[LOGO]
PIONEER
INTEREST SHARES
SEMIANNUAL REPORT 6/30/97
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Letter from the Chairman 1
Portfolio Summary 2
Performance Update 3
Portfolio Management Discussion 4
Schedule of Investments 7
Financial Statements 10
Notes to Financial Statements 14
Report of Independent Public Accountants 17
Trustees, Officers and Service Providers 18
The Pioneer Family of Mutual Funds 21
</TABLE>
<PAGE>
PIONEER INTEREST SHARES
LETTER FROM THE CHAIRMAN 6/30/97
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DEAR SHAREOWNER,
- -----------------------------------------------------------------
It is with pleasure that I introduce this semiannual report for Pioneer
Interest Shares, covering the six months ended June 30, 1997.
It was a time of uncertainty for bond investors, and emotions and
perceptions seemed to be the primary factors moving the bond market.
Corrections in the stock market and an economy that was alternately growing
and retreating - depending on how data were interpreted - kept bond
investors on the lookout for indications of a trend. We are happy to report
that even in this challenging environment, your Fund continued to reward
shareowners by paying steady dividends and providing a positive total
return. The questions and answers that follow in the Portfolio Management
Discussion provide details of your investment team's strategies and results.
Over recent time periods, the stock market has generally outperformed the
bond market. We happen to be in the midst of the longest bull market in
history, and our concern is that many investors, especially newer ones, see
stocks moving only in an upward direction, which will not always be the
case. When the stock market slows or retreats, people will be reminded how
important it is to diversify among a variety of investments. If you haven't
taken a look at your portfolio recently, perhaps this is a good time to
speak with your investment professional. Varying performance of your
investments can change the balance of your portfolio, and you may need to
get back on track.
Thank you for your continued support.
Respectfully,
[SIGNATURE]
John F. Cogan, Jr.,
Chairman and President
1
<PAGE>
PIONEER INTEREST SHARES
PORTFOLIO SUMMARY 6/30/97
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PORTFOLIO QUALITY
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(As a percentage of long-term holdings)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury/Agency 3%
AAA 10%
AA 5%
A 16%
BBB 47%
BB 12%
B 7%
</TABLE>
PORTFOLIO MATURITY
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(Effective life as a percentage of long-term holdings)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
0-2 years 23%
2-5 years 20%
5-7 years 25%
7-10 years 9%
10-20 years 13%
20+ years 10%
</TABLE>
10 LARGEST HOLDINGS
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(As a percentage of long-term holdings)
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1. Rural Electric Cooperative (Deseret), 10.11% 5.56%
2. Hydro-Quebec, 9.75%, 2018 4.63
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3. BP America, Inc., 10.0%, 2018 4.50
4. Big Rivers Electric Cooperative, 10.7%, 2017 4.43
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5. Tele-Communications, Inc., 9.25%, 2023 3.82
6. News America Holdings, Inc., 10.125%, 2012 3.54
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7. Delta Air Lines, Inc., 9.2%, 2014 3.52
8. NorAm Energy Corp., 10.0%, 2019 3.45
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9. Georgia Pacific Corp., 9.875%, 2021 3.44
10. Time Warner, Inc., 9.15%, 2023 3.44
Fund holdings will vary for other periods.
2
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PIONEER INTEREST SHARES
PERFORMANCE UPDATE 6/30/97
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SHARE PRICES AND DISTRIBUTIONS
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<TABLE>
<S> <C> <C> <C>
NET ASSET VALUE
PER SHARE 6/30/97 12/31/96
$13.39 $13.40
MARKET PRICE
PER SHARE $13.188 $12.875
DISTRIBUTIONS PER SHARE INCOME SHORT-TERM LONG-TERM
(12/31/96 - 6/30/97) DIVIDENDS CAPITAL GAINS CAPITAL GAINS
$0.54 - -
</TABLE>
INVESTMENT RETURNS
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The mountain chart on the right shows the growth of a $10,000 investment
made in Pioneer Interest Shares, compared to the growth of the Lehman
Brothers Government/Corporate Bond Index.
<TABLE>
<CAPTION>
<S> <C> <C>
- -
AVERAGE ANNUAL TOTAL RETURNS*
(As of June 30, 1997)
NET ASSET MARKET
PERIOD VALUE PRICE
10 Years 9.10% 7.50%
5 Years 7.54 6.13
1 Year 10.03 9.87
----------------------------
</TABLE>
* When net asset value (NAV) is lower than market price, dividends are
assumed to be reinvested at the greater of NAV or 95% of the market price.
When NAV is higher, dividends are assumed to be reinvested at market
price.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000
<S> <C> <C>
Lehman Brothers
Pioneer Interest Government/Corporate
Shares* Bond Index
06/30/87 $10,000 $10,000
06/30/88 10,583 10,748
06/30/89 11,139 12,076
06/30/90 10,983 12,935
06/30/91 13,011 14,257
06/30/92 15,307 16,278
06/30/93 16,979 18,419
06/30/94 16,259 18,150
06/30/95 17,430 20,467
06/30/96 18,756 21,420
06/30/97 20,606 23,080
</TABLE>
The Lehman Brothers Government/Corporate Bond Index is an unmanaged measure
of the U.S. bond market. It contains Treasury and government agency
securities, investment-grade corporate bonds and Yankee bonds. Index
returns are calculated monthly, assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees, expenses or sales charges.
You cannot invest directly in the Index.
3
<PAGE>
PIONEER INTEREST SHARES
PORTFOLIO MANAGEMENT DISCUSSION 6/30/97
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The first half of Pioneer Interest Shares' fiscal year came to a close on
June 30, 1997. The bond market was resilient over the past six months,
recovering from several episodes of investor nervousness and repeatedly
regaining lost ground. While the bond market's performance was mixed, your
Fund's results were solid.
For this report, we offer a discussion with portfolio manager Sherman B.
Russ, who has overall responsibility for Pioneer's fixed-income department.
He has more than 20 years of experience and also heads up the investment
team responsible for the day-to-day management of Pioneer Interest Shares.
HOW DID THE FUND PERFORM OVER THE PAST SIX MONTHS?
It did well, especially considering the varied conditions in the market. The
Fund continued to provide an attractive level of current income from its
flexible portfolio, and shareowners received steady quarterly dividends. The
Fund paid dividends of $0.27 per share for each of the quarters ended March
31 and June 30, 1997.
Pioneer Interest Shares is a "closed end" fund. The actual value of the
securities it owns - its net asset value, or NAV - may be more or less than
is reflected in the market price of Fund shares on any given trading day. As
of June 30, the Fund's NAV was $13.39 per share and its market value was
$13.188; so the Fund was trading at a 1.5% "discount" compared to the value
of the securities in the Fund's portfolio. At the period's end, the Fund
provided a dividend yield of 8.19% based on market price and 8.07% based on
net asset value.
The Fund's total returns for the six months were 6.73% (market price) and
4.12% (NAV). These figures assume reinvestment of all dividends. The
unmanaged Lehman Brothers Government/Corporate Bond Index returned 2.74% for
the same time. A strong driver of performance was the Fund's position in
lower-quality high-yield "junk" bonds, the best-performing segment of the
bond market over the past six months. The average quality rating of Fund
holdings was BBB on June 30, the same as in every month in the period.
4
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PIONEER INTEREST SHARES
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WHAT HAPPENED IN THE BOND MARKET IN THE FIRST SIX MONTHS OF 1997?
Investor expectations shaped the market - almost more than actual events.
Concern about the pace of economic growth, inflation, changes in interest
rates and the volatility in the stock market kept many bond investors on
their toes. Throughout the period, however, inflation remained contained
despite continued economic expansion, and interest rates generally were low.
We entered 1997 with bond prices falling. By February, the bond market had
recovered ground lost in January. The economy showed substantial growth in
the first quarter of 1997, and the Federal Reserve increased short-term
interest rates one quarter of a percentage point (0.25%) on March 25. The
rate hike didn't have a significant or lasting effect. Because investors
acted in advance of the Fed's much-discussed move, bond prices had already
moved down, sending yields higher. Bond prices resumed their ascent in
April, finishing higher in June. As the period closed, the Fed was
continuing its "wait and see" attitude.
AGAINST THIS BACKDROP, WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO?
We adjusted the Fund's maturity profile as interest rates inched up and
down, starting the period with an average effective life of portfolio
holdings at 8.5 years and ending this June 30 at 7.4 years. (Effective
maturity takes into account the time left until a bond matures or can be
called on demand by the issuer, whichever is sooner.) Over the six months,
we reduced the Fund's concentration in securities with maturities of five
years or less from 52% to 43%, while increasing the allocation to bonds with
somewhat longer maturities (5-10 years) from 19% to 34%, favoring them for
their stronger income stream. Lately, we have been lengthening the Fund's
maturity to take a more aggressive stance, as we think interest rates will
probably be stable or falling in the near term.
5
<PAGE>
PIONEER INTEREST SHARES
PORTFOLIO MANAGEMENT DISCUSSION 6/30/97 (CONTINUED)
- -----------------------------------------------------------------
The Fund's greatest concentration, 47%, is in corporate bonds rated BBB.
They performed well but did not post the same gains as the Fund's holdings
in "junk" bonds. Over the period we increased the position in B-rated bonds
from 4% to 7% to take advantage of their greater yield and appreciation
potential. The performance of junk bonds is closely associated with the
fortunes of the issuing company. If a company does well and its stock price
rises, the market considers its lower-quality bonds to be more creditworthy
and of greater value. Of course, the opposite is also true. For the most
part, we were consistent with our quality distribution over the six months
and didn't make any radical changes.
As of June 30, 68% of the portfolio was invested in industrial bonds, but
the Fund is diversified across other sectors as well. We like strong
companies with good credit histories. Examples include AMERISERV in food,
and DELTA and AMERICAN in airlines.
WHAT'S YOUR OUTLOOK GOING FORWARD?
We have a positive outlook for bonds, so we are currently increasing the
portfolio's duration. (Duration measures a bond fund's sensitivity to
interest rates, with a portfolio likely to change in value by one percentage
point for every percentage point change in interest rates, up or down.)
The economy and markets seem to be moving forward with an "all news is good
news" attitude. There are indications that inflation is likely to remain
contained, with interest rates staying near their current range. This would
be good for almost all bond investors. Even so, an air of nervousness
remains about the stock market and, by extension, higher-yielding bonds. We
are confident of the Fund's holdings in this more-volatile arena, but we
watch their performance carefully and still keep their position relatively
small to limit the added risk they pose. We believe our flexible strategy
can help us continue to reward investors with strong income and solid
returns.
6
<PAGE>
PIONEER INTEREST SHARES
SCHEDULE OF INVESTMENTS 6/30/97
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<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<C> <S> <C> <C>
INVESTMENT IN SECURITIES - 99.5%
INDUSTRIALS - 71.2%
$2,000,000 BBB-/Baa3 AMR Corp., 9.88%, 2020 $ 2,415,140
1,000,000 B/B2 Amresco, Inc., 10.0%, 2004 1,025,000
2,000,000 BB+/Baa3 Boise Cascade Corp., 9.9%, 2000 2,149,720
2,000,000 BBB/Baa1 Bowater, Inc., 9.375%, 2021 2,365,020
4,000,000 AA/Aa3 BP America, Inc., 10.0%, 2018 4,327,240
2,000,000 A+/A2 Caterpillar, Inc., 9.75%, 2019 2,187,880
2,000,000 A-/A3 Chrysler Corp., 10.95%, 2017 2,116,760
1,500,000 BB+/B2 Comcast Cellular, 9.50%, 2007 1,511,250
2,500,000 BBB+/Baa2 Continental Cablevision, Inc., 9.50%, 2013 2,849,275
3,000,000 BBB/Baa1 Delta Air Lines, Inc., 9.2%, 2014 3,380,610
2,000,000 A-/Baa1 Federal Paper Board Co., 10.0%, 2011 2,463,140
1,000,000 BB+/Ba2 Freeport McMoRan, Inc., 8.75%, 2004 1,022,500
3,000,000 BBB-/Baa2 Georgia Pacific Corp., 9.875%, 2021 3,309,090
2,000,000 BB-/Ba2 Gulf Canada Resources, Ltd., 9.625%, 2005 2,160,000
1,000,000 BBB/Baa2 IMC Global, Inc., 9.45%, 2011 1,177,640
2,000,000 BBB/Baa2 Joy Technologies, Inc., 10.25%, 2003 2,177,520
2,000,000 BBB-/Baa2 Kansas City Southern Industries, Inc.,
8.8%, 2022 2,094,060
2,000,000 BBB/Baa2 M.A. Hanna Co., 9.375%, 2003 2,224,840
3,000,000 BBB+/Baa1 News America Holdings, Inc., 10.125%, 2012 3,399,450
2,000,000 A-/A3 Phillips Petroleum Co., 9.18%, 2021 2,165,340
1,500,000 BBB/Baa3 Shopko Stores, Inc., 9.25%, 2022 1,635,945
1,000,000 B+/B1 Stone Container Corp., 10.75%, 2002 1,041,250
3,500,000 BBB-/Ba1 Tele-Communications, Inc., 9.25%, 2023 3,675,385
2,500,000 BB/Ba1 Tenet Healthcare Corp., 9.625%, 2002 2,712,500
3,000,000 BBB-/Ba1 Time Warner, Inc., 9.15%, 2023 3,307,800
1,500,000 B+/B1 Unisys Corp., 15.0%, 1997 1,500,000
1,000,000 B+/B1 Unisys Corp., 12.0%, 2003 1,085,000
2,500,000 BBB-/Baa3 USX Corp., 9.375%, 2012 2,982,725
2,000,000 BB-/B1 Viacom International, Inc., 10.25%, 2001 2,180,000
2,000,000 B/B2 Weirton Steel Corp., 11.375%, 2004 2,120,000
-----------
TOTAL INDUSTRIALS $68,762,080
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</TABLE>
The accompanying notes are an integral part of these financial statements. 7
<PAGE>
PIONEER INTEREST SHARES
SCHEDULE OF INVESTMENTS 6/30/97 (CONTINUED)
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<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<C> <S> <C> <C>
UTILITIES - 20.5%
ELECTRIC UTILITIES - 12.1%
$4,000,000 AAA/Aaa Big Rivers Electric Cooperative, 10.7%, 2017 $ 4,258,240
5,000,000 AAA/Aaa Rural Electric Cooperative (Deseret),
10.11%, 2017 5,339,550
2,000,000 A/A2 Virginia Electric and Power Co., 8.75%, 2021 2,108,340
-----------
TOTAL ELECTRIC UTILITIES $11,706,130
-----------
GAS UTILITIES - 8.4%
2,000,000 BBB-/Baa3 Coastal Corp., 9.625%, 2012 $ 2,391,980
2,000,000 BBB-/Baa2 Colorado Interstate Gas Co., 10.0%, 2005 2,349,140
3,000,000 BBB-/Baa3 NorAm Energy Corp., 10.0%, 2019 3,313,800
-----------
TOTAL GAS UTILITIES $ 8,054,920
-----------
TOTAL UTILITIES $19,761,050
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 2.1%
1,928,709 FNMA REMIC, 9.0%, 2019 $ 2,051,819
-----------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION $ 2,051,819
-----------
U.S. GOVERNMENT OBLIGATIONS - 1.1%
1,000,000 U.S. Treasury Notes, 8.75%, 2000 $ 1,069,480
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS $ 1,069,480
-----------
FOREIGN GOVERNMENT SPONSORED - 4.6%
4,000,000 A+/A2 Hydro-Quebec, 9.75%, 2018 $ 4,450,440
-----------
TOTAL FOREIGN GOVERNMENT SPONSORED $ 4,450,440
-----------
</TABLE>
8 The accompanying notes are an integral part of these financial statements.
<PAGE>
PIONEER INTEREST SHARES
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C> <C>
TOTAL INVESTMENT IN SECURITIES
(Cost $92,632,868) $96,094,869
-----------
TEMPORARY CASH INVESTMENT -- 0.5%
COMMERCIAL PAPER - 0.5%
$ 486,000 Ford Motor Credit Co., 6.11%, 07/01/97 $ 486,000
-----------
TOTAL TEMPORARY CASH INVESTMENT
(Cost $486,000) $ 486,000
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TOTAL INVESTMENT IN SECURITIES AND TEMPORARY
CASH INVESTMENT - 100%
(Cost $93,118,868) (a) (b) $96,580,869
-----------
</TABLE>
(a) At June 30, 1997, the net unrealized gain on investments based
on cost for federal income tax purposes of $93,118,868 was as
follows:
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $4,049,657
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (587,656)
----------
Net unrealized gain $3,462,001
----------
(b) At December 31, 1996, the Fund had a capital loss carryforward
of $10,114,083 which will expire between 1997 and 2004 if not
utilized.
Purchases and sales of securities (excluding temporary cash investments) for
the six months ended June 30, 1997 were as follows:
Purchases Sales
----------- -----------
Long-term U.S. Government $ 2,024,542 $ -
Other Long-term Securities 11,121,402 12,085,740
The accompanying notes are an integral part of these financial statements. 9
<PAGE>
PIONEER INTEREST SHARES
BALANCE SHEET 6/30/97
- ---------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (including temporary cash
investment of $486,000) (cost $93,118,868) $ 96,580,869
Cash 17
Receivables -
Interest 2,431,424
Other 18,854
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Total assets $ 99,031,164
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LIABILITIES:
Payables -
Investment securities purchased $ 512,618
Dividends 10
Due to affiliates 49,235
Accrued expenses 44,545
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Total liabilities $ 606,408
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NET ASSETS:
Paid-in capital $105,111,943
Accumulated undistributed net investment income 65,409
Accumulated net realized loss on investments (10,214,597)
Net unrealized gain on investments 3,462,001
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Total net assets $ 98,424,756
------------
NET ASSET VALUE PER SHARE:
(50,000,000 shares authorized)
7,351,678 fund shares outstanding $ 13.39
------------
</TABLE>
10 The accompanying notes are an integral part of these financial statements.
<PAGE>
PIONEER INTEREST SHARES
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE SIX MONTHS ENDED 6/30/97
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 4,349,955
-----------
Total investment income $ 4,349,955
-----------
EXPENSES:
Management fees $ 274,709
Transfer agent fees 43,041
Accounting 29,873
Custodian fees 13,216
Professional fees 19,043
Printing 13,948
Fees and expenses of nonaffiliated trustees 8,530
Miscellaneous 27,373
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Total expenses $ 429,733
Less fees paid indirectly (4,374)
-----------
Net expenses $ 425,359
-----------
Net investment income $ 3,924,596
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REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments $ 9,350
Change in net unrealized gain on investments (39,641)
-----------
Net loss on investments (30,291)
-----------
Net increase in net assets resulting from
operations $ 3,894,305
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements. 11
<PAGE>
PIONEER INTEREST SHARES
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------
FOR THE SIX MONTHS ENDED 6/30/97 AND THE YEAR ENDED 12/31/96
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FROM OPERATIONS: 6/30/97 12/31/96
<S> <C> <C> <C> <C>
Net investment income $ 3,924,596 $ 7,809,413
Net realized gain (loss) on investments 9,350 (377,499)
Change in net unrealized gain on investments (39,641) (1,727,525)
-------------- -------------
Net increase in net assets resulting from operations $ 3,894,305 $ 5,704,389
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
($0.54 and $1.05 per share, respectively) $ (3,969,897) $ (7,698,703)
-------------- -------------
Total distributions to shareholders $ (3,969,897) $ (7,698,703)
-------------- -------------
FROM FUND SHARE TRANSACTIONS:
Reinvestment of distributions $ - $ 505,266
-------------- -------------
Net decrease in net assets $ (75,592) $ (1,489,048)
-------------- -------------
NET ASSETS:
Beginning of period $ 98,500,348 $ 99,989,396
-------------- -------------
End of period (including accumulated undistributed net investment income of
$65,409 and $110,710, respectively) $ 98,424,756 $ 98,500,348
-------------- -------------
<CAPTION>
'97 SHARES '97 AMOUNT '96 SHARES '96 AMOUNT
<S> <C> <C> <C> <C>
Reinvestment of distributions - $ - 38,505 $ 505,266
---------- -------------- -------------- -------------
Net increase - $ - 38,505 $ 505,266
---------- -------------- -------------- -------------
</TABLE>
12 The accompanying notes are an integral part of these financial statements.
<PAGE>
PIONEER INTEREST SHARES
FINANCIAL HIGHLIGHTS 6/30/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/97 12/31/96 12/31/95 12/31/94 12/31/93(A) 12/31/92
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 13.40 $ 13.67 $ 12.65 $ 14.29 $ 14.09 $ 14.15
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) from investment
operations:
Net investment income $ 0.53 $ 1.07 $ 1.07 $ 1.12 $ 1.11 $ 1.15
Net realized and unrealized gain
(loss) on investments - (0.29) 1.03 (1.63) 0.22 (0.06)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) from
investment operations $ 0.53 $ 0.78 $ 2.10 $ (0.51) $ 1.33 $ 1.09
Distributions to shareholders:
Net investment income (0.54) (1.05) (1.08) (1.13) (1.11) (1.15)
In excess of net investment
income - - - - (0.02) -
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
asset value $ (0.01) $ (0.27) $ 1.02 $ (1.64) $ 0.20 $ (0.06)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 13.39 $ 13.40 $ 13.67 $ 12.65 $ 14.29 $ 14.09
----------- ----------- ----------- ----------- ----------- -----------
Market Value, end of period $ 13.188 $ 12.875 $ 13.500 $ 11.750 $ 13.875 $ 14.750
Total return* 6.73% 3.27% 24.77% (7.54%) 1.57% 12.24%
Ratio of net expenses to average
net assets 0.88%**+ 0.99%+ 0.98%+ 1.03% 0.82% 0.82%
Ratio of net investment income to
average net assets 8.04%**+ 7.94%+ 8.04%+ 8.46% 7.60% 8.20%
Portfolio turnover rate 26%** 28% 49% 65% 61% 44%
Net assets, end of period (in
thousands) $ 98,425 $ 98,500 $ 99,989 $ 92,252 $ 103,570 $ 100,596
Ratios assuming reduction for fees
paid indirectly:
Net expenses 0.87%** 0.98% 0.97% - - -
Net investment income 8.05%** 7.95% 8.05% - - -
</TABLE>
(a) Prior to the assumption of the management fee agreement on December 1,
1993 by Pioneering Management Corporation, the Fund was advised by Mutual
of Omaha Fund Management Company.
* Assumes initial investment at market value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at market value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
PIONEER INTEREST SHARES
NOTES TO FINANCIAL STATEMENTS 6/30/97
- -----------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Pioneer Interest Shares (the Fund), a Delaware business Trust, is registered
under the Investment Company Act of 1940 as a diversified, closed-end
management investment company. The reorganization has no effect on the
Fund's operations. The investment objective of the Fund is to provide
interest income.
The Fund's financial statements have been prepared in conformity with
generally accepted accounting principles that require the management of the
Fund to, among other things, make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates. The following is a summary
of significant accounting policies consistently followed by the Fund, which
are in conformity with those generally accepted in the investment company
industry:
A. SECURITY VALUATION
Security transactions are recorded on trade date. Securities are valued
based on valuations furnished by an independent pricing service that
utilizes matrix systems. These matrix systems reflect such factors as
security prices, yields, maturities, and ratings, and are supplemented by
dealer and exchange quotations and fair market value information from
other sources, as required. Principal amounts of mortgage-backed
securities are adjusted for monthly paydowns. Premium and discount related
to certain mortgage-backed securities are amortized or accreted in
proportion to the underlying monthly paydowns. Market discount is accreted
daily on a straight-line basis. Interest income is recorded on the accrual
basis. Temporary cash investments are valued at amortized cost.
Gains and losses on sales of investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes.
It is the Fund's practice to first select for sale those securities that
have the highest cost and also qualify for long-term capital gain or loss
treatment for tax purposes.
14
<PAGE>
PIONEER INTEREST SHARES
- -------------------------------------------
B. FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareholders. Therefore, no federal income tax provision is
required.
The characterization of distributions to shareholders for financial
reporting purposes is determined in accordance with federal income tax
rules. Therefore, the source of the Fund's distributions may be shown in
the accompanying financial statements as either from or in excess of net
investment income or net realized gain on investment transactions, or from
paid-in capital, depending on the type of book/ tax differences that may
exist.
C. DIVIDEND AND DISTRIBUTION REINVESTMENT PLAN
All shareholders of the Fund are eligible to participate in the Dividend
and Distribution Reinvestment Plan (the Plan). Under the Plan,
participants will receive all dividends and distributions in full and
fractional shares of the Fund in lieu of cash when shares are trading at
or above net asset value. When shares are trading below net asset value,
dividends and distributions will be paid in cash. When the Fund declares
dividends or distributions, the number of shares to be credited to a
participant's account or the cash to be distributed to a participant,
determined as of the close of business of the New York Stock Exchange
(Exchange) on the Dividend Valuation Date, is computed as follows: (a) If
the last sales price of shares of the capital stock of the Fund is at or
above net asset value, the Fund will issue new full and fractional shares
(computed to three decimals) of capital stock at the greater of net asset
value or 95% of such last sales price, to be credited to the participant's
account; or (b) if the last sales price of shares of the capital stock of
the Fund is below the net asset value, the Agent will distribute the
dividends or distributions to the participant in cash. There are no
brokerage or service fees chargeable to participants in the Plan; however,
this Plan may be amended in the future to impose a service charge.
Participating in the Plan does not relieve shareholders from any federal,
state or local taxes which may be due on dividends and distributions paid
in any taxable year. Dividends and distributions to shareholders are
recorded as of the Dividend Valuation Date.
15
<PAGE>
PIONEER INTEREST SHARES
NOTES TO FINANCIAL STATEMENTS 6/30/97 (CONTINUED)
- -----------------------------------------------------------------
2. MANAGEMENT AGREEMENT
Pioneering Management Corporation (PMC), the Fund's investment adviser,
manages the Fund's portfolio and is a wholly owned subsidiary of The Pioneer
Group, Inc. (PGI). Management fees are calculated daily at the annual rate
of 0.625% of the Fund's average daily net assets up to $50 million and 0.50%
of the excess over $50 million.
In addition, under the management agreement, certain other services and
costs, including accounting, regulatory reporting, and insurance premiums,
are paid by the Fund. Included in due to affiliates is $47,011 in management
fees and certain other services, payable to PMC at June 30, 1997.
3. TRANSFER AGENT
Pioneering Services Corporation (PSC), a wholly owned subsidiary of PGI,
through a sub-transfer agency agreement with ChaseMellon Shareholder
Services, provides substantially all transfer agent and shareholder services
to the Fund at negotiated rates. Included in due to affiliates is $2,224 in
transfer agent fees payable to PSC at June 30, 1997.
4. EXPENSE REDUCTIONS
The Fund has entered into certain expense offset arrangements resulting in a
reduction in the Fund's total expenses. For the six months ended June 30,
1997, the Fund's expenses were reduced by $4,374 under such arrangements.
16
<PAGE>
PIONEER INTEREST SHARES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ---------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF
PIONEER INTEREST SHARES:
We have audited the accompanying balance sheet of Pioneer Interest Shares,
including the schedule of investments, as of June 30, 1997, and the related
statement of operations, and statements of changes in net assets for the
periods presented and financial highlights for the six months ended June 30,
1997 and the three years ended December 31, 1996. These financial statements
and financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements
and financial highlights based on our audits. The financial highlights for
each of the two years ended December 31, 1993, were audited by other
auditors whose report dated February 22, 1994 expressed an unqualified
opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 1997 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Pioneer Interest Shares as of June 30, 1997, the results of its operations,
and the changes in its net assets for the periods presented, and financial
highlights for the six months ended June 30, 1997 and for each of the three
years ended December 31, 1996 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 1, 1997
17
<PAGE>
PIONEER INTEREST SHARES
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
- ---------------------------------------------------------------
TRUSTEES OFFICERS
John F. Cogan, Jr. John F. Cogan, Jr., Chairman and
Richard H. Egdahl, M.D. President
Margaret B.W. Graham David D. Tripple, Executive Vice President
John W. Kendrick Sherman B. Russ, Vice President
Marguerite A. Piret William H. Keough, Treasurer
David D. Tripple Joseph P. Barri, Secretary
Stephen K. West
John Winthrop
INVESTMENT ADVISER
Pioneering Management Corporation
CUSTODIAN
Brown Brothers Harriman & Co.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
PRINCIPAL UNDERWRITER
Pioneer Funds Distributor, Inc.
LEGAL COUNSEL
Hale and Dorr LLP
TRANSFER AGENT
Pioneering Services Corporation
SHAREOWNER SERVICES AND SUB-TRANSFER AGENT
ChaseMellon Shareholder Services
18
<PAGE>
PIONEER INTEREST SHARES
--------------------------------------------
THIS PAGE FOR YOUR NOTES.
19
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------
THIS PAGE FOR YOUR NOTES.
20
<PAGE>
THE PIONEER FAMILY OF MUTUAL FUNDS
- ---------------------------------------------------------------
For information about any Pioneer mutual fund, please contact your
investment representative, or call Pioneer at 1-800-225-6292. Ask for a free
fund information kit, which includes a fund prospectus. Please read the
prospectus carefully before you invest or send money.
<TABLE>
<CAPTION>
GROWTH FUNDS INCOME FUNDS
GLOBAL/INTERNATIONAL TAXABLE
Pioneer Emerging Markets Fund Pioneer America Income Trust
Pioneer Europe Fund Pioneer Bond Fund
Pioneer Gold Shares Pioneer Short-Term Income
Pioneer India Fund Trust*
<S> <C>
Pioneer International Growth TAX-EXEMPT
Fund Pioneer Intermediate Tax-Free
Pioneer World Equity Fund Fund
Pioneer Tax-Free Income Fund
UNITED STATES
Pioneer Capital Growth Fund MONEY MARKET FUND
Pioneer Growth Shares Pioneer Cash Reserves Fund
Pioneer Micro-Cap Fund*
Pioneer Mid-Cap Fund
Pioneer Small Company Fund
GROWTH AND INCOME FUNDS
Pioneer Balanced Fund
Pioneer Equity-Income Fund
Pioneer Fund
Pioneer Real Estate Shares
Pioneer II
</TABLE>
*Offers Class A and B Shares only
21
<PAGE>
HOW TO CONTACT CHASEMELLON
- ---------------------------------------------------------------
We are pleased to offer a variety of convenient ways for you to contact
ChaseMellon for assistance or information.
<TABLE>
<S> <C>
YOU CAN CALL CHASEMELLON SHAREHOLDER SERVICES FOR:
ACCOUNT INFORMATION 1-800-288-9541
TELECOMMUNICATIONS DEVICE FOR THE
DEAF (TDD) 1-800-231-5469
OR WRITE TO CHASEMELLON SHAREHOLDER SERVICES:
FOR: AT:
General inquiries, lost dividend P.O. Box 590
checks, change of address, account Ridgefield Park, NJ
consolidation 07660
Lost stock certificates P.O. Box 467
Washington Bridge
Station
New York, NY 10033
Stock transfer P.O. Box 469
Washington Bridge
Station
New York, NY 10033
Dividend reinvestment plan (DRIP) P.O. Box 750
Pittsburgh, PA 15230
</TABLE>
0897-4360
-COPYRIGHT- PIONEER FUNDS
PIONEER INTEREST SHARES DISTRIBUTOR, INC.
[LOGO] 60 STATE STREET -RECYCLED SYMBOL- PRINTED ON
BOSTON, MASSACHUSETTS 02109 RECYCLED PAPER
