<PAGE>
[PIONEER LOGO]
PIONEER
INTEREST SHARES
ANNUAL REPORT 12/31/99
<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 13
Notes to Financial Statements 17
Report of Independent Public Accountants 20
Trustees, Officers and Service Providers 21
</TABLE>
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN 12/31/99
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DEAR SHAREOWNER,
-----------------------------------------------------------------------------
In an ever-changing investment environment, it can sometimes be
difficult to be disciplined enough to adhere to your investment
goals. We are bombarded every day with information and advice from a
variety of sources. Magazine and newspaper headlines create a frenzy
by shouting - "Top 10 stocks for the year 2000" - sending many
investors scrambling to adjust their holdings. But as history often
shows us, yesterday's winners are in no way tomorrow's sure thing.
We know it's challenging to digest all this information. But no one
can know with absolute certainty which stocks or bonds will have good
performance from day to day. It is important to keep sight of your
own investment goals and to stick to them. Jumping from one
investment to another based upon the latest hot trend may not help
you to reach the financial goals for which you are aiming. We think a
well reasoned investment plan will.
The first few months of the year are a practical time to take a step
back to revisit your investment goals and make appropriate
adjustments in your personal portfolio. Scheduling a review session
with your financial professional is a good starting point. A
professional acquainted with your individual circumstances can help
you to distill information, examine your current strategy and make
informed decisions that can effectively satisfy your long-term
investment needs.
Among the key topics to cover with your advisor is your retirement -
including the IRA options available to you. Now is the time to think
about making a 1999 contribution to an IRA, if you haven't already.
This year, you'll have until April 17 to make your prior-year IRA
contribution because April 15 falls on a Saturday. And, to begin
taking advantage of tax-deferred growth, you might want to get a head
start on your year 2000 contribution.
I encourage you to read on to learn more about Pioneer Interest
Shares. If you have questions, please contact your investment
professional. Visit our web site at www.pioneerfunds.com for more
information about your fund or Pioneer.
Respectfully,
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.
Chairman and President
1
<PAGE>
PIONEER INTEREST SHARES
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PORTFOLIO SUMMARY 12/31/99
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PORTFOLIO QUALITY
-----------------------------------------------------------------------------
(As a percentage of total investment portfolio)
[PIE CHART]
BBB 38%
Government & Agency 30%
A 12%
B 12%
BB 7%
CC 1%
PORTFOLIO MATURITY
-----------------------------------------------------------------------------
(Effective life as a percentage of total investment portfolio)
[PIE CHART]
10-20 Years 25.4%
5-7 Years 25.1%
2-5 Years 20.1%
7-10 Years 14.9%
20+ Years 11.0%
0-2 Years 3.5%
10 LARGEST HOLDINGS
-----------------------------------------------------------------------------
(As a percentage of debt holdings)
<TABLE>
<C> <S> <C>
1. U.S. Treasury Bonds, 8.125%, 8/15/19 8.74%
2. Hydro-Quebec, 9.75%, 1/15/18 4.70
3. Government National Mortgage Association, 6.5%, 10/15/28 4.42
4. Government National Mortgage Association, 7.0%, 7/15/29 3.95
5. Time Warner Inc., 9.15%, 2/1/23 3.71
6. News America Holdings, Inc., 10.125%, 10/15/12 3.59
7. Georgia Pacific Corp., 9.875%, 11/1/21 3.53
8. Ford Motor Credit Corp., 9.14%, 12/30/14 3.52
9. U.S. Treasury Bonds, 5.625%, 5/15/08 3.35
10. USX Corp., 9.375%, 2/15/12 3.08
</TABLE>
Fund holdings will vary for other periods.
2
<PAGE>
PIONEER INTEREST SHARES
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PERFORMANCE UPDATE 12/31/99
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SHARE PRICES AND DISTRIBUTIONS
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET VALUE
PER SHARE 12/31/99 12/31/98
<S> <C> <C>
$12.39 $13.62
<CAPTION>
MARKET PRICE
PER SHARE 12/31/99 12/31/98
<S> <C> <C>
$10.250 $13.563
<CAPTION>
DISTRIBUTIONS PER SHARE
INCOME SHORT-TERM LONG-TERM
(12/31/98 - 12/31/99) DIVIDENDS CAPITAL GAINS CAPITAL GAINS
<S> <C> <C> <C>
$0.95 - -
</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.
<TABLE>
<CAPTION>
PERIOD NET ASSET MARKET
VALUE PRICE*
<S> <C> <C>
10 Years 7.54% 5.50%
5 Years 7.92 5.45
1 Year -1.25 -17.96
</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.
[MOUNTAIN CHART]
Growth of $10,000
<TABLE>
Lehman Brothers
Pioneer Government/
Interest Corporate bond
Shares* Index
<S> <C> <C>
12/31/89 10,000 10,000
10,674 10,827
12/31/91 12,344 12,571
13,333 13,523
12/31/93 14,612 15,019
14,130 14,491
12/31/95 16,582 17,281
17,601 17,780
12/31/97 19,557 19,514
20,943 21,363
12/31/99 20,627 20,903
</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 12/31/99
---------------------------------------------------------------------------
December 31, 1999 ended a difficult year for most fixed-income securities as the
Federal Reserve Board raised short-term interest rates in an attempt to slow
economic activity. In the following discussion, Sherman B. Russ and Kenneth J.
Taubes, co-heads of Pioneer's fixed-income management team, detail the events
and strategies that influenced your Fund's performance during the year.
Q: GIVEN 1999'S CHALLENGING INVESTMENT ENVIRONMENT, HOW DID PIONEER INTEREST
SHARES PERFORM?
A: As with most bond investments, the Fund's share price declined. But higher
interest rates helped to boost the Fund's current yield. On December 31,
1999, the Fund provided a dividend yield of 9.27%, based on market price,
versus 7.67% a year ago. Because Pioneer Interest Shares is a closed-end
fund that trades like an individual security, the actual value of the
Portfolio - its net asset value (NAV) - may be more or less than is
reflected in the market price of Fund shares on any given trading day. On
December 31, the Fund's NAV was $12.39 per share. The market value of a
share that day was $10.25, which meant the Fund's shares were trading at a
17.27% discount compared to the actual value of the securities in its
portfolio.
For the 12-months ending December 31, 1999, the Fund generated a total
return of -1.25% at NAV and -17.96% at market price. Total return assumes
the reinvestment of all distributions. The NAV-based return slightly
outpaced the return of the Lehman Brothers Government/Corporate Index, which
stood at -2.15% for the period.
Q: WHY DID INTEREST RATES RISE?
A: Interest rates rose because of investor concerns that economic growth was
heating up to the point that it could stimulate inflation. Although
inflation remained well contained throughout the year, investors believed
that such signs as a strong labor market and rising commodity prices might
ignite inflation in the future. By mid-1999, investors began to push
interest rates higher and bond prices lower. The rise in rates - most of
which occurred in the second half of the year - gave 1999 the distinction of
being the second worst year for bonds since 1973. Only in 1994 did bonds
experience a greater decline. Rising interest rates worked against the
prices of bonds (just as falling rates tend to boost bond prices).
Meanwhile, the Federal Reserve Board raised short-term interest rates three
times from June 1999 to December 1999, bringing them back to the levels that
existed before 1998's international financial crisis.
4
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PIONEER INTEREST SHARES
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---------------------------------------------------------------------------
Q: WHAT STRATEGIES DID YOU USE TO TRY TO PROTECT THE FUND FROM FALLING BOND
PRICES?
A: We actively managed the Fund's investments in various sectors and, as part
of our on-going strategy, emphasized income. High yield securities were an
important part of Fund strategy and constituted nearly 20% of the
portfolio - the ceiling for these investments, as mandated by the Fund's
investment policies - by year-end. At the same time, we marginally reduced
higher-quality corporate bond holdings and increased investments in
mortgage-backed securities and U.S. Treasury securities. As interest rates
rose, we believe the Fund's investment flexibility helped us to take
advantage of better prices and higher yields of fundamentally sound issues
from different bond market sectors.
The Fund's position in high yield bonds contributed substantially to overall
performance during the first half of 1999, when strong economic conditions
helped that segment of the bond market to perform better than other sectors
of the market. The summer and fall were less hospitable to high yield bonds,
and they sustained steeper price declines than most other bond investments.
However, the level of income offered by high yield securities helped to
offset some of the price declines caused by rising interest rates. Careful
research was key in identifying the securities that could contribute
positively to performance. We added bonds in the healthcare and chemical
industries as well as issues that we expected to benefit from the pick-up in
the global economy. We also selected bonds in the acute care hospital
sector, which had begun to turn around from difficulties triggered by
regulatory concerns. By the end of the year, high yield bond prices had
begun to recover. Historically, high yield securities have complemented
other types of bond investments and generated above average income and total
returns. However, these lower-grade bonds are subject to greater credit risk
than higher quality issues. Over the long term, we believe high yield bonds
can considerably boost the Fund's performance.
In high-quality corporate bonds, the Fund benefited from several tender
offers, a means for the bond issuer to buy back specific existing securities
at a stated price on a specified date. Typically, a tender offer boosts the
price of the security. We invested the proceeds from the tender offers
primarily into U.S. Treasurys and mortgage-backed securities. Yields in
those sectors had risen as prices declined, and we believed they offered
better value compared to other types of bonds. The Fund's investment in
mortgage-backed securities paid off even more later in the year when these
bonds showed more stability than other fixed-income sectors as interest
rates continued their climb.
5
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
PORTFOLIO MANAGEMENT DISCUSSION 12/31/99 (CONTINUED)
---------------------------------------------------------------------------
Q: HOW DO CONDITIONS IN THE BOND MARKET LOOK OVER THE COMING MONTHS?
A: Over the short term, we think interest rates could continue to rise, pushing
bond prices lower. Longer term, however, we are more optimistic. The Federal
Reserve Board already has raised interest rates three-quarters of a
percentage point since June of last year. We believe the Fed still is
pursuing a goal of economic growth at more sustainable rates, so further
increases cannot be ruled out. We believe that if the Fed institutes
additional rate increases, as the market is anticipating, the cumulative
actions will begin to moderate economic growth later in 2000 - a positive
for bonds. In addition, we feel that current bond prices already reflect the
negative effect of higher rates, suggesting the market has room to improve.
Further, we think fixed-income securities look very attractive right now, in
relationship to equities. Recently, U.S. bonds have not performed as well as
stocks, based on various broad market indices. However, if the economy
slows, as we think it will, investors could well be rewarded if they
rebalance portfolios whose allocations may have become too heavily tilted
toward stocks as stock prices rose. The value of bonds is particularly
pronounced given the low level of inflation. "Real" interest rates - or the
rate received by the investor after inflation is removed - are historically
high, thanks to inflation remaining well contained.
Admittedly, the past year has been difficult for bond investors. Periods of
turbulence occur in all financial markets, however, typically challenging
even the most seasoned investors. The dramatic changes that characterize
these periods often create longer-term opportunity. We think the portfolio's
investment flexibility along with careful bond picking will help your Fund
optimize the opportunity for attractive income and price performance in the
months ahead.
6
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/99
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<S> <C> <C> <C>
CORPORATE BONDS - 70.4%
BASIC MATERIALS - 17.6%
AGRICULTURAL PRODUCTS - 0.4%
$ 350,000 B+/B2 Royster-Clark, Inc. 10.25%, 4/1/09 (144A) $ 318,500
-----------
CHEMICALS - 0.4%
350,000 BB/BA3 Lyondell Chemical Co., 9.875%, 5/1/07 (144A) $ 357,000
-----------
CHEMICALS (DIVERSIFIED) - 0.8%
700,000 B+/B2 Huntsman ICI, 10.125%, 7/1/09 (144A) $ 717,500
-----------
CHEMICALS (SPECIALTY) - 2.3%
2,000,000 BBB/BAA2 Hanna (M.A.) Co., 9.375%, 9/15/03 $ 2,094,160
-----------
IRON & STEEL - 5.2%
2,500,000 BBB-/Baa2 USX Corp., 9.375%, 2/15/12 $ 2,764,300
2,000,000 B/B2 Weirton Steel Corp., 11.375%, 7/1/04 1,920,000
-----------
$ 4,684,300
-----------
METALS MINING - 0.4%
500,000 CC/CA AEI Resources, 11.5%, 12/15/06 (144A) $ 325,000
-----------
PAPER & FOREST PRODUCTS - 8.1%
2,000,000 BB+/Baa3 Boise Cascade Corp., 9.9%, 3/15/00 $ 2,010,660
2,000,000 BBB/Baa2 Bowater, Inc., 9.375%, 12/15/21 2,173,780
3,000,000 BBB-/Baa2 Georgia Pacific Corp., 9.875%, 11/1/21 3,170,430
-----------
$ 7,354,870
-----------
TOTAL BASIC MATERIALS $15,851,330
-----------
CAPITAL GOODS - 1.3%
ENGINEERING & CONSTRUCTION - 0.3%
250,000 B+/B2 Metromedia Fiber Network, Inc., 10.0%,
11/15/08 $ 256,250
-----------
WASTE MANAGEMENT - 1.0%
1,000,000 B+/B2 Allied Waste NA, 7.625%, 1/1/06 (144A) $ 890,000
-----------
TOTAL CAPITAL GOODS $ 1,146,250
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/99 (CONTINUED)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<S> <C> <C> <C>
COMMUNICATION SERVICES - 1.7%
CELLULAR/WIRELESS COMMUNICATIONS - 1.7%
$ 500,000 B/B3 Crown Castle International Corp., 9.5%, 8/1/11 $ 503,750
1,000,000 B/B2 NEXTLINK Communications, Inc., 10.75%, 6/1/09 1,037,500
-----------
TOTAL COMMUNICATION SERVICES $ 1,541,250
-----------
CONSUMER CYCLICALS - 7.4%
BUILDING MATERIALS - 0.2%
150,000 B+/B1 Nortek Inc., 9.125%, 9/1/07 $ 145,500
-----------
HOMEBUILDING - 0.4%
400,000 BB+/BA2 Toll Corp., 8.125%, 2/1/09 $ 371,000
-----------
PUBLISHING (NEWSPAPERS) - 3.6%
3,000,000 BBB-/BAA3 News America Holdings, Inc., 10.125%, 10/15/12 $ 3,230,100
-----------
RETAIL (DISCOUNTERS) - 1.7%
1,500,000 BBB-/Baa3 Shopko Stores, Inc., 9.25%, 3/15/22 $ 1,570,665
-----------
SERVICES (COMMERCIAL & CONSUMER) - 0.8%
750,000 BBB/Baa3 Laidlaw Inc., 7.65%, 5/15/06 $ 694,912
-----------
TEXTILES (APPAREL) - 0.7%
800,000 BBB-/Baa1 Levi Strauss & Co., 7.0%, 11/1/06 (144A) $ 595,920
-----------
TOTAL CONSUMER CYCLICALS $ 6,608,097
-----------
CONSUMER STAPLES - 7.7%
BROADCASTING - 2.5%
500,000 B+/B1 Adelphia Communications, 7.875%, 5/1/09 $ 451,250
600,000 B+/B2 Charter Communications Holdings LLC., 8.25%,
4/1/07 (144A) 555,000
1,250,000 B/B2 Echostar DBS Communications Corp., 9.25%,
2/1/06 (144A) 1,259,375
-----------
$ 2,265,625
-----------
DISTRIBUTORS (FOOD & HEALTH) - 0.9%
375,000 B-/B3 Fisher Scientific, 9.0%, 2/1/08 $ 359,062
500,000 B/B2 Wesco Distribution Inc., 9.125%, 6/1/08 470,000
-----------
$ 829,062
-----------
</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
<S> <C> <C> <C>
ENTERTAINMENT - 4.0%
$ 250,000 B-/B3 Premier Parks, Inc., 9.75%, 6/15/07 $ 250,313
3,000,000 BBB/Baa3 Time Warner Inc., 9.15%, 2/1/23 3,338,430
-----------
$ 3,588,743
-----------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.3%
276,000 B/B2 Playtex Family Product Corp., 9.0%, 12/15/03 $ 273,930
-----------
TOTAL CONSUMER STAPLES $ 6,957,360
-----------
ENERGY - 4.5%
OIL (DOMESTIC INTEGRATED) - 2.3%
2,000,000 A-/A3 Phillips Petroleum, 9.18%, 9/15/21 $ 2,054,080
-----------
OIL (DRILLING & EQUIPMENT) - 0.6%
500,000 BB-/BA3 RBF Finance Co., 11.0%, 3/15/06 $ 536,250
-----------
OIL & GAS (PRODUCTION/EXPLORATION) - 1.6%
1,000,000 BB-/Ba2 Gulf Canada Resources, Ltd., 9.625%, 7/1/05 $ 1,004,960
500,000 BB+/BA1 Santa Fe Snyder Corp., 8.05%, 6/15/04 483,895
-----------
$ 1,488,855
-----------
TOTAL ENERGY $ 4,079,185
-----------
FINANCIAL - 6.3%
BANKS (REGIONAL) - 1.1%
750,000 BBB-/BA2 Imperial Bank, 8.375%, 4/1/99 $ 693,803
275,000 BB+/BA3 Sovereign Bancorp, 10.5%, 11/15/06 279,708
-----------
$ 973,511
-----------
CONSUMER FINANCE - 5.2%
1,000,000 BB+/BAA3 Capital One Financial Corp., 7.125%, 8/1/08 $ 903,640
1,000,000 B/B3 Delta Financial Corp., 9.5%, 8/1/04 640,000
3,000,000 A+/A1 Ford Motor Credit Corp., 9.14%, 12/30/14 3,163,050
-----------
$ 4,706,690
-----------
TOTAL FINANCIAL $ 5,680,201
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/99 (CONTINUED)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/MOODY'S
PRINCIPAL RATINGS
AMOUNT (UNAUDITED) VALUE
<S> <C> <C> <C>
HEALTHCARE - 3.0%
HEALTHCARE (DIVERSIFIED) - 3.0%
$1,000,000 BB+/BA1 Beckman Instruments Inc., 7.05%, 6/1/26 $ 916,990
250,000 B+/B2 Biovail Corp., 10.875%, 11/15/05 262,500
500,000 B/B3 King Pharmaceutical Inc., 10.75%, 2/15/09 530,000
1,000,000 BB-/BA3 Tenet Healthcare Corp., 8.125%, 12/1/08 947,500
-----------
TOTAL HEALTHCARE $ 2,656,990
-----------
TECHNOLOGY - 1.7%
COMPUTERS - 1.7%
425,000 BBB+/BAA1 Sun Microsystems Inc., 7.65%, 8/15/09 $ 422,824
1,000,000 BB+/BA1 Unisys Corp., 12.0%, 4/15/03 1,067,500
-----------
TOTAL TECHNOLOGY $ 1,490,324
-----------
TRANSPORTATION - 6.1%
AIRLINES - 3.8%
2,000,000 BBB-/Baa2 AMR Corp., 9.88%, 6/15/20 $ 2,235,040
500,000 BB+/BAA3 United Air Lines Inc., 10.67%, 5/1/04 544,155
515,000 BB+/BAA3 United Air Lines Inc., 10.25%, 7/15/21 581,420
-----------
$ 3,360,615
-----------
RAILROADS - 2.3%
2,000,000 BBB-/Baa2 Kansas City Southern Industries, Inc., 8.8%,
7/1/22 $ 2,092,720
-----------
TOTAL TRANSPORTATION $ 5,453,335
-----------
UTILITIES - 13.1%
ELECTRIC COMPANIES - 8.2%
300,000 BB/BA3 CMS Energy Corp., 7.5%, 1/15/09 $ 276,135
950,000 BBB-/BAA3 Great Lakes Power Inc., 8.3%, 3/1/05 928,416
4,000,000 A+/A2 Hydro-Quebec, 9.75%, 1/15/18 4,225,120
2,000,000 A/A2 Virginia Electric and Power Co., 8.75%, 4/1/21 1,958,280
-----------
$ 7,387,951
-----------
</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
<S> <C> <C> <C>
NATURAL GAS - 4.9%
$2,000,000 BBB/BAA2 Coastal Corp., 9.625%, 5/15/12 $ 2,227,660
2,000,000 BBB+/BAA1 Colorado Interstate Gas Co., 10.0%, 6/15/05 2,205,360
-----------
$ 4,433,020
-----------
TOTAL UTILITIES $11,820,971
-----------
TOTAL CORPORATE BONDS $63,285,293
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 29.6%
1,984,337 Federal Home Loan Mortgage Corp., 6.5%,
4/15/28 $ 1,904,606
2,191,258 Government National Mortgage Association,
7.0%, 8/15/28 2,120,261
2,376,019 Government National Mortgage Association,
6.5%, 10/15/28 2,235,311
2,329,591 Government National Mortgage Association,
6.5%, 4/15/29 2,191,632
3,668,304 Government National Mortgage Association,
7.0%, 7/15/29 3,546,039
1,998,625 Government National Mortgage Association,
7.5%, 11/15/29 1,978,739
1,802,761 Government National Mortgage Association,
REMIC Series 1998 - 24A, -- 6.5%, 11/20/24 1,739,214
3,200,000 U.S. Treasury Bonds, 5.625%, 5/15/08 3,009,536
6,900,000 U.S. Treasury Bonds, 8.125%, 8/15/19 7,854,201
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost $27,906,591) $26,579,539
-----------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $92,929,496)(a)(b) $89,864,832
-----------
</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 December 31, 1999, the
value of these securities amounted to $5,018,295 or 5.5% of total net
assets.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS 12/31/99 (CONTINUED)
---------------------------------------------------------------------------
(a) At December 31, 1999, the net unrealized loss on investments based on cost
for federal income tax purposes of $92,974,910 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in
which there is an excess of value over tax cost $ 1,082,422
Aggregate gross unrealized loss for all investments in
which there is an excess of tax cost over value (4,192,500)
-----------
Net unrealized loss $(3,110,078)
===========
</TABLE>
(b) At December 31, 1999, the Fund had a capital loss carryforward of $6,808,198
which will expire between 2002 and 2004 if not utilized.
Purchases and sales of securities (excluding temporary cash investments) for the
year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Long-term U.S. Government $40,415,769 $32,915,224
Other Long-term Securities 15,776,102 22,649,978
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
BALANCE SHEET 12/31/99
---------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $92,929,496) $ 89,864,832
Cash 72,958
Interest receivable 1,821,083
Other 5,437
------------
Total assets $ 91,764,310
------------
LIABILITIES:
Due to affiliates $ 72,937
Accrued expenses 70,716
------------
Total liabilities $ 143,653
------------
NET ASSETS:
Paid-in capital $103,112,095
Accumulated undistributed net investment income 49,444
Accumulated net realized loss on investments (8,476,218)
Net unrealized loss on investments (3,064,664)
------------
Total net assets $ 91,620,657
============
NET ASSET VALUE PER SHARE:
(50,000,000 shares authorized)
7,395,027 fund shares outstanding $ 12.39
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
STATEMENT OF OPERATIONS
---------------------------------------------------------------------------
FOR THE YEAR ENDED 12/31/99
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 7,915,900
-----------
EXPENSES:
Management fees $548,109
Transfer agent fees 117,268
Administrative fees 31,570
Custodian fees 28,303
Professional fees 34,566
Printing 19,611
Fees and expenses of nonaffiliated trustees 23,946
Miscellaneous 47,538
--------
Total expenses $ 850,911
Less fees paid indirectly (5,200)
-----------
Net expenses $ 845,711
-----------
Net investment income $ 7,070,189
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments $(1,627,972)
Change in net unrealized gain on investments (7,541,271)
-----------
Net loss on investments $(9,169,243)
-----------
Net decrease in net assets resulting from operations $(2,099,054)
-----------
</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 YEARS ENDED 12/31/99 AND 12/31/98
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/99 12/31/98
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 7,070,189 $ 7,665,860
Net realized gain (loss) on investments (1,627,972) 149,030
Change in net unrealized gain on investments (7,541,271) (962,580)
------------ ------------
Net increase (decrease) in net assets resulting from
operations $ (2,099,054) $ 6,852,310
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ($0.95 and $1.04 per share,
respectively) $ (7,021,983) $ (7,673,126)
------------ ------------
Total distributions to shareholders $ (7,021,983) $ (7,673,126)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Reinvestment of distributions $ 174,562 $ 196,104
------------ ------------
Net decrease in net assets $ (8,946,475) $ (624,712)
NET ASSETS:
Beginning of year 100,567,132 101,191,844
------------ ------------
End of year including accumulated undistributed net
investment income of $49,444 and $0, respectively) $ 91,620,657 $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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 13.62 $ 13.74 $ 13.40 $ 13.67 $ 12.65
------- -------- -------- ------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.96 $ 1.04 $ 1.06 $ 1.07 $ 1.07
Net realized and unrealized gain (loss) on investments (1.24) (0.12) 0.36 (0.29) 1.03
------- -------- -------- ------- -------
Net increase (decrease) from investment operations $ (0.28) $ 0.92 $ 1.42 $ 0.78 $ 2.10
Distributions to shareholders:
Net investment income (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 $ (1.23) $ (0.12) $ 0.34 $ (0.27) $ 1.02
------- -------- -------- ------- -------
Net asset value, end of year $ 12.39 $ 13.62 $ 13.74 $ 13.40 $ 13.67
======= ======== ======== ======= =======
Market value, end of year $10.250 $ 13.563 $ 14.000 $12.875 $13.500
Total return* (17.96)% 4.66% 17.83% 3.27% 24.77%
Ratio of net expenses to average net assets+ 0.88% 0.80% 0.87% 0.99% 0.98%
Ratio of net investment income to average net assets+ 7.28% 7.53% 7.81% 7.94% 8.04%
Portfolio turnover rate 59% 51% 27% 28% 49%
Net assets, end of year (in thousands) $91,621 $100,567 $101,192 $98,500 $99,989
Ratios assuming no reduction for fees paid indirectly:
Net expenses 0.88% 0.80% 0.87% 0.98% 0.97%
Net investment income 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.
+ Ratios 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 12/31/99
---------------------------------------------------------------------------
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. 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 is accreted daily on a straight-line basis. Original
issue discount is accreted daily into interest income on a
yield-to-maturity basis with a corresponding increase in the cost basis
of the security. 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 12/31/99 (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.
At December 31, 1999, the Fund reclassified $1,238 and $1,713,382 from
paid-in capital to accumulated undistributed net investment income and
accumulated net realized loss on investments, respectively. The
reclassification has no impact on the net asset value of the Fund and is
designed to present the Fund's capital accounts on a tax basis.
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
18
<PAGE>
PIONEER INTEREST SHARES
---------------------------------------------------------------------------
---------------------------------------------------------------------------
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 December
31, 1999, $47,556 was payable 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 $25,381 in transfer agent fees payable to PSC at
December 31, 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 year ended
December 31, 1999, the Fund's expenses were reduced by $5,200 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 December 31, 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
December 31, 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 December 31, 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
February 4, 2000
20
<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
21
<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 7324-00-0200
BOSTON, MASSACHUSETTS 02109 (C) PIONEER FUNDS
www.pioneerfunds.com DISTRIBUTOR, INC.
[RECYCLE LOGO] PRINTED ON
RECYCLED PAPER
</TABLE>
