<PAGE>
[PIONEER LOGO]
PIONEER
INTEREST SHARES
SEMIANNUAL REPORT 6/30/99
<PAGE>
TABLE OF CONTENTS
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
Letter from the Chairman 1
Portfolio Summary 2
Performance Update 3
Portfolio Management Discussion 4
Schedule of Investments 7
Financial Statements 13
Notes to Financial Statements 17
Report of Independent Public Accountants 20
Results of Shareowner Meeting 21
Trustees, Officers and Service Providers 22
Information on the Year 2000 23
The Pioneer Family of Mutual Funds 24
</TABLE>
<PAGE>
PIONEER INTEREST SHARES
- --------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN 6/30/99
DEAR SHAREOWNER,
-----------------------------------------------------------------------------
I am pleased to introduce this semiannual report for Pioneer Interest
Shares, covering the six months ended June 30, 1999. On behalf of
your investment team, I appreciate your confidence in the Fund and
Pioneer.
Interest rates rose throughout the first six months of 1999, as world
economies stabilized and economic news in the United States remained
positive, but no significant inflationary pressures surfaced. Daily
speculation by the media and financial analysts on how long this
environment will continue makes it easy for investors to forget that
these conditions will not always exist and that there are risks
inherent to investing.
It is quite tempting to abandon a balanced investment plan when the
stock market shows returns over 20%, as it has for the past four
years. But longer term, returns of stocks measured by the Standard &
Poor's 500 Index are closer to 11%. That is why experts recommend
that investors hold a mix of stocks and bonds to suit their long-term
objectives and achieve balance. If you think your investments may be
out of balance, we encourage you to meet with your investment
professional to discuss how your assets are allocated.
Turning to other matters, for those of you who are interested in new
Pioneer products, we are pleased to introduce Pioneer Strategic
Income Fund. The Fund holds a diverse portfolio of bonds from around
the globe, including the United States. To receive a prospectus for
our newest fund -- which you should read carefully before you invest
or send any money -- or if you have questions regarding Pioneer
Interest Shares, please contact your investment professional. Or call
Pioneer at 1-800-225-6292. You can also visit Pioneer's web site at
www.pioneerfunds.com.
Respectfully,
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.
Chairman and President
1
<PAGE>
PIONEER INTEREST SHARES
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY 6/30/99
PORTFOLIO QUALITY
-----------------------------------------------------------------------------
(As a percentage of total investment portfolio)
[PIE CHART]
<TABLE>
<S> <C>
CCC 1%
B 11%
BB 6%
BBB 44%
A 12%
Government & Agency 26%
</TABLE>
PORTFOLIO MATURITY
-----------------------------------------------------------------------------
(Effective life as a percentage of total investment portfolio)
[PIE CHART]
<TABLE>
<S> <C>
20+ Years 20%
10-20 Years 13%
7-10 Years 11%
5-7 Years 27%
2-5 Years 22%
0-2 Years 7%
</TABLE>
10 LARGEST HOLDINGS
-----------------------------------------------------------------------------
(As a percentage of debt holdings)
<TABLE>
<C> <S> <C>
1. U.S. Treasury Bonds, 8.125%, 8/15/19 8.77%
2. Government National Mortgage Association, 6.5%, 4/15/29 4.66
3. Hydro-Quebec, 9.75%, 1/15/18 4.60
4. Time Warner Inc., 9.15%, 2/1/23 3.66
5. News America Holdings, Inc., 10.125%, 10/15/12 3.57
6. Georgia Pacific Corp., 9.875%, 11/1/21 3.45
7. Ford Motor Credit Co., 9.14%, 12/30/14 3.44
8. Continental Cablevision, Inc. 9.5%, 8/1/13 3.01
9. USX Corp., 9.375%, 2/15/12 2.97
10. AMR Corp., 9.88%, 6/15/20 2.53
</TABLE>
Fund holdings will vary for other periods.
2
<PAGE>
PIONEER INTEREST SHARES
-----------------------------------------------------------------------------
PERFORMANCE UPDATE 6/30/99
SHARE PRICES AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET VALUE
PER SHARE 6/30/99 12/31/98
<S> <C> <C> <C>
$13.06 $13.62
MARKET PRICE
PER SHARE 6/30/99 12/31/98
$11.563 $13.563
DISTRIBUTIONS PER SHARE INCOME SHORT-TERM LONG-TERM
(12/31/98 - 6/30/99) DIVIDENDS CAPITAL GAINS CAPITAL GAINS
$0.480 - -
</TABLE>
INVESTMENT RETURNS
- --------------------------------------------------------------------------------
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.
Average Annual Ttotal Returns
(As of June 30, 1999)
<TABLE>
<CAPTION>
PERIOD NET ASSET MARKET
VALUE PRICE*
<S> <C> <C> <C>
10 Years 8.01% 6.59%
5 Years 8.61 5.33
1 Year 2.45 -4.31
</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.
[Begin: Tabular Description of Mountain Chart]
Growth of $10,000
<TABLE>
<CAPTION>
PIONEER LEHMAN
<S> <C> <C> <C>
6/30/89 10,000 10,000
10,672 10,710.9
6/30/91 11,592 11,805.5
13,201 13,478
6/30/93 14,741 15,250
14,297 15,027.3
6/30/95 16,197 16,945.1
17,256 17,734
6/30/97 18,986 19,109
21,090 21,264.8
6/30/99 21,571 21,607
</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 6/30/99
Pioneer Interest Shares closed the first half of its fiscal year on June 30,
1999. The following discussion with Kenneth J. Taubes, your Fund's portfolio
manager, details the investment environment and the strategies that affected
your Fund's performance. An investment professional for more than 14 years, Mr.
Taubes - along with Sherman B. Russ - oversees the team responsible for the
daily management of Pioneer Interest Shares.
Q. WITH INTEREST RATES RISING DURING THE PERIOD, HOW DID THE FUND PERFORM?
A. Since Pioneer Interest Shares is a "closed-end" fund, the actual value of
the securities it owns - its 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 $13.06 per share. Because the market value of a share on June
30 was $11.563 per share, the Fund's shares were trading at an 11.49%
"discount" compared to the value of the securities in its portfolio. On the
same date, the Fund provided a dividend yield of 7.96%, based on market
price.
For the six months ended June 30, the Fund's total return stood at -0.42% at
NAV and -11.46% at market price. This NAV return matched that of the Lehman
Brothers Government/Corporate Bond Index. Total return assumes the
reinvestment of all dividends. While we never like to see a negative return,
we believe it was a reasonable result in light of the rising interest rate
environment that affected most fixed-income investors over the past six
months.
Q. THE INVESTMENT ENVIRONMENT SHIFTED SIGNIFICANTLY DURING THE PAST SIX MONTHS.
WHY?
A. In the first half of 1999, investors faced a situation that had seemed
unlikely only six months earlier - one where excessive U.S. economic growth
could stimulate inflation and lead to future interest rate hikes. In the
second half of 1998, the international financial crisis - and the potential
slowing effect that it could have on the U.S. economy - dominated investors'
concerns.
Q. SO, OVERSEAS ECONOMIES DID NOT SLOW U.S. ECONOMIC GROWTH?
A. No, in fact international economies, especially Asia, recovered stronger and
faster than many investors expected, and the U.S. economy remained robust in
the first half of 1999. Labor and housing markets were strong, stock prices
rose, and consumer spending and consumer confidence were high. Many
investors believed these were solid indicators of the future duration and
intensity of the U.S. economy - and that the economic vigor could continue.
4
<PAGE>
PIONEER INTEREST SHARES
However, excessive economic growth often stimulates inflation and investors
became concerned that the Federal Reserve would initiate a series of hikes
in short-term interest rates to cool inflationary pressures. The Fed did, in
fact, raise interest rates by 0.25 percentage points in June but also
announced that, after the June increase, it had adjusted the bias to
"neutral," suggesting that interest rates would remain steady for the near
term. Reflecting the change in investor expectations during the first six
months of 1999, long-term interest rates rose and bond prices fell. The
yield of the benchmark 30-year U.S. Treasury stood at 5.09% on December 31,
1998 and ended the period at 5.97%.
Q. WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A. We managed with an emphasis on current income but with an eye on total
return. The market's changing course created attractive opportunities. By
actively managing the Fund's asset allocation, we were able to take
advantage of these situations by increasing yield and total return. During
this period, that meant boosting the Fund's position in high yield bonds
and, to a lesser degree, mortgage-backed securities. The yield advantage
these sectors provided, relative to Treasurys, increased during 1998's
"flight-to-quality."
Typically, high-yield bonds underperform when economic conditions are
uncertain and tend to outperform when the economy is strong. Solid economic
growth generally helps high-yield issuers improve their credit rating. When
the market stabilized and we believed there was a growing investor
perception that economic growth would be sound, we added to high-yield
holdings. Primarily, we focused on bonds rated "B." (Ratings apply to
underlying securities, not Fund shares.) Generally, bonds rated below "BBB"
are below investment grade, are considered speculative and are commonly
referred to as "junk bonds." Each of these bonds is carefully analyzed by
our research staff and we closely monitor issues once they are selected for
the portfolio. The Fund's position in high-yield bonds helped its total
return, since high-yield bonds outperformed their higher-quality
counterparts. While the total return of Merrill Lynch's 10-year and 30-year
U.S. Treasury Indexes declined by 1.98% and 8.45%, respectively, high-yield
bonds produced a total return of 2.49% for the period. (Source: Merrill
Lynch.)
5
<PAGE>
PIONEER INTEREST SHARES
PORTFOLIO MANAGEMENT DISCUSSION 6/30/99 (CONTINUED)
Q. WHAT IS YOUR OUTLOOK FOR BONDS OVER THE NEXT SIX MONTHS?
A. Overall, the U.S. bond market is attractive with relatively high yields in a
low inflation environment. We believe there are many signs that the economy
could begin to slow. For example, in anticipation of Year 2000 issues, many
businesses increased capital spending early in 1999. This should slow in the
latter part of the year. On the consumer side, the rise in rates should put
a damper on housing and other interest rate-sensitive areas of the economy.
If economic growth doesn't slow on its own, we think the Fed will help it
along by increasing short-term interest rates, despite its declared
"neutral" position.
In this environment, we would continue to emphasize income and relative
value. We are optimistic about the opportunities available in high-yield
bonds, especially in light of our economic outlook. With their attractive
yield advantages over Treasurys and potential for price appreciation, we
believe high-yield bonds can again make a solid contribution to the Fund's
total return.
6
<PAGE>
PIONEER INTEREST SHARES
SCHEDULE OF INVESTMENTS 6/30/99
<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<C> <S> <C> <C>
CORPORATE BONDS - 69.3%
BASIC MATERIALS - 17.3%
AGRICULTURAL PRODUCTS - 0.4%
$ 350,000 B+/B2 Royster-Clark, Inc., 10.25%, 4/1/09 (144A) $ 346,500
-----------
CHEMICALS - 0.4%
350,000 BB/Ba3 Lyondell Chemical Co., 9.875%, 5/1/07 (144A) $ 358,750
-----------
CHEMICALS (DIVERSIFIED) - 0.7%
700,000 B+/B2 Huntsman ICI Chemicals, 10.125%, 7/1/09 (144A) $ 706,125
-----------
CHEMICALS (SPECIALTY) - 2.3%
2,000,000 BBB/Baa2 Hanna (M.A.) Co., 9.375%, 9/15/03 $ 2,155,640
-----------
IRON & STEEL - 5.0%
2,500,000 BBB-/Baa2 USX Corp., 9.375%, 2/15/12 $ 2,820,175
2,000,000 B/B2 Weirton Steel Corp., 11.375%, 7/1/04 1,960,000
-----------
$ 4,780,175
-----------
METALS MINING - 0.5%
500,000 B-/Caa1 AEI Resources, Inc., 11.5%, 12/15/06 (144A) $ 491,250
-----------
PAPER & FOREST PRODUCTS - 8.0%
2,000,000 BB+/Baa3 Boise Cascade Corp., 9.9%, 3/15/00 $ 2,038,920
2,000,000 BBB/Baa2 Bowater, Inc., 9.375%, 12/15/21 2,298,780
3,000,000 BBB-/Baa2 Georgia Pacific Corp., 9.875%, 11/1/21 3,280,440
-----------
$ 7,618,140
-----------
TOTAL BASIC MATERIALS $16,456,580
-----------
CAPITAL GOODS - 3.0%
ENGINEERING & CONSTRUCTION - 2.0%
250,000 B/B2 Metromedia Fiber Network, Inc., 10.0%,
11/15/08 $ 256,875
1,500,000 BBB-/Baa3 Southdown, Inc., 10.0%, 3/1/06 1,646,490
-----------
$ 1,903,365
-----------
WASTE MANAGEMENT - 1.0%
1,000,000 BB/Ba3 Allied Waste NA, 7.625%, 1/1/06 $ 932,500
-----------
TOTAL CAPITAL GOODS $ 2,835,865
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PIONEER INTEREST SHARES
SCHEDULE OF INVESTMENTS 6/30/99 (CONTINUED)
<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<C> <S> <C> <C>
COMMUNICATION SERVICES - 1.1%
CELLULAR/WIRELESS COMMUNICATIONS - 1.1%
$1,000,000 B/B3 NEXTLINK Communications, Inc., 10.75%, 6/1/09 $ 1,027,500
-----------
TOTAL COMMUNICATION SERVICES $ 1,027,500
-----------
CONSUMER CYCLICALS - 8.4%
PUBLISHING (NEWSPAPERS) - 3.6%
3,000,000 BBB-/Baa3 News America Holdings, Inc., 10.125%, 10/15/12 $ 3,394,680
-----------
RETAIL (DEPARTMENT STORES) - 1.6%
1,500,000 BB+/Baa3 Saks, Inc., 7.25%, 12/1/04 $ 1,499,490
-----------
RETAIL (DISCOUNTERS) - 1.7%
1,500,000 BBB-/Baa3 Shopko Stores, Inc., 9.25%, 3/15/22 $ 1,662,990
-----------
SERVICES (COMMERCIAL & CONSUMER) - 0.8%
750,000 BBB/Baa3 Laidlaw Inc., 7.65%, 5/15/06 $ 731,543
-----------
TEXTILES (APPAREL) - 0.7%
800,000 BBB-/Baa3 Levi Strauss & Co., 7.0%, 11/1/06 (144A) $ 714,144
-----------
TOTAL CONSUMER CYCLICALS $ 8,002,847
-----------
CONSUMER STAPLES - 11.2%
BROADCASTING (TELEVISION/RADIO/CABLE) - 8.6%
600,000 B+/B2 Charter Communications Holdings LLC, 8.25%,
4/1/07 (144A) $ 571,500
2,500,000 BBB/Baa3 Continental Cablevision, Inc., 9.5%, 8/1/13 2,858,625
1,250,000 B/B2 EchoStar DBS Communications Corp., 9.25%,
2/1/06 (144A) 1,275,000
3,000,000 BBB/Baa3 Time Warner Inc., 9.15%, 2/1/23 3,473,820
-----------
$ 8,178,945
-----------
ENTERTAINMENT - 0.3%
250,000 B-/B3 Premier Parks, Inc., 9.75%, 6/15/07 $ 252,500
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
PIONEER INTEREST SHARES
<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<C> <S> <C> <C>
FOODS - 2.3%
$ 500,000 B/B3 Agrilink Foods, Inc., 11.875%, 11/1/08 $ 516,250
2,000,000 B-/B3 AmeriServe Food Distribution, Inc., 10.125%,
7/15/07 1,700,000
-----------
$ 2,216,250
-----------
TOTAL CONSUMER STAPLES $10,647,695
-----------
ENERGY - 3.8%
OIL (DOMESTIC INTEGRATED) - 2.2%
2,000,000 A-/A3 Phillips Petroleum Co., 9.18%, 9/15/21 $ 2,116,100
-----------
OIL & GAS (PRODUCTION/EXPLORATION) - 1.6%
1,000,000 BB-/Ba2 Gulf Canada Resources, Ltd., 9.625%, 7/1/05 $ 1,033,070
500,000 BB+/Ba1 Santa Fe Snyder Corp., 8.05%, 6/15/04 499,155
-----------
$ 1,532,225
-----------
TOTAL ENERGY $ 3,648,325
-----------
FINANCIAL - 7.6%
BANKS (REGIONAL) - 0.7%
750,000 BBB-/Ba2 Imperial Bank, 8.5%, 4/1/09 $ 724,455
-----------
CONSUMER FINANCE - 5.0%
1,000,000 BB+/Baa3 Capital One Financial Corp., 7.125%, 8/1/08 $ 946,560
3,000,000 A/A1 Ford Motor Credit Co., 9.14%, 12/30/14 3,268,890
500,000 BB-/Ba3 RBF Finance Co., 11.0%, 3/15/06 (144A) 510,000
-----------
$ 4,725,450
-----------
FINANCIAL (DIVERSIFIED) - 1.9%
1,200,000 CCC+/Caa3 AMRESCO, Inc., 10.0%, 3/15/04 $ 930,000
1,000,000 B/B3 Delta Financial Corp., 9.5%, 8/1/04 860,000
-----------
$ 1,790,000
-----------
TOTAL FINANCIAL $ 7,239,905
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
PIONEER INTEREST SHARES
SCHEDULE OF INVESTMENTS 6/30/99 (CONTINUED)
<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<C> <S> <C> <C>
HEALTHCARE - 2.3%
HEALTHCARE (DIVERSIFIED) - 0.3%
$ 250,000 B+/B2 Biovail Corp., 10.875%, 11/15/05 $ 260,000
-----------
HEALTHCARE (HOSPITAL MANAGEMENT) - 1.0%
1,000,000 BB-/Ba3 Tenet Healthcare Corp., 8.125%, 12/1/08 $ 945,000
-----------
HEALTHCARE (MEDICAL PRODUCTS/SUPPLIES) - 1.0%
1,000,000 BBB-/Ba1 Beckman Instruments Inc., 7.05%, 6/1/26 $ 950,520
-----------
TOTAL HEALTHCARE $ 2,155,520
-----------
TECHNOLOGY - 1.2%
COMPUTERS - 1.2%
1,000,000 BB-/Ba3 Unisys Corp., 12.0%, 4/15/03 $ 1,092,500
-----------
TOTAL TECHNOLOGY $ 1,092,500
-----------
TRANSPORTATION - 6.0%
AIRLINES - 3.8%
2,000,000 BBB-/Baa2 AMR Corp., 9.88%, 6/15/20 $ 2,404,960
500,000 BB+/Baa3 United Air Lines Inc., 10.67%, 5/1/04 561,240
515,000 BB+/Baa3 United Air Lines Inc., 10.25%, 7/15/21 616,512
-----------
$ 3,582,712
-----------
RAILROADS - 2.2%
2,000,000 BBB-/Baa2 Kansas City Southern Industries, Inc., 8.8%,
7/1/22 $ 2,091,020
-----------
TOTAL TRANSPORTATION $ 5,673,732
-----------
UTILITIES - 7.4%
ELECTRIC COMPANIES - 2.5%
300,000 BB/Ba3 CMS Energy Corp., 7.5%, 1/15/09 $ 281,367
2,000,000 A/A2 Virginia Electric and Power Co., 8.75%, 4/1/21 2,095,180
-----------
$ 2,376,547
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
PIONEER INTEREST SHARES
<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<C> <S> <C> <C>
NATURAL GAS - 4.9%
$2,000,000 BBB/Baa2 Coastal Corp., 9.625%, 5/15/12 $ 2,395,920
2,000,000 BBB+/Baa1 Colorado Interstate Gas Co., 10.0%, 6/15/05 2,287,240
-----------
$ 4,683,160
-----------
TOTAL UTILITIES $ 7,059,707
-----------
TOTAL CORPORATE BONDS
(Cost $65,619,773) $65,840,176
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 26.1%
769,335 Federal National Mortgage Association, 9.0%,
7/1/19 $ 815,125
4,158,572 Government National Mortgage Association,
6.0%, 11/15/13 to 4/15/14 4,020,674
7,048,526 Government National Mortgage Association,
6.5%, 10/15/28 to 4/15/29 6,787,871
1,896,413 Government National Mortgage Association
REMIC, Series 1998-24A, 6.5%, 11/20/24 1,866,848
6,900,000 U.S. Treasury Bonds, 8.125%, 8/15/19 8,329,611
1,750,000 U.S. Treasury Notes, 5.25%, 5/15/04 1,719,375
1,270,000 U.S. Treasury Notes, 5.625%, 5/15/08 1,244,524
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost $25,536,169) $24,784,028
-----------
FOREIGN GOVERNMENT SPONSORED - 4.6%
4,000,000 A+/A2 Hydro-Quebec, 9.75%, 1/15/18 $ 4,371,560
-----------
TOTAL FOREIGN GOVERNMENT SPONSORED
(Cost $4,345,000) $ 4,371,560
-----------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $95,500,942)(a)(b) $94,995,764
===========
</TABLE>
144A Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold normally to qualified institutional
buyers in a transaction exempt from registration. At June 30, 1999, the
value of these securities amounted to $4,973,269 or 5.1% of total net
assets.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
PIONEER INTEREST SHARES
SCHEDULE OF INVESTMENTS 6/30/99 (CONTINUED)
(a) At June 30, 1999, the net unrealized loss on investments based on cost for
federal income tax purposes of $95,522,110 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in
which there is an excess of value over tax cost $ 2,034,222
Aggregate gross unrealized loss for all investments in
which there is an excess of tax cost over value (2,560,568)
-----------
Net unrealized loss $ (526,346)
===========
</TABLE>
(b) At December 31, 1998, the Fund had a capital loss carryforward of $8,561,628
which will expire between 1999 and 2004 if not utilized.
Purchases and sales of securities (excluding temporary cash investments) for the
six months ended June 30, 1999 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Long-term U.S. Government $21,214,208 $16,372,929
Other Long-term Securities 10,054,973 14,129,878
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
PIONEER INTEREST SHARES
BALANCE SHEET 6/30/99
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $95,500,942) $ 94,995,764
Interest receivable 1,950,543
Other 625
------------
Total assets $ 96,946,932
------------
LIABILITIES:
Payable for investment securities purchased $ 151,541
Due to affiliates 58,120
Due to bank 105,512
Accrued expenses 47,748
------------
Total liabilities $ 362,921
------------
NET ASSETS:
Paid-in capital $104,826,715
Accumulated undistributed net investment income 15,177
Accumulated net realized loss on investments (7,752,703)
Net unrealized loss on investments (505,178)
------------
Total net assets $ 96,584,011
============
NET ASSET VALUE PER SHARE:
(50,000,000 shares authorized)
7,395,027 fund shares outstanding $ 13.06
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
PIONEER INTEREST SHARES
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED 6/30/99
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 3,961,368
----------
EXPENSES:
Management fees $277,447
Transfer agent fees 30,046
Administrative fees 18,784
Custodian fees 14,135
Professional fees 17,014
Printing 6,697
Fees and expenses of nonaffiliated trustees 9,594
Miscellaneous 27,058
--------
Total expenses $ 400,775
Less fees paid indirectly (922)
----------
Net expenses $ 399,853
----------
Net investment income $ 3,561,515
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments $ 808,925
Change in net unrealized gain on investments (4,981,785)
----------
Net loss on investments $(4,172,860)
----------
Net decrease in net assets resulting from operations $ (611,345)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
PIONEER INTEREST SHARES
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED 6/30/99 AND THE YEAR ENDED 12/31/98
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
6/30/99 12/31/98
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 3,561,515 $ 7,665,860
Net realized gain on investments 808,925 149,030
Change in net unrealized gain on investments (4,981,785) (962,580)
------------ ------------
Net increase (decrease) in net assets resulting from
operations $ (611,345) $ 6,852,310
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ($0.48 and $1.04 per share,
respectively) $ (3,546,338) $ (7,673,126)
------------ ------------
Total distributions to shareholders $ (3,546,338) $ (7,673,126)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Reinvestment of distributions $ 174,562 $ 196,104
------------ ------------
Net decrease in net assets $ (3,983,121) $ (624,712)
NET ASSETS:
Beginning of period 100,567,132 101,191,844
------------ ------------
End of period (including accumulated undistributed net
investment income of $15,177 and $0, respectively) $ 96,584,011 $100,567,132
============ ============
</TABLE>
<TABLE>
<CAPTION>
'99 SHARES '99 AMOUNT '98 SHARES '98 AMOUNT
<S> <C> <C> <C> <C>
Reinvestment of distributions 13,066 $174,562 15,106 $196,104
------ -------- ------ --------
Net increase 13,066 $174,562 15,106 $196,104
====== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
PIONEER INTEREST SHARES
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 6/30/99
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
6/30/99 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.62 $ 13.74 $ 13.40 $ 13.67 $ 12.65 $ 14.29
------- -------- -------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.48 $ 1.04 $ 1.06 $ 1.07 $ 1.07 $ 1.12
Net realized and unrealized gain (loss) on
investments (0.56) (0.12) 0.36 (0.29) 1.03 (1.63)
------- -------- -------- ------- ------- -------
Net increase (decrease) from investment operations $ (0.08) $ 0.92 $ 1.42 $ 0.78 $ 2.10 $ (0.51)
Distributions to shareholders:
Net investment income (0.48) (1.04) (1.07) (1.05) (1.08) (1.13)
In excess of net investment income - - (0.01) - - -
------- -------- -------- ------- ------- -------
Net increase (decrease) in net asset value $ (0.56) $ (0.12) $ 0.34 $ (0.27) $ 1.02 $ (1.64)
------- -------- -------- ------- ------- -------
Net asset value, end of period $ 13.06 $ 13.62 $ 13.74 $ 13.40 $ 13.67 $ 12.65
======= ======== ======== ======= ======= =======
Market value, end of period $11.563 $ 13.563 $ 14.000 $12.875 $13.500 $11.750
Total return* (11.46)% 4.66% 17.83% 3.27% 24.77% (7.54)%
Ratio of net expenses to average net assets 0.81%**+ 0.80%+ 0.87%+ 0.99%+ 0.98%+ 1.03%
Ratio of net investment income to average net assets 7.23%**+ 7.53%+ 7.81%+ 7.94%+ 8.04%+ 8.46%
Portfolio turnover rate 63%** 51% 27% 28% 49% 65%
Net assets, end of period (in thousands) $96,584 $100,567 $101,192 $98,500 $99,989 $92,252
Ratios assuming reduction for fees paid indirectly:
Net expenses 0.81%** 0.80% 0.87% 0.98% 0.97% -
Net investment income 7.23%** 7.53% 7.81% 7.95% 8.05% -
</TABLE>
* 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.
16
<PAGE>
PIONEER INTEREST SHARES
NOTES TO FINANCIAL STATEMENTS 6/30/99
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 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 at prices supplied by independent pricing services, which
consider such factors as Treasury spreads, yields, maturities and
ratings, and valuations may be supplemented by dealers and 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 and premium is accreted or amortized 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.
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.
17
<PAGE>
PIONEER INTEREST SHARES
NOTES TO FINANCIAL STATEMENTS 6/30/99 (CONTINUED)
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.
2. MANAGEMENT AGREEMENT
Pioneer Investment Management, Inc. (PIM), 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.
18
<PAGE>
PIONEER INTEREST SHARES
In addition, under the management and administration agreements,
certain other services and costs, including accounting, regulatory
reporting, and insurance premiums, are paid by the Fund. At June 30,
1999, $53,632 was payable to PIM related to management fees,
administrative and certain other services.
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 $4,488 in transfer agent fees payable to PSC at June
30, 1999.
4. EXPENSE OFFSETS
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, 1999, the Fund's expenses were reduced by $922 under such
arrangements.
19
<PAGE>
PIONEER INTEREST SHARES
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREOWNERS AND THE BOARD OF TRUSTEES OF
PIONEER INTEREST SHARES:
We have audited the accompanying balance sheet, including the schedule of
investments, of Pioneer Interest Shares as of June 30, 1999, and the related
statement of operations, the statements of changes in net assets, and the
financial highlights for the periods presented. 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.
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, 1999, 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, 1999, the results of its operations, the
changes in its net assets, and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 6, 1999
20
<PAGE>
PIONEER INTEREST SHARES
- --------------------------------------------------------------------------------
RESULTS OF SHAREOWNER MEETING
On June 22, 1999, Pioneer Interest Shares held a special meeting of shareowners.
All proposals were passed by shareowner vote. Here are the detailed results of
the votes.
PROPOSAL 1 -- TO ELECT TRUSTEES.
<TABLE>
<CAPTION>
NOMINEE AFFIRMATIVE WITHHELD
------- ----------- --------
<S> <C> <C>
Mary K. Bush 5,870,145.336 148,036.828
John F. Cogan, Jr. 5,880,473.144 137,709.019
Richard H. Egdahl, M.D. 5,880,474.144 137,708.019
Margaret B.W. Graham 5,883,335.439 134,846.725
John W. Kendrick 5,880,690.861 137,491.303
Marguerite A. Piret 5,884,135.439 134,046.725
David D. Tripple 5,884,366.497 133,815.667
Stephen K. West 5,884,660.803 133,521.361
John Winthrop 5,883,644.245 134,537.919
</TABLE>
PROPOSAL 2 -- TO APPROVE AMENDMENTS TO THE FUND'S INVESTMENT OBJECTIVE.
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
----------- ------- -------
<S> <C> <C>
4,064,475.884 174,381.427 108,162.852
</TABLE>
PROPOSAL 3 -- TO SELECT ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS.
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
----------- ------- -------
<S> <C> <C>
5,902,804.187 55,920.034 59,457.942
</TABLE>
21
<PAGE>
PIONEER INTEREST SHARES
- --------------------------------------------------------------------------------
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
<TABLE>
<S> <C>
TRUSTEES OFFICERS
John F. Cogan, Jr. John F. Cogan, Jr., Chairman and
Mary K. Bush President
Richard H. Egdahl, M.D. David D. Tripple, Executive Vice
Margaret B.W. Graham President
John W. Kendrick Sherman B. Russ, Vice President
Marguerite A. Piret Eric W. Reckard, Treasurer
David D. Tripple Joseph P. Barri, Secretary
Stephen K. West
John Winthrop
</TABLE>
INVESTMENT ADVISER
Pioneer Investment Management, Inc.
CUSTODIAN
Brown Brothers Harriman & Co.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
LEGAL COUNSEL
Hale and Dorr LLP
TRANSFER AGENT
Pioneering Services Corporation
SHAREOWNER SERVICES AND SUB-TRANSFER AGENT
ChaseMellon Shareholder Services
22
<PAGE>
PIONEER INTEREST SHARES
- --------------------------------------------------------------------------------
INFORMATION ON THE YEAR 2000
Certain information technology experts currently predict the possibility of a
widespread failure of computer systems and certain other equipment which will be
triggered on or after certain dates - primarily January 1, 2000 - due to a
system inability to process date-related information. This scenario, commonly
known as the "Year 2000 Problem," could have an adverse impact on individuals
and businesses, including mutual funds and financial organizations. Pioneer
Investment Management, Inc. (PIM) is addressing the Year 2000 Problem with
respect to its systems. In addition, other entities providing services to the
Fund and shareowners are being asked to provide assurances that they have
undertaken similar measures with respect to their systems and equipment.
Although PIM is not expecting an adverse impact to it or its clients from the
Year 2000 Problem, it cannot guarantee that its efforts or the efforts of its
key vendors will be successful.
23
<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.
GROWTH FUNDS
UNITED STATES
Pioneer Capital Growth Fund
Pioneer Growth Shares
Pioneer Micro-Cap Fund
Pioneer Mid-Cap Fund
Pioneer Small Company Fund
GLOBAL/INTERNATIONAL
Pioneer Emerging Markets Fund
Pioneer Europe Fund
Pioneer Indo-Asia Fund
Pioneer International Growth Fund
Pioneer World Equity Fund
GROWTH AND INCOME FUNDS
Pioneer Fund
Pioneer II
Pioneer Balanced Fund
Pioneer Equity-Income Fund
Pioneer Real Estate Shares
INCOME FUNDS
TAXABLE
Pioneer America Income Trust
Pioneer Bond Fund
Pioneer Short-Term Income Trust
Pioneer Strategic Income Fund
TAX-EXEMPT
Pioneer Tax-Free Income Fund
MONEY MARKET FUND
Pioneer Cash Reserves Fund
24
<PAGE>
- --------------------------------------------------------------------------------
THIS PAGE FOR YOUR NOTES.
25
<PAGE>
HOW TO CONTACT PIONEER
We are pleased to offer a variety of convenient ways for you to
contact ChaseMellon for assistance or information.
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:
<TABLE>
<S> <C>
FOR WRITE TO
General inquiries, lost dividend checks P.O. Box 3315
South Hackensack, NJ
07606-1915
Change of address, account consolidation P.O. Box 3316
South Hackensack, NJ
07606-1916
Lost stock certificates P.O. Box 3317
South Hackensack, NJ
07606-1917
Stock transfer P.O. Box 3312
South Hackensack, NJ
07606-1912
Dividend reinvestment plan (DRIP) P.O. Box 3338
South Hackensack, NJ
07606-1938
</TABLE>
<TABLE>
<S> <C> <C>
[PIONEER LOGO] PIONEER INVESTMENT MANAGEMENT, INC.
60 STATE STREET 0899-6840
BOSTON, MASSACHUSETTS 02109 (C) PIONEER FUNDS
www.pioneerfunds.com DISTRIBUTOR, INC.
[RECYCLE LOGO] PRINTED ON
RECYCLED PAPER
</TABLE>
