the Fund's policy to meet the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company. These requirements relate to the sources of the Fund's
income, the diversification of its assets, and the timing of its distributions
to shareholders. If the Fund meets all such requirements and distributes to its
shareholders, in accordance with the Code's timing requirements, all investment
company taxable income and net capital gain, if any, which it receives, the Fund
will be relieved of the necessity of paying federal income tax.
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, whether
received in cash or in additional shares. Dividends from net long-term capital
gain in excess of net short-term capital loss, if any, whether received in cash
or additional shares, are taxable to the Fund's shareholders as long-term
capital gains for federal income tax purposes without regard to the length of
time shares of the Fund have been held. The federal income tax status of all
distributions will be reported to shareholders annually.
Any dividend declared by the Fund in October, November or December as of a
record date in such a month and paid during the following January will be
treated for federal income tax purposes as received by shareholders on December
31 of the calendar year in which it is declared.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currencies, or payables or receivables denominated in a foreign currency
are subject to Section 988 of the Code, which generally causes such gains and
losses to be treated as ordinary income and losses and may affect the amount,
timing and character of distributions to shareholders.
If the Fund acquires stock in certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) 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. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
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The Fund may invest in debt obligations that are in the lower rating categories
or are unrated. Investments in debt obligations that are at risk of default
present special tax issues for the Fund. Tax rules are not entirely clear about
issues such as when the Fund may cease to accrue interest, original issue
discount, or market discount, when and to what extent deductions may be taken
for bad debts or worthless securities, how payments received on obligations in
default should be allocated between principal and income, and whether exchanges
of debt obligations in a workout context are taxable. These and other issues
will be addressed by the Fund, in the event it invests in such securities, in
order to ensure that it distributes sufficient income to preserve its status as
a regulated investment company and to avoid becoming subject to federal income
or excise tax.
If the Fund invests in certain PIKs, zero coupon 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 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.
At the time of an investor's purchase of Fund shares, a portion of the purchase
price is often attributable to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares and the distributions in reality represent a
return of a portion of the investment.
Any loss realized upon the redemption 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 at net asset value pursuant to
the reinvestment privilege, the sales charge paid on such shares is not included
in their tax basis under the Code, and (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 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 certain
redemptions may be disallowed under "wash sale" rules in the event of other
investments in the Fund within a period of 61 days beginning 30 days before and
ending 30 days after a redemption or other sale of shares.
For federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset 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. The
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Fund has $1,121,099, of capital carryforwards, which expire in 2002, available
to offset future capital gains.
Certain options written by the Fund on portfolio securities may cause
the Fund to recognize gains or losses from marking-to-market at the end of its
taxable year even though such options may not have lapsed, been closed out, or
exercised and may affect the characterization as long-term or short-term of some
capital gains and losses realized by the Fund. Gains or losses from the lapse or
closing out of options written by the Fund may be treated as short-term capital
gains or losses under Section 1234 of the Code or, in the case of options
subject to Section 1256, all gains or losses may be treated as 60% long-term and
40% short-term capital gains or losses. Losses on certain options 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) 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. The effect
of these rules may be mitigated to the extent the Fund limits its options
writing to "qualified covered call options" on portfolio stock. The tax rules
applicable to options and straddles may affect the amount, timing and character
of the Fund's income and loss and hence of its distributions to shareholders.
For purposes of the 70% dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of any share of stock with a tax holding period of at least 46 days (91
days in the case of certain preferred stock) 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. Corporate shareholders must meet the minimum holding period
requirement stated above (46 or 91 days), taking into account any holding-period
reductions from certain hedging or other transactions that diminish risk of
loss, with respect to their Fund shares in order to qualify for the deduction
and, if they borrow to acquire Fund shares, 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 with respect to its investments in those countries. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes. The
Fund will not satisfy the requirements for passing through to shareholders their
pro rata shares of foreign taxes paid by the Fund, with the result that its
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.
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 31% of reportable payments,
including dividends, capital gain dividends, and the proceeds of redemptions
(including exchanges) and repurchases, to shareholders who have not complied
with IRS regulations. In order to avoid this withholding requirement,
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shareholders must certify on their Account Applications, or on separate W-9
Forms, that the Social Security 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.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will not be required to pay any Massachusetts income, corporate excise
or franchise taxes, and, subject to compliance with certain income-source
requirements under Delaware law, it should also not be required to pay Delaware
corporation income tax.
The description above relates only to U.S. federal income tax consequences for
shareholders who are U.S. persons, i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates, and who are subject to
U.S. federal income tax. The description does not address the special tax rules
applicable to certain classes of investors, such as banks, insurance companies,
or tax-exempt entities. Investors other than U.S. persons may be subject to
different U.S. tax treatment, including a possible 30% U.S. withholding tax (or
withholding tax at a lower treaty rate) on amounts treated as ordinary dividends
from the Fund, and unless an effective IRS Form W-8 or authorized substitute is
on file, to 31% backup withholding on certain other payments from the Fund.
Shareholders should consult their own tax advisors on these matters and on
state, local and other applicable tax laws.
12. SHARES OF THE FUND
General
The Fund is an open-end investment company established as a Nebraska corporation
in 1968 and reorganized as a Delaware business trust in June 1994. Prior to
December 1, 1993, the Fund was known as Mutual of Omaha Income Fund, Inc. and
prior to June 30, 1994, the Fund was known as Pioneer Income Fund, Inc.
Reference to the Fund includes both the Delaware business trust and the Nebraska
corporation. The Board of Trustees of the Fund, as of the date of this Statement
of Additional Information, has authorized the issuance of two classes of shares,
Class A and Class B.
Unless otherwise required by the 1940 Act or the Agreement and Declaration of
Trust (the "Declaration of Trust"), the Fund has no intention of holding annual
meetings of shareholders. Shareholders may remove a Trustee by the affirmative
vote of at least two-thirds of the Fund's outstanding shares and the Trustees
shall promptly call a meeting for such purpose when requested to do so in
writing by the record holders of not less than 10% of the outstanding shares of
the Trust. Shareholders may, under certain circumstances communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
The Declaration of Trust permits the issuance of series of shares in addition to
the Fund which would represent interests in separate portfolios of investments.
No series would be entitled to share in the assets of any other series or be
liable for the expenses or liabilities of any other series.
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In addition to the requirements under Delaware law, the Declaration of Trust
provides that shareholders 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 to
investigate the basis of such claim. The Trustees shall be entitled to retain
counsel or other advisers in considering the merits of the request and shall
require an undertaking by the shareholders making such request to reimburse the
Fund for the expense of any such advisers in the event that the Trustees
determine not to bring such action.
Shareholder and Trustee Liability
The Fund is organized as a Delaware business trust, and, under Delaware law, the
shareholders of such a trust are not generally subject to liability for the
debts or obligations of the Trust. Similarly, Delaware law provides that the
Fund will not be liable for the debts or obligations of any other series of the
Trust. However, no similar statutory or other authority limiting business trust
shareholder liability exists in many other states. As a result, to the extent
that a Delaware business trust or a shareholder is subject to the jurisdiction
of courts in such other states, the courts may not apply Delaware law and may
thereby subject the Delaware business trust shareholders to liability. To guard
against this risk, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund. Notice of such
disclaimer will normally be given in each agreement, obligation or instrument
entered into or executed by the Fund or a Trustee. The Declaration of Trust
provides for indemnification by the Fund for any loss suffered by a shareholder
as a result of an obligation of the Fund. The Declaration of Trust also 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. The Trustees believe that, in view of the above, the risk of personal
liability of shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
13.DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of the Fund is determined as of the
close of regular trading on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m., Eastern Time) on each day the Exchange is open for
business. 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, 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 in 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
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its portfolio securities. On any day in which no purchase orders for the shares
of the Fund become effective and no shares are tendered for redemption, the
Fund's net asset value per share may not be determined.
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 it by the number of
outstanding shares of the class. For purposes of determining net asset value,
expenses of classes of the Fund are accrued daily and taken into account.
In determining the value of the assets of the Fund for the purpose of obtaining
the net asset value, securities listed or traded on a national or foreign
securities exchange shall be valued at their last sales price on the day of
valuation or, if there are no sales on that day, at the latest bid quotation.
Equity securities traded over-the-counter for which the last sales price on the
day of valuation is available shall be valued at that price. All other
over-the-counter equity securities for which reliable quotations are readily
available shall be valued at their latest bid quotation. Convertible securities
traded over-the-counter 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 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 shares
are offered at net asset value without the imposition of an initial sales
charge.
14.SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan ("SWP"), which is available for Class A Shares
only, is designed to provide a convenient method of receiving fixed payments at
regular intervals from shares of the Fund deposited by the applicant under this
SWP. The applicant must deposit or purchase for deposit with PSC shares of the
Fund having a total value of not less than $10,000. Periodic checks of $50 or
more will be sent to the applicant, or any person designated by him, monthly or
quarterly. A designation of a third party to receive checks requires an
acceptable signature guarantee. The CDSC on any share subject to a CDSC (See
"How to Buy Fund Shares" in the Prospectus) may be waived or reduced for
non-retirement accounts if the redemption is made in connection with a SWP
(limited in any year to 10% of the value of the account at the time the
withdrawal plan is established).
Any income dividends or capital gains distributions on shares under the SWP will
be credited to the SWP account on the payment date in full and fractional shares
at the net asset value per share in effect on the record date.
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SWP payments are made from the proceeds of the redemption of shares deposited
under the SWP in a SWP account. Redemptions are taxable transactions to
shareholders. To the extent that such redemptions for periodic withdrawals
exceed dividend income reinvested in the SWP account, such redemptions will
reduce and may ultimately exhaust the number of shares deposited in the SWP
account. In addition, the amounts received by a shareholder cannot be considered
as an actual yield or income on his or her investment because part of such
payments may be a return of his or her investment.
The 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 under the SWP have been redeemed.
15. LETTER OF INTENTION
Purchases in the Fund of $100,000 or over of Class A Shares (excluding any
reinvestments of dividends and capital gains distributions) made within a
13-month period pursuant to a Letter of Intention provided to PFD will qualify
for a reduced sales charge. Such reduced sales charge will be the charge that
would be applicable to the purchase of all Class A Shares purchased during such
13-month period pursuant to a Letter of Intention had such shares been purchased
all at once. See "How to Buy Fund Shares" in the Prospectus. For example, a
person who signs a Letter of Intention providing for a total investment in Fund
Class A Shares of $100,000 over a 13-month period would be charged at the 3.50%
sales charge rate with respect to all purchases during that period. Should the
amount actually purchased during the 13-month period be more or less than that
indicated in the Letter, an adjustment in the sales charge will be made. A
purchase not made pursuant to a Letter of Intention may be included thereafter
if the Letter is filed within 90 days of such purchase. Any shareholder may also
obtain the reduced sales charge by including the value (at current offering
price) of all his Class A Shares in the Fund and other Pioneer funds held of
record as of the date of his or her Letter of Intention as a credit toward
determining the applicable scale of sales charge for the Class A Shares to be
purchased under the Letter of Intention.
The Letter of Intention authorizes PSC to escrow Class A Shares having a
purchase price equal to 5% of the stated investment specified in the Letter of
Intention. A Letter of Intention is not a binding obligation upon the investor
to purchase, or the Fund to sell, the full amount indicated and the investor
should carefully read the provisions of the Letter of Intention set forth in the
Account Application before signing.
16. INVESTMENT RESULTS
Other 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 other relevant indices. For example, the Fund may compare its yield to the
Shearson Lehman Hutton Government Index, U.S Government bond rates, or other
comparable indices or investment vehicles. In addition, the performance of the
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classes of the Fund may be compared to alternative investment or savings
vehicles and/or to indices or indicators of economic activity, e.g., inflation
or interest rates. Data for economic indicators may come from Bloomberg
Financial Systems, Towers Data Systems, the financial press and other sources.
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, 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
CDA/Weisenberger, Donoghue's Mutual Fund Almanac, Ibbotson Associates Investment
Company Data, Inc., Johnson's Charts, Kanon Bloch Carre and Co., Lipper
Analytical Services, Inc., Micropal, Inc., Morningstar, Inc., Schabacker
Investment Management and Towers Data Systems, Inc.
The Fund's yield quotations and average annual total return quotations as they
may appear in the Prospectus, this Statement of Additional Information or in
advertising are calculated by standard methods prescribed by the Securities and
Exchange Commission.
Standardized Yield Quotations
The Fund's yield is computed by dividing the Fund's net investment income per
share during a base period of 30 days, or one month, by the maximum offering
price per share of the Fund on the last day of such base period in accordance
with the following formula:
......... a-b
......... YIELD = 2[ ( ----- +1)6-1]
......... 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
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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 discount or premium
remaining on a security.
The Fund's 30-day SEC yield for the period ended December 31, 1994 was 6.94%.
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 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
gains 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.
Average annual total return quotations for Class A and Class B Shares are
computed by finding the average annual compounded rates of return that would
cause a hypothetical investment in the class made on the first day of a
designated period (assuming all dividends and distributions are reinvested) to
equal the ending redeemable value of such hypothetical investment on the last
day of the designated period in accordance with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1000, less the maximum
sales load for Class A Shares or the deduction of the CDSC
on Class B Shares at the end of the period.
T = average annual total return
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n = number of years
ERV = ending redeemable value of the hypothetical $1000 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 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 Fund's mean
account size.
The Fund's average annual total returns, with respect to Class A Shares, for the
one- , five-, ten-year and life-of-fund periods ended December 31, 1994 were
- -8.60%, 5.90%, 9.62% and 8.08%, respectively.
Automated Information Line (FactFone)
FactFoneSM, Pioneer's 24-hour automated information line, allows shareholders to
dial toll-free 1-800-225-4321 and hear recorded fund information, including:
o net asset value prices for all Pioneer funds;
o annualized 30-day yields on Pioneer's bond funds;
o annualized 7-day yields and 7-day effective (compound) yields for
the Pioneer money market funds; and
o dividends and capital gains distributions on all funds.
Yields are calculated in accordance with SEC mandated standard
formulas.
In addition, by using a personal identification number ("PIN"), shareholders may
may enter purchases, exchanges and redemptions, access their account balance and
last three transactions and may order a duplicate statement. See "FactFoneSM" in
the Prospectus for more information.
All performance numbers communicated through FactFoneSM represent past
performance, and figures for all bond funds 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 and Class B Shares will also vary, and
such shares may be worth more or less at redemption than their original cost.
B-26
<PAGE>
17. GENERAL INFORMATION
The Fund is registered with the SEC as a diversified open-end management
investment company. Such registration does not involve supervision by the SEC of
the management or policies of the Fund. For further information with respect to
the Fund and the securities offered hereby, reference is made to the
registration statement filed with the SEC, including all exhibits thereto.
Annual and semiannual reports of the Fund are mailed to each shareholder.
18. FINANCIAL STATEMENTS
The audited financial statements and related report of Arthur Andersen LLP
contained in the Fund's 1994 Annual Report are attached hereto. A copy of the
Annual Report which is incorporated by reference herein may be obtained without
charge by calling Shareholder Services at 1-800-225-6292 or by written request
to the Fund at 60 State Street, Boston, Massachusetts 02109.
B-27
<PAGE>
APPENDIX A
MOODY'S CORPORATE BOND 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 edge."
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 greater amplitude or there may be other elements present which make the
long term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A posses many favorable investment attributes 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
other 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.
B-28
<PAGE>
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicated that the security ranks in the higher end of its generic
rating category; the modifier 2 indicated a mid-range ranking and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA
Debt rated AAA has the highest rating assigned by Standard and Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree.
A
Debt rated A has a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions of changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
B-29
<PAGE>
BB
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB-rating.
B
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC
Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC
The rating CC is typically applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C
The C rating is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI
The rating CI is reserved for income bonds on which no interest is being paid.
D
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
B-30
<PAGE>
PLUS (+) OR MINUS (-)
The rating from AAA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major categories.
B-31
<PAGE>
APPENDIX B
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, most respected and
successful money managers in the United States.
As of December 31, 1994, PMC employed a professional investment staff
of 46, with a combined average of 14 years' experience in the financial services
industry.
At December 31, 1994, there were 591,192 non-retirement shareholder
accounts and 337,577 retirement shareholder accounts in the Fund. Total assets
for all Pioneer Funds at December 31, 1994 were approximately $10,038,000,000
representing 928,769 shareholder accounts.
B-32
<PAGE>
<TABLE>
<CAPTION>
Pioneer Income Fund
Date Initial Investment Offering Price Sales Charge Shares Purchased Net Asset Value Initial Net Asset
Included Per Share Value
<S> <C> <C> <C> <C> <C> <C>
1/1/85 $10,000 $8.67 4.50% 1153.403 $8.28 $9,550
</TABLE>
<TABLE>
<CAPTION>
Dividends and Capital Gains Reinvested
Value of Shares
Date From From Cap. Gains From Dividends Total Value
Investment Reinvested Reinvested
<S> <C> <C> <C> <C>
12/31/85 $10,576 $250 $1,001 $11,827
12/31/86 $10,312 $614 $2,000 $12,926
12/31/87 $10,000 $792 $3,016 $13,808
12/31/88 $10,288 $835 $4,382 $15,505
12/31/89 $10,992 $892 $6,086 $17,970
12/31/90 $10,542 $856 $7,216 $18,614
12/31/91 $11,695 $949 $9,436 $22,080
12/31/92 $11,683 $1,164 $10,908 $23,755
12/31/93 $11,776 $1,909 $12,502 $26,187
12/31/94 $10,508 $1,703 $12,848 $25,059
</TABLE>
B-33
<PAGE>
S&P 500 *
This index is a readily available, carefully constructed, market value weighted
benchmark of common stock performance. Currently, the S&P Composite Index
includes 500 of the largest stocks (in terms of stock market value) in the
United States; prior to March 1957 it consisted of 90 of the largest stocks.
DOW JONES INDUSTRIAL AVERAGE *
This is a total return index based on the performance of 30 blue chip stocks.
SMALL CAPITALIZATION STOCKS *
This index is a market value weighted index of the ninth and tenth deciles of
the New York Stock Exchange (NYSE), plus stocks listed on the American Stock
Exchange (AMEX) and over-the-counter (OTC) with the same or less capitalization
as the upper bound of the NYSE ninth decile.
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 Index 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."
B-34
<PAGE>
LONG-TERM CORPORATE BONDS *
For 1969-1991, corporate bond total returns are represented by the Salomon
Brothers Long-Term High-Grade Corporate Bond Index. Since 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. 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.
Over 1926-1968 the total returns were calculated by summing the capital
appreciation returns and the income returns. For the period 1946-1968, Ibbotson
and Sinquefield backdated the Salomon Brothers' index, using Salomon Brothers'
monthly yield data with a methodology similar to that used by Salomon for
1969-1991. 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 1926-1945, the Standard and Poor's monthly High-Grade Corporate Composite
yield data were used, assuming a 4 percent 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 Randolph W. Westerfield, 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.
LONG-TERM GOVERNMENT BOND TOTAL RETURN *
The total returns on long-term government bonds from 1977 to 1991 are
constructed with data from The Wall Street Journal. Over 1926-1976, 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. Total returns
for 1977-1991 are calculated as the change in the flat price or and-interest
price.
INTERMEDIATE-TERM GOVERNMENT BONDS TOTAL RETURN *
Total returns of the intermediate-term government bonds for 1977-1991 are
calculated from The Wall Street Journal prices, using the change in flat price.
Returns from 1934-1986 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 5 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 1934-1942, almost all bonds
with maturities near 5 years were partially or full 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 1926-1933, there are few bonds suitable for construction of a series
with a 5-year maturity. For this period, five year bond yield estimates are
used.
B-35
<PAGE>
U.S. (30 DAY) TREASURY BILL TOTAL RETURNS *
For the U.S. Treasury bill index, data from The Wall Street Journal are used for
1977-1991; the CRSP U.S. 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.
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 1963-1987 and The Wall Street Journal for the years 1988-1994.
6 MONTH CD **
Data sources include the Federal Reserve Bulletin and The Wall Street Journal.
Sources: * Ibbotson Associates
** Towers Data Systems
*** Lipper Analytical Services
B-36
<PAGE>
<TABLE>
<CAPTION>
Dow Jones U.S. Small S&P/BARRA S&P/BARRA
S&P500 Ind'l Avg Stock Index U.S. Inflation Growth Value
%TR %TR %TR %TR %TR %TR
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dec 1928 43.61 55.38 39.69 -0.97 N/A N/A
Dec 1929 -8.42 -13.64 -51.36 0.20 N/A N/A
Dec 1930 -24.90 -30.22 -38.15 -6.03 N/A N/A
Dec 1931 -43.34 -49.03 -49.75 -9.52 N/A N/A
Dec 1932 -8.19 -16.88 -5.39 -10.30 N/A N/A
Dec 1933 53.99 73.71 142.87 0.51 N/A N/A
Dec 1934 -1.44 8.07 24.22 2.03 N/A N/A
Dec 1935 47.67 43.77 40.19 2.99 N/A N/A
Dec 1936 33.92 30.23 64.80 1.21 N/A N/A
Dec 1937 -35.03 -28.88 -58.01 3.10 N/A N/A
Dec 1938 31.12 33.16 32.80 -2.78 N/A N/A
Dec 1939 -0.41 1.31 0.35 -0.48 N/A N/A
Dec 1940 -9.78 -7.96 -5.16 0.96 N/A N/A
Dec 1941 -11.59 -9.88 -9.00 9.72 N/A N/A
Dec 1942 20.34 14.12 44.51 9.29 N/A N/A
Dec 1943 25.90 19.06 88.37 3.16 N/A N/A
Dec 1944 19.75 17.19 53.72 2.11 N/A N/A
Dec 1945 36.44 31.60 73.61 2.25 N/A N/A
Dec 1946 -8.07 -4.40 -11.63 18.16 N/A N/A
Dec 1947 5.71 7.61 0.92 9.01 N/A N/A
Dec 1948 5.50 4.27 -2.11 2.71 N/A N/A
Dec 1949 18.79 20.92 19.75 -1.80 N/A N/A
Dec 1950 31.71 26.40 38.75 5.79 N/A N/A
Dec 1951 24.02 21.77 7.80 5.87 N/A N/A
Dec 1952 18.37 14.58 3.03 0.88 N/A N/A
Dec 1953 -0.99 2.02 -6.49 0.62 N/A N/A
Dec 1954 52.62 51.25 60.58 -0.50 N/A N/A
Dec 1955 31.56 26.58 20.44 0.37 N/A N/A
Dec 1956 6.56 7.10 4.28 2.86 N/A N/A
Dec 1957 -10.78 -8.63 -14.57 3.02 N/A N/A
Dec 1958 43.36 39.31 64.89 1.76 N/A N/A
Dec 1959 11.96 20.21 16.40 1.50 N/A N/A
Dec 1960 0.47 -6.14 -3.29 1.48 N/A N/A
Dec 1961 26.89 22.60 32.09 0.67 N/A N/A
Dec 1962 -8.73 -7.43 -11.90 1.22 N/A N/A
Dec 1963 22.80 20.83 23.57 1.65 N/A N/A
Dec 1964 16.48 18.85 23.52 1.19 N/A N/A
Dec 1965 12.45 14.39 41.75 1.92 N/A N/A
Dec 1966 -10.06 -15.78 -7.01 3.35 N/A N/A
Dec 1967 23.98 19.16 83.57 3.04 N/A N/A
B-37
<PAGE>
Dec 1968 11.06 7.93 35.97 4.72 N/A N/A
Dec 1969 -8.50 -11.78 -25.05 6.11 N/A N/A
Dec 1970 4.01 9.21 -17.43 5.49 N/A N/A
Dec 1971 14.31 9.83 16.50 3.36 N/A N/A
Dec 1972 18.98 18.48 4.43 3.41 N/A N/A
Dec 1973 -14.66 -13.28 -30.90 8.80 N/A N/A
Dec 1974 -26.47 -23.58 -19.95 12.20 N/A N/A
Dec 1975 37.20 44.75 52.82 7.01 31.72 43.38
Dec 1976 23.84 22.82 57.38 4.81 13.84 34.93
Dec 1977 -7.18 -12.84 25.38 6.77 -11.82 -2.57
Dec 1978 6.56 2.79 23.46 9.03 6.78 6.16
Dec 1979 18.44 10.55 43.46 13.31 15.72 21.16
Dec 1980 32.42 22.17 39.88 12.40 39.40 23.59
Dec 1981 -4.91 -3.57 13.88 8.94 -9.81 0.02
Dec 1982 21.41 27.11 28.01 3.87 22.03 21.04
Dec 1983 22.51 25.97 39.67 3.80 16.24 28.89
Dec 1984 6.27 1.31 -6.67 3.95 2.33 10.52
Dec 1985 32.16 33.55 24.66 3.77 33.31 29.68
Dec 1986 18.47 27.10 6.85 1.13 14.50 21.67
Dec 1987 5.23 5.48 -9.30 4.41 6.50 3.68
Dec 1988 16.81 16.14 22.87 4.42 11.95 21.67
Dec 1989 31.49 32.19 10.18 4.65 36.40 26.13
Dec 1990 -3.17 -0.56 -21.56 6.11 0.20 -6.85
Dec 1991 30.55 24.19 44.63 3.06 38.37 22.56
Dec 1992 7.67 7.41 23.35 2.90 5.07 10.53
Dec 1993 9.99 16.94 20.98 2.75 1.68 18.60
Dec 1994 1.31 5.06 3.11 2.78 3.13 -0.64
</TABLE>
Source: Ibbotson Associates
B-38
