<PAGE>
[PIONEER LOGO]
PIONEER
INTEREST SHARES
--------------------------
SEMI-ANNUAL REPORT 6/30/00
--------------------------
<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 6
Financial Statements 12
Notes to Financial Statements 16
Trustees, Officers and Service Providers 19
</TABLE>
<PAGE>
PIONEER INTEREST SHARES
-----------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN 6/30/00
-----------------------------------------------------------------------------
DEAR SHAREOWNER,
-----------------------------------------------------------------------------
For over a year, the Federal Reserve has been trying to suppress
inflationary pressures and restrain economic growth in the U.S. by
raising short-term interest rates. Because they represent increased
costs, higher interest rates cut into corporate profits.
With the possibility of a slowing economy and an uncertain profit
outlook overhanging the stock market, investors shifted from sector
to sector in the first half of 2000 looking for attractive
opportunities. Heightened stock market volatility was the result.
Bonds also lost luster, because existing, lower-paying issues could
not compete with the higher rates that now prevail. By summer, we
began to see evidence that the Fed's tactics were having some impact,
as key statistics hinted at a contraction of the economy's growth
rate.
Volatile markets should not sidetrack your plans for dealing with
your essential financial goals. Whatever your long-range needs may
be -- money for a child's education, funding a comfortable
retirement, or some other cherished objective -- those needs remain
in place no matter what the market may do this week or next month.
For that reason, it makes sense to focus your investment strategy
beyond interim ups and downs.
Mid-year is a good time to talk to your financial representative to
review what has been happening and to make sure your strategy is
intact. Part of that discussion should be devoted to your portfolio's
diversification. Do you have a blend of stocks and bonds that you are
comfortable with and that can help you meet your goals? Or is it time
to make adjustments? Be sure to include your IRAs and other
retirement vehicles when you evaluate your overall portfolio.
I hope you will take time to read the following discussion with Ken
Taubes, co-head of Pioneer's fixed-income team. It's an excellent way
to understand Pioneer Interest Shares' performance during the past
six months and to learn what expectations are for the months ahead.
If you have questions or would like more information about your fund,
visit our 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 6/30/00
-----------------------------------------------------------------------------
PORTFOLIO QUALITY
-----------------------------------------------------------------------------
(As a percentage of total investment portfolio)
[pie chart]
U.S. GOVERNMENT AND AGENCY 36.7%
A 10.5%
BBB 32.2%
BB 8.9%
B & Lower 11.7%
[end pie chart]
PORTFOLIO MATURITY
-----------------------------------------------------------------------------
(Effective life as a percentage of total investment portfolio)
(pie chart)
0-1 YEARS 0.3%
1-3 YEARS 25.9%
3-6 YEARS 15.7%
6-8 YEARS 28.5%
8-10 YEARS 9.5%
10+ YEARS 20.1%
[end pie chart]
10 LARGEST HOLDINGS
-----------------------------------------------------------------------------
(As a percentage of debt holdings)
<TABLE>
<C> <S> <C>
1. U.S. Treasury Bonds, 8.125%, 8/15/19 9.39%
2. Government National Mortgage Association II, 8.0%, 6/20/30 5.41
3. Hydro-Quebec, 9.75%, 1/15/18 4.68
4. Government National Mortgage Association, 7.0%, 7/15/29 3.92
5. Time Warner Inc., 9.15%, 2/1/23 3.70
6. News America Holdings, Inc., 10.125%, 10/15/12 3.63
7. Georgia Pacific Corp., 9.875%, 11/1/21 3.57
8. U.S. Treasury Notes, 5.625%, 5/15/08 3.48
9. Ford Motor Credit Corp., 9.14%, 12/30/14 3.46
10. Government National Mortgage Association, 7.5%, 2/15/30 3.29
</TABLE>
2 Fund holdings will vary for other periods.
<PAGE>
PIONEER INTEREST SHARES
-----------------------------------------------------------------------------
PERFORMANCE UPDATE 6/30/00
-----------------------------------------------------------------------------
SHARE PRICES AND DISTRIBUTIONS
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET VALUE
PER SHARE 6/30/00 12/31/99
<S> <C> <C>
$12.24 $12.39
<CAPTION>
MARKET PRICE
PER SHARE 6/30/00 12/31/99
<S> <C> <C>
$10.938 $10.250
<CAPTION>
DISTRIBUTIONS PER SHARE
(12/31/99 - 6/30/00) INCOME SHORT-TERM LONG-TERM
DIVIDENDS CAPITAL GAINS CAPITAL GAINS
<S> <C> <C> <C>
0.470 - -
</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.
Growth of $10,000
[mountain chart]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND
PIONEER INTEREST SHARES* INDEX
------------------------ -------------------------
<S> <C> <C>
6/30/90 10000 10000
10345 10514
10845 11839
11964 12920
6/30/92 12351 13921
12923 14496
13791 15460
14162 14747
6/30/94 13376 14804
13695 13643
15153 15871
16072 17022
6/30/96 16144 17078
17060 17579
17763 18763
18955 20714
6/30/98 19730 20059
20299 21679
20214 19194
20046 17785
6/30/00 20569 19716
[end mountain chart]
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(As of June 30, 2000)
<TABLE>
<CAPTION>
PERIOD NET ASSET MARKET
VALUE PRICE*
<S> <C> <C> <C>
10 Years 7.48% 7.02%
5 Years 6.30 4.44
1 Year 1.75 2.72
</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.
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 6/30/00
--------------------------------------------------------------------------------
The first six months of the year were an unusual period for the U.S. fixed
income market. The Federal Reserve maintained its policy of raising short-term
interest rates in an attempt to avoid inflationary pressures. At the same time,
the economy continued to grow strongly, contributing to budget surpluses for the
federal government and a rally in U.S. Treasury securities. In the following
interview, Kenneth J. Taubes discusses the factors that influenced your Fund's
performance during the six-month period. Mr. Taubes, co-head of Pioneer's fixed
income group, oversees the team responsible for the daily management of Pioneer
Interest Shares.
Q: HOW DID PIONEER INTEREST SHARES PERFORM DURING THE SIX-MONTH PERIOD ENDED
JUNE 30, 2000?
A: The Fund performed well. The Fund's dividend yield on June 30, 2000 was
11.48%, based on market price. Interest Shares is a closed-end fund, which
means that shares in the Fund are traded like an individual security.
Therefore, the market price of the Fund can diverge from the actual value of
the portfolio -- its net asset value, or NAV. During the six months, the
Fund's market price continued to trade at a discount to the net asset value,
but the discount narrowed. The discount started the period at 17.3% and
ended the period at 10.6%. For the six months ended June 30, 2000, the Fund
generated a total return of 2.62% at net asset value. This compares to the
3.22% return of the Lehman Brothers Government/Corporate Index. Total return
calculations assume the reinvestment of all distributions.
Q: WHAT WAS THE INVESTMENT ENVIRONMENT LIKE DURING THE SIX-MONTH PERIOD?
A: Economic growth continued to be strong during the six months ending June 30,
2000, although there were indications that the rate of growth might be
slowing. With high rates of growth in Gross Domestic Product (GDP) and
declining unemployment rates, the U.S. Federal Reserve continued to raise
short-term interest rates in an effort to limit inflationary pressures.
During the six-month period, the Fed raised short-term rates three different
times by a total of 1.00%. Since June 1999, the Fed has raised rates by a
total of 1.75%. Rising rates did not extend to all parts of the bond market,
however. The strong economy resulted in a rising revenue flow to the federal
government, which reduced its debt by buying back higher coupon, long-term
Treasury Bonds. This resulted in rising prices and declining interest rates
for both intermediate- and long-term Treasury obligations. During the
six-month period, the yields on longer-term Treasury obligations fell below
those of shorter-term government notes. The rally in long-term Treasuries
was in contrast to the deteriorating environment for corporate securities.
Lower credit-quality securities underperformed Treasuries amid concerns that
any slowing of economic growth
4
<PAGE>
PIONEER INTEREST SHARES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
could undermine the financial strength of corporations. Corporate bonds fell
in prices and their yields rose, with the worst performance occurring among
high yielding low quality securities.
Q: WHAT CHANGES DID YOU MAKE IN YOUR STRATEGY DURING THIS PERIOD?
A: As the end of the six-month period approached, the difference between the
yields of Treasuries and non-Treasuries had grown -- or widened -- to the
extent that corporate bonds offered extremely attractive yields. This was
especially true of high yield, lower quality bonds, which had suffered
through two years of relatively poor performance. We increased our
allocation to high yield bonds to take advantage of the attractive
valuations. We raised the high yield weighting in the portfolio to 18.6% of
net assets close to our mandated 20% maximum allocation, and lowered our
allocation to long-term Treasuries, which began to look less attractive in
relative value after their strong rally. We also increased our allocation to
intermediate-term securities, shortening the portfolio's average maturity.
On June 30, average credit quality of the portfolio was A, while effective
duration was 5.23 years. Duration is a measure of a bond's price sensitivity
to interest rate changes. Quality ratings apply to portfolio holdings, not
the Fund's shares.
Q: WHAT IS YOUR OUTLOOK?
A: We believe we have begun to see signs of moderation in the pace of economic
growth, which should be good for the fixed income market. Consumer spending
appears to be slowing, as has growth in the manufacturing sector. We believe
most -- but perhaps not all -- of the Federal Reserve Board's increases in
short-term interest rates may have already occurred. While we don't think
the economy will slow dramatically, we do think growth will become more
moderate, providing a better opportunity for declines in interest rates,
perhaps beginning in late 2000 or early 2001.
5
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 6/30/00 (unaudited)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL S&P/MOODY'S
AMOUNT RATINGS VALUE
<C> <S> <C> <C>
CORPORATE BONDS - 63.3%
BASIC MATERIALS - 14.8%
CHEMICALS - 0.4%
$ 350,000 BB/BA3 Lyondell Chemical Co., 9.875%, 5/1/07 $ 346,500
-----------
CHEMICALS (DIVERSIFIED) - 0.8%
700,000 B+/B2 Huntsman ICI Chemicals LLC, 10.125%, 7/1/09 $ 703,500
-----------
CHEMICALS (SPECIALTY) - 2.3%
2,000,000 BBB/BAA2 Hanna (M.A.) Co., 9.375%, 9/15/03 $ 2,084,420
-----------
IRON & STEEL - 5.3%
2,500,000 BBB/Baa1 USX Marathon Group, 9.375%, 2/15/12 $ 2,755,050
2,000,000 B/B2 Weirton Steel Corp., 11.375%, 7/1/04 1,960,000
-----------
$ 4,715,050
-----------
METALS MINING - 0.1%
500,000 CC/CA AEI Resources, Inc., 11.5%, 12/15/06 (144A) $ 50,000
-----------
PAPER & FOREST PRODUCTS - 5.9%
2,000,000 BBB/Baa3 Bowater, Inc., 9.375%, 12/15/21 $ 2,072,740
3,000,000 BBB-/Baa2 Georgia Pacific Corp., 9.875%, 11/1/21 3,167,100
-----------
$ 5,239,840
-----------
TOTAL BASIC MATERIALS $13,139,310
-----------
CAPITAL GOODS - 0.8%
ENGINEERING & CONSTRUCTION - 0.3%
250,000 B+/B2 Metromedia Fiber Network, Inc., 10.0%,
11/15/08 $ 247,500
-----------
WASTE MANAGEMENT - 0.5%
500,000 BB/BA3 Azurix Corp., 10.75%, 2/15/10 (144A) $ 480,000
-----------
TOTAL CAPITAL GOODS $ 727,500
-----------
COMMUNICATION SERVICES - 1.7%
CELLULAR/WIRELESS COMMUNICATIONS - 1.7%
500,000 B/B3 Crown Castle International Corp., 9.5%, 8/1/11 $ 475,000
1,000,000 B/B2 NextLINK Communications, Inc., 10.75%, 6/1/09 987,500
-----------
TOTAL COMMUNICATION SERVICES $ 1,462,500
-----------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL S&P/MOODY'S
AMOUNT RATINGS VALUE
<C> <S> <C> <C>
CONSUMER CYCLICALS - 6.7%
AUTO PARTS & EQUIPMENT - 0.3%
$ 325,000 BB+/Ba1 Lear Corp., 7.96%, 5/15/05 $ 303,687
-----------
BUILDING MATERIALS - 0.4%
400,000 B+/B1 Nortek, Inc., 9.125%, 9/1/07 $ 371,000
-----------
HOMEBUILDING - 0.4%
400,000 BB+/BA2 Toll Corp., 8.125%, 2/1/09 $ 360,000
-----------
PUBLISHING (NEWSPAPERS) - 3.7%
3,000,000 BBB-/BAA3 News America Holdings, Inc., 10.125%, 10/15/12 $ 3,230,700
-----------
RETAIL (DISCOUNTERS) - 1.7%
1,500,000 BBB-/Baa3 Shopko Stores, Inc., 9.25%, 3/15/22 $ 1,534,170
-----------
SERVICES (COMMERCIAL & CONSUMER) - 0.2%
530,000 CC/Ca Laidlaw Inc., 7.65%, 5/15/06 $ 132,500
-----------
TOTAL CONSUMER CYCLICALS $ 5,932,057
-----------
CONSUMER STAPLES - 7.6%
BROADCASTING (TELEVISION/RADIO/CABLE) - 2.4%
500,000 B+/B1 Adelphia Communications Corp., 7.875%, 5/1/09 $ 420,000
600,000 B+/B2 Charter Communications Holdings LLC, 8.25%,
4/1/07 531,000
1,250,000 B/B2 Echostar DBS Communications Corp., 9.25%,
2/1/06 1,212,500
-----------
$ 2,163,500
-----------
DISTRIBUTORS (FOOD & HEALTH) - 0.9%
375,000 B-/B3 Fisher Scientific International Inc., 9.0%,
2/1/08 $ 347,813
500,000 B/B2 Wesco Distribution Inc., 9.125%, 6/1/08 457,500
-----------
$ 805,313
-----------
ENTERTAINMENT - 4.0%
250,000 B-/B3 Premier Parks, Inc., 9.75%, 6/15/07 $ 241,250
3,000,000 BBB/Baa3 Time Warner Inc., 9.15%, 2/1/23 3,281,190
-----------
$ 3,522,440
-----------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.3%
276,000 B/B2 Playtex Family Products Inc., 9.0%, 12/15/03 $ 267,720
-----------
TOTAL CONSUMER STAPLES $ 6,758,973
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
PIONEER INTEREST SHARES
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 6/30/00 (unaudited) (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL S&P/MOODY'S
AMOUNT RATINGS VALUE
<C> <S> <C> <C>
ENERGY - 5.5%
OIL (DOMESTIC INTEGRATED) - 2.3%
$2,000,000 BBB/Baa2 Phillips Petroleum, 9.18%, 9/15/21 $ 2,066,400
-----------
OIL (DRILLING & EQUIPMENT) - 0.6%
500,000 BB-/BA3 RBF Finance Co., 11.0%, 3/15/06 $ 537,500
-----------
OIL & GAS (PRODUCTION/EXPLORATION) - 2.6%
800,000 BB/Ba2 EOTT Energy Partners LP, 11.0%, 10/1/09 $ 808,000
1,000,000 BB/Ba2 Gulf Canada Resources, Ltd., 9.625%, 7/1/05 1,022,340
500,000 BBB-/Ba1 Santa Fe Snyder Corp., 8.05%, 6/15/04 494,965
-----------
$ 2,325,305
-----------
TOTAL ENERGY $ 4,929,205
-----------
FINANCIAL - 4.5%
CONSUMER FINANCE - 4.5%
1,000,000 BB+/BAA3 Capital One Financial Corp., 7.125%, 8/1/08 $ 901,000
3,000,000 A/A2 Ford Motor Credit Corp., 9.14%, 12/30/14 3,068,940
-----------
$ 3,969,940
-----------
TOTAL FINANCIAL $ 3,969,940
-----------
HEALTHCARE - 3.2%
HEALTHCARE (DIVERSIFIED) - 0.6%
500,000 B/B3 King Pharmaceutical Inc., 10.75%, 2/15/09 $ 517,500
-----------
HEALTHCARE (HOSPITAL MANAGEMENT) - 1.0%
1,000,000 BB-/Ba3 Tenet Healthcare Corp., 8.125%, 12/1/08 $ 920,000
-----------
HEALTHCARE (MEDICAL PRODUCTS/SUPPLIES) - 1.6%
500,000 B/B2 Bio-Rad Laboratories, Inc., 11.625%, 2/15/07 $ 515,000
1,000,000 BB+/Ba1 Beckman Instruments, 7.05%, 6/1/26 936,990
-----------
$ 1,451,990
-----------
TOTAL HEALTHCARE $ 2,889,490
-----------
TECHNOLOGY - 1.6%
COMMUNICATIONS EQUIPMENT - 0.2%
150,000 B/B2 L-3 Communication Holdings Corp, 8.5%, 5/15/08 $ 138,000
-----------
COMPUTERS (HARDWARE) - 0.5%
425,000 BBB+/Baa1 Sun Microsystems, 7.65%, 8/15/09 $ 421,201
-----------
</TABLE>
8 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL S&P/MOODY'S
AMOUNT RATINGS VALUE
<C> <S> <C> <C>
ELECTRICAL EQUIPMENT - 0.3%
$ 300,000 B/B2 Hadco Corp., 9.5%, 6/15/08 $ 301,500
-----------
ELECTRONICS (SEMICONDUCTORS) - 0.6%
500,000 B/B2 Fairchild Semiconductors Corp., 10.375%,
10/1/07 $ 505,000
-----------
TOTAL TECHNOLOGY $ 1,365,701
-----------
TRANSPORTATION - 3.5%
AIRLINES - 3.5%
2,000,000 BBB-/Baa2 AMR Corp., 9.88%, 6/15/20 $ 2,104,420
500,000 BB+/BAA3 United Air Lines Inc., 10.67%, 5/1/04 516,330
515,000 BB+/BAA3 United Air Lines Inc., 10.25%, 7/15/21 508,485
-----------
TOTAL TRANSPORTATION $ 3,129,235
-----------
UTILITIES - 13.4%
ELECTRIC COMPANIES - 8.4%
300,000 BB/BA3 CMS Energy Corp., 7.5%, 1/15/09 $ 267,432
950,000 BBB-/BAA3 Great Lakes Power Inc., 8.3%, 3/1/05 938,380
4,000,000 A+/A2 Hydro-Quebec, 9.75%, 1/15/18 4,147,600
2,000,000 A/A2 Virginia Electric and Power Co., 8.75%, 4/1/21 2,058,080
-----------
$ 7,411,492
-----------
NATURAL GAS - 5.0%
2,000,000 BBB/BAA2 Coastal Corp., 9.625%, 5/15/12 $ 2,241,200
2,000,000 BBB+/BAA1 Colorado Interstate Gas Co., 10.0%, 6/15/05 2,181,020
-----------
$ 4,422,220
-----------
TOTAL UTILITIES $11,833,712
-----------
TOTAL CORPORATE BONDS
(Cost $58,290,913) $56,137,623
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 6/30/00 (unaudited) (continued)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 36.7%
$1,714,411 Federal Home Loan Mortgage Corp., 6.5%,
4/15/28 $ 1,579,795
995,384 Federal National Mortgage Association, 8.0%,
4/1/30 999,823
75,000 Federal National Mortgage Association, 8.0%,
30-Year, TBA 75,335
1,701,062 Government National Mortgage Association,
6.5%, 11/20/24 1,650,218
2,116,676 Government National Mortgage Association,
7.0%, 8/15/28 2,058,742
3,568,091 Government National Mortgage Association,
7.0%, 7/15/29 3,470,432
1,988,946 Government National Mortgage Association,
7.5%, 11/15/29 1,975,520
2,935,642 Government National Mortgage Association,
7.5%, 2/15/30 2,915,826
749,479 Government National Mortgage Association I,
8.0%, 5/15/30 757,955
4,765,000 Government National Mortgage Association II,
8.0%, 6/20/30 4,798,069
750,000 U.S. Treasury Notes, 7.5%, 2/15/05 786,428
3,200,000 U.S. Treasury Notes, 5.625%, 5/15/08 3,088,032
6,900,000 U.S. Treasury Bonds, 8.125%, 8/15/19 8,325,471
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost $32,764,345) $32,481,646
-----------
TOTAL INVESTMENT IN SECURITIES - 100.0%
(Cost $91,055,258)(a)(b) $88,619,269
-----------
-----------
</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, 2000, the
value of these securities amounted to $530,000 or 0.6% of total net assets.
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(a) At June 30, 2000, the net unrealized loss on investments based on cost for
federal income tax purposes of $91,255,282 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in
which there is an excess of value over tax cost $ 878,840
Aggregate gross unrealized loss for all investments in
which there is an excess of tax cost over value (3,514,853)
-----------
Net unrealized loss $(2,636,013)
-----------
-----------
</TABLE>
(b) At December 31, 1999, the Fund had a capital loss carryforward of $6,608,198
which will expire between 2002 and 2004 if not utilized.
Purchases and sales of securities (excluding temporary cash investments) for
the six months ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Long-term U.S. Government $10,006,062 $ 274,642
Other Long-term Securities 8,153,347 18,004,564
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 11
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
BALANCE SHEET 6/30/00 (unaudited)
---------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $91,055,258) $ 88,619,269
Cash 307,975
Receivables --
Investment securities sold 76,579
Interest 1,705,395
Other 471
------------
Total assets $ 90,709,689
------------
LIABILITIES:
Payables --
Investment securities purchased $ 75,574
Due to affiliates 89,703
Accrued expenses 43,932
------------
Total liabilities $ 209,209
------------
NET ASSETS:
Paid-in capital $103,112,095
Accumulated undistributed net investment income 63,495
Accumulated net realized loss on investments (10,239,121)
Net unrealized loss on investments (2,435,989)
------------
Total net assets $ 90,500,480
============
NET ASSET VALUE PER SHARE:
(50,000,000 shares authorized)
7,395,027 fund shares outstanding $ 12.24
============
</TABLE>
12 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
STATEMENT OF OPERATIONS (unaudited)
---------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED 6/30/00
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 3,872,472
----------
EXPENSES:
Management fees $257,981
Transfer agent fees 61,712
Administrative fees 15,707
Custodian fees 11,069
Professional fees 18,547
Printing 5,460
Fees and expenses of nonaffiliated trustees 7,735
Miscellaneous 6,534
--------
Total expenses $ 384,745
Less fees paid indirectly (1,969)
----------
Net expenses $ 382,776
----------
Net investment income $ 3,489,696
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments $(1,762,903)
Change in net unrealized loss on investments 628,675
----------
Net loss on investments $(1,134,228)
----------
Net increase in net assets resulting from operations $ 2,355,468
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 13
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED 6/30/00 AND THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
6/30/00 YEAR ENDED
(UNAUDITED) 12/31/99
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 3,489,696 $ 7,070,189
Net realized loss on investments (1,762,903) (1,627,972)
Change in net unrealized gain or loss on investments 628,675 (7,541,271)
------------ ------------
Net increase (decrease) in net assets resulting from
operations $ 2,355,468 $ (2,099,054)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ($0.47 and $0.95 per share,
respectively) $ (3,475,645) $ (7,021,983)
------------ ------------
Total distributions to shareholders $ (3,475,645) $ (7,021,983)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Reinvestment of distributions $ -- $ 174,562
------------ ------------
Net decrease in net assets $ (1,120,177) $ (8,946,475)
NET ASSETS:
Beginning of period 91,620,657 100,567,132
------------ ------------
End of period (including accumulated undistributed net
investment income of $63,495 and $49,444, respectively) $ 90,500,480 $ 91,620,657
============ ============
</TABLE>
<TABLE>
<CAPTION>
'00 SHARES '00 AMOUNT
(UNAUDITED) (UNAUDITED) '99 SHARES '99 AMOUNT
<S> <C> <C> <C> <C>
Reinvestment of distributions -- $ -- 13,066 $174,562
------ -------- ------ --------
Net increase -- $ -- 13,066 $174,562
====== ======== ====== ========
</TABLE>
14 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
PIONEER INTEREST SHARES
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
6/30/00 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.39 $ 13.62 $ 13.74 $ 13.40 $ 13.67 $ 12.65
------- ------- -------- -------- ------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.47 $ 0.96 $ 1.04 $ 1.06 $ 1.07 $ 1.07
Net realized and unrealized gain (loss) on
investments (0.15) (1.24) (0.12) 0.36 (0.29) 1.03
------- ------- -------- -------- ------- -------
Net increase (decrease) from investment operations $ 0.32 $ (0.28) $ 0.92 $ 1.42 $ 0.78 $ 2.10
Distributions to shareholders:
Net investment income (0.47) (0.95) (1.04) (1.07) (1.05) (1.08)
In excess of net investment income -- -- -- (0.01) -- --
------- ------- -------- -------- ------- -------
Net increase (decrease) in net asset value $ (0.15) $ (1.23) $ (0.12) $ 0.34 $ (0.27) $ 1.02
------- ------- -------- -------- ------- -------
Net asset value, end of period $ 12.24 $ 12.39 $ 13.62 $ 13.74 $ 13.40 $ 13.67
======= ======= ======== ======== ======= =======
Market value, end of period $10.938 $10.250 $ 13.563 $ 14.000 $12.875 $13.500
Total return* 11.48% (17.96)% 4.66% 17.83% 3.27% 24.77%
Ratio of net expenses to average net assets+ 0.85%** 0.88% 0.80% 0.87% 0.99% 0.98%
Ratio of net investment income to average net
assets+ 7.69%** 7.28% 7.53% 7.81% 7.94% 8.04%
Portfolio turnover rate 41%** 59% 51% 27% 28% 49%
Net assets, end of period (in thousands) $90,500 $91,621 $100,567 $101,192 $98,500 $99,989
Ratios assuming reduction for fees paid indirectly:
Net expenses 0.85%** 0.88% 0.80% 0.87% 0.98% 0.97%
Net investment income 7.69%** 7.28% 7.53% 7.81% 7.95% 8.05%
</TABLE>
* Assumes initial investment at market value at the beginning of each period,
reinvestment of all distributions and the complete redemption of the
investment at market value at the end of each period.
** Annualized.
+ Ratios assuming no reduction for fees paid indirectly.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 15
<PAGE>
PIONEER INTEREST SHARES
----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 6/30/00 (unaudited)
----------------------------------------------------------------------------
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 as of trade date. Securities are
valued at prices supplied by independent pricing services, which
consider such factors as Treasury spreads, yields, maturities and
ratings. 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, including interest on income
bearing cash accounts, 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.
16
<PAGE>
PIONEER INTEREST SHARES
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 on the dividend valuation
date, is computed as follows: (a) if the last sale price of shares
of the Fund is at or above net asset value, the Fund will issue new
full and fractional shares (computed to three decimals) at the
greater of net asset value or 95% of such last sale price, to be
credited to the participant's account; or (b) if the last sale price
of shares 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.
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,
2000, $46,566 was payable
17
<PAGE>
PIONEER INTEREST SHARES
----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 6/30/00 (unaudited) (continued)
----------------------------------------------------------------------------
to PIM related to management fees, administrative fees 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 $43,137 in transfer agent fees payable to PSC at June
30, 2000.
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, 2000, the Fund's expenses were reduced by $1,969 under such
arrangements.
18
<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
Marguerite A. Piret Sherman B. Russ, Vice President
David D. Tripple Eric W. Reckard, Treasurer
Stephen K. West Joseph P. Barri, Secretary
John Winthrop
</TABLE>
INVESTMENT ADVISER
Pioneer Investment Management, Inc.
CUSTODIAN
Brown Brothers Harriman & Co.
LEGAL COUNSEL
Hale and Dorr LLP
TRANSFER AGENT
Pioneering Services Corporation
SHAREOWNER SERVICES AND SUB-TRANSFER AGENT
ChaseMellon Shareholder Services
19
