<PAGE>
Dear Fellow Shareowners,
-----------------------------------------------------------------------------
Pioneer Three completed its 13th fiscal year on September 30, 1995. Investors
welcomed a much-improved environment for stock investing as the period
progressed -- particularly when compared to the lackluster results of 1994.
Financial markets reached record levels as long-term interest rates moved
lower and then stabilized. Your Fund also gained solid ground, providing a
strong total return and consistent dividend payments for the year.
Pioneer Three's Performance Results
For the 12 months ended September 30, 1995, Pioneer Three offered
shareowners:
(bullet) A total return of 16.24% based on net asset value. Total return
represents the change in net asset value per share and assumes the
reinvestment of all distributions at net asset value.
(bullet) Dividends totaling $0.23, and a capital gains distribution of
$1.145.
(bullet) Net asset value per share of $21.48 on September 30, 1995, versus
$19.92 one year earlier, even after the payment of distributions.
For additional performance information, please turn to page 4.
Interest Rates Played
Major Role in Financial Markets
Rising interest rates troubled financial markets in 1994 -- including the
first quarter of your Fund's fiscal year -- as evidenced by the negative
returns posted by many market indexes. The Federal Reserve (the Fed), trying
to quell fears of inflation, raised short-term interest rates in November
1994 to 5.5%. Investors, however, showed just as much apprehension toward
higher interest rates as they did toward potential inflation, especially
since economic indicators gave mixed messages on the economy's strength. As a
result, turmoil in financial markets continued.
As economic growth -- and inflationary fears -- continued, the Fed again
intervened, pushing short- term interest rates to a three-year high of 6% on
February 1. Investors this time applauded the hike, however, seeing it as a
commitment to keep inflation low and to prevent the economy from growing too
quickly. When signs of a slowing economy began to surface, long-term rates
came down and created a better climate for investing.
United States' financial markets reflected this shift and posted unusually
strong returns. The Dow Jones Industrial Average of 30 large-capitalization
stocks gained 27.93% for the year ended September 30. The Russell 2500 Index,
an unmanaged measure of small- and medium-sized company stocks, closed the
year with a gain of 25.48%. Large-capitalization technology stocks led the
way, with issues hitting record-high prices. Financial stocks also were big
gainers, thanks to a number of consolidations within the industry, as well as
lower interest rates. Interest rates, in fact, worked so well to abate
inflationary fears and to slow the economy that the Fed lowered the benchmark
federal funds rate by 0.25 percentage points on July 6 to prevent the economy
from slowing too significantly. This latest Fed intervention also was well
received by investors, further benefiting financial markets.
How Pioneer Managed Your Investment
Pioneer Three invests primarily in small- and medium-sized companies that
pursue capital growth and make regular dividend payments. This dual
investment objective, however, meant the Fund couldn't fully participate in
the gains many high-growth stocks experienced over the year; therefore, the
Fund's return did not match that of some unmanaged indexes. Keep in mind,
however, that the Fund's selection process does have the benefit of lowering
the portfolio's volatility versus the overall stock market. The technology
sector is a good case in point; because these typically volatile companies
tend to offer growth potential only and do not pay much -- if anything -- in
the way of dividends, few of these stocks made their way into Pioneer Three's
portfolio. We are pleased to note, however, that the
<PAGE>
technology stocks that did meet your Fund's investment criteria performed
well over the past year. One standout was Marshall Industries, a
semiconductor distributor.
Your management looks for value in terms of strong balance sheets and income
statements, high-quality management with a personal stake in the company, and
low stock prices in relation to assets and earning power. We prefer companies
that should progress regardless of external conditions; however, we also
review how the economy may affect industries. Consider, for example, the
consumer non-durables sector, specifically the retail industry. Over the past
year, retail sales generally were stagnant, reflecting the slow economy and a
lack of consumer confidence. We reduced Pioneer Three's exposure to consumer
non-durables, particularly apparel-related companies, over the past 12
months, and instead added to the Fund's holdings in other, less-economically
sensitive areas. An exception was Consolidated Stores, a retailer that sells
discounted and "close-out" merchandise in over 400 stores. The company, which
continues to show its ability to buy and sell merchandise throughout various
economic cycles, has been a profitable investment for your Fund. We are
confident it will further contribute to your Fund's performance moving
forward.
The healthcare industry remains an important part of Pioneer Three's
portfolio. The Fund's largest holding, Boston Scientific, falls in this
category; during the year the company acquired SciMed Life Systems (a maker
of disposable medical devices), which the Fund also held before the takeover.
We kept Boston Scientific after it bought SciMed Life, as we have been
pleased with the company's performance and expect its strong results to
continue. We also have been pleased with the majority of the portfolio's
other healthcare holdings, many of which we added as a result of last year's
concern over industry reforms. Late in the Fund's fiscal year, the group
rebounded and we took gains, scaling back the Fund's positions in several
medical equipment companies we believe hit, or were coming close to, full
value. The Fund's more recent investments in this area are concentrated in
nursing homes and rehabilitation facilities, including MediSense, Integrated
Health Services and Sun Healthcare.
At present, the Fund also holds a number of insurance investments we think
represent good value. The industry as a whole has performed strongly in 1995,
due in large part to lower interest rates coupled with low company
valuations. The Fund holds a sizable weighting in American Bankers Insurance
Group, a seller of credit-related insurance products, and Selective Insurance
Group, a provider of automobile and home insurance. The accompanying chart
shows the Fund's investments, categorized by industry, at the close of the
fiscal year.
[Plot points for pie chart]
Sector Distribution
(Percentage of equity investments
as of September 30, 1995)
Services 18%
Financial 13%
Consumer Non-Durables 16%
Consumer Durables 5%
Capital Goods 17%
Other 8%
Energy 6%
Basic Industries 8%
Technology 9%
Looking Ahead
In 1995, the various events that hindered financial markets in 1994 were
replaced with significantly improved market conditions and renewed investor
optimism. While the market cannot sustain such a scorching upward pace
forever, 1995 already has well rewarded investors.
In our last annual report to you we emphasized that successful investors
maintain a long-term outlook. While the Fund and stock market have been
strong over much of the past year, they both will continue to be influenced
by near-term conditions and will experience day-to-day price swings.
Investors should not
2
<PAGE>
try to "time the market." Instead, look at an investment's long-term
potential, just as your Fund's management does. We will continue to monitor
and adjust the Fund's portfolio to maintain a collection of well-valued
small- and mid-sized stocks we think will be solid investments moving
forward. We are confident that Pioneer Three's diversified holdings, and our
value approach to investing, will create solid long-term results.
Please refer to the following pages for the audited list of the Fund's
portfolio holdings and financial statements as of September 30, 1995. If you
have any questions about your investment in Pioneer Three, please contact
your investment representative, or call Pioneer at 1-800-225-6292. Thank you
for your continued support.
Respectfully,
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.
Chairman and President,
Pioneer Three
November 3, 1995
3
<PAGE>
Growth of a $10,000 Investment
This chart shows the growth of a $10,000 investment made in Pioneer Three
at public offering price, compared with the growth of the Russell 2500 Index.
[Plot points for line chart]
PIONEER THREE:
Average Annual Total Returns
(as of September 30, 1995)
<TABLE>
<CAPTION>
Net Asset Public Offering
Time Period Value Price*
<S> <C> <C>
- -------------------------- ------------ ---------------
Life-of-Fund (11/19/82) 13.45% 12.93%
10 Years 12.91 12.24
5 Years 18.01 16.62
1 Year 16.24 9.53
</TABLE>
9/85 10000 9425
9/86 12828 11350
9/87 16737 14472
9/88 15225 13616
9/89 18911 17199
9/90 14316 13865
9/91 21021 18828
9/92 23190 21662
9/93 30167 26604
9/94 31038 27302
9/95 38947 31735
*Reflects deduction of the maximum 5.75% sales charge at the beginning of the
period and assumes reinvestment of all distributions at net asset value.
The Russell 2500 Index is an unmanaged, market-weighted measure of stock
market performance. It contains stocks of the 2,500 smallest publicly traded
companies. The largest company in the Index has a market capitalization of
approximately $3.7 billion. Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect any fees, expenses or sales charges.
Investors cannot directly invest in the Index.
Past performance does not guarantee future results. Return and principal
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
4
<PAGE>
SCHEDULE OF INVESTMENTS-PIONEER THREE-September 30, 1995
<TABLE>
<CAPTION>
Shares Value
COMMON STOCKS--91.8%
BASIC INDUSTRIES--7.7%
Chemicals--2.0%
<S> <C> <C>
155,000 Cambrex Corp. $ 6,238,750
198,600 Crompton & Knowles Corp. 2,954,175
331,850 The Dexter Corp. 8,462,175
170,700 The Geon Co. 4,352,850
------------
$ 22,007,950
------------
Forest Products--1.1%
299,135 Potlatch Corp. $ 12,227,143
------------
Iron & Steel--2.5%
510,300 Armco, Inc. $ 3,316,950
721,000 Chaparral Steel Co. 7,750,750
151,700 Harsco Corp. 8,438,312
602,500 Intermet Corp. 6,778,125
56,000 NS Group, Inc.* 168,000
------------
$ 26,452,137
------------
Paper Products--0.6%
134,750 Pentair, Inc. $ 6,063,750
------------
Pollution & Waste--1.0%
433,200 Applied Bioscience International, Inc.* $ 2,761,650
107,600 Gundle Environmental Systems, Inc.* 800,275
290,300 Zurn Industries, Inc. 7,366,362
------------
$ 10,928,287
------------
Precious Metals--0.5%
464,700 Hecla Mining Co.* $ 5,634,487
------------
Total Basic Industries $ 83,313,754
------------
CAPITAL GOODS--15.2%
Construction & Engineering--3.5%
280,100 Granite Construction, Inc. $ 7,562,700
148,350 Hughes Supply, Inc. 3,560,400
467,975 Ply-Gem Industries, Inc. 8,891,525
633,750 RPM, Inc. 12,595,781
387,700 The Ryland Group, Inc. 6,009,350
------------
$ 38,619,756
------------
Producer Goods--11.7%
525,000 Castech Aluminum Group, Inc.* $ 8,465,625
322,150 CLARCOR, Inc. 7,570,525
445,000 DT Industries, Inc. 6,118,750
413,000 The Duriron Co., Inc. 12,080,250
172,900 Farrel Corp. 778,050
558,480 Federal Signal Corp. 12,426,180
199,600 Ferrofluidics Corp.* 2,395,200
203,300 Finning, Ltd. 3,207,458
425,000 Greenfield Industries 13,068,750
396,400 Kennametal, Inc. 14,369,500
257,251 Keystone International, Inc. 5,530,896
227,800 Kimball International, Inc. (Class B) 6,378,400
898,000 Regal-Beloit Corporation 16,725,250
465,800 Shelby Williams Industries, Inc.+ 6,055,400
477,400 Watts Industries, Inc. (Class A) 11,875,325
------------
$127,045,559
------------
Total Capital Goods $165,665,315
------------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CONSUMER DURABLES--4.8%
Consumer Durables--0.7%
301,000 Leggett & Platt, Inc. $ 7,412,125
------------
Motor Vehicles--4.1%
314,400 Arvin Industries, Inc. $ 6,720,300
323,000 Gentex Corp.* 7,752,000
512,000 Hi-Lo Automotive, Inc.* 3,712,000
202,800 Modine Manufacturing Co. 5,779,800
707,012 Simpson Industries, Inc. 6,981,748
313,400 Standard Motor Products, Inc. 5,954,600
800,000 TBC Corp.* 7,700,000
------------
$ 44,600,448
------------
Total Consumer Durables $ 52,012,573
------------
CONSUMER NON-DURABLES--14.7%
Agriculture & Food--0.7%
208,950 Flowers Industries, Inc. $ 4,309,594
195,500 Thorn Apple Valley, Inc. 3,665,625
------------
$ 7,975,219
------------
Consumer Luxuries--0.8%
347,300 Huffy Corp. $ 3,950,537
240,800 Outboard Marine Corp. 5,177,200
------------
$ 9,127,737
------------
Retail Food--0.6%
244,000 Ruddick Corp. $ 6,588,000
------------
Retail Non-Food--8.2%
751,500 Arbor Drugs, Inc. $ 14,090,625
390,000 Catherines Stores*+ 4,582,500
104,800 Cato Corp. (Class A) 746,700
734,900 CML Group, Inc. 5,144,300
742,300 Consolidated Stores Corp.* 17,165,688
700,000 Designs, Inc.* 5,425,000
513,000 Family Dollar Stores, Inc. 9,747,000
166,000 Fingerhut Companies, Inc. 2,676,750
315,000 Fred Meyer, Inc.* 7,717,500
455,700 MicroAge, Inc.* 5,069,663
826,464 Pier 1 Imports, Inc. 8,367,948
443,600 Russ Berrie and Company, Inc. 6,764,900
221,100 Vans, Inc.* 1,602,975
------------
$ 89,101,549
------------
Textiles/Clothes--4.4%
299,200 Angelica Corp. $ 7,517,400
450,000 Cone Mills Corp.* 6,018,750
377,100 Crown Crafts, Inc. 4,902,300
75,400 Cutter & Buck Inc.* 556,075
448,400 Guilford Mills, Inc. 10,873,700
550,000 Paragon Trade Brands, Inc.* 8,525,000
368,212 Unifi, Inc. 9,021,194
------------
$ 47,414,419
------------
Total Consumer Non-Durables $160,206,924
------------
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ENERGY--5.7%
Oil Services--2.4%
558,300 Enterra Corp.* $ 12,282,600
390,000 Matrix Service Co.* 1,730,625
788,300 Oceaneering International, Inc.* 8,572,762
352,900 Stolt Comex Seaway S.A.* 3,837,788
------------
$ 26,423,775
------------
Oil & Gas Extraction--3.3%
691,518 Anderson Exploration Ltd.* $ 6,481,858
171,900 Diamond Shamrock, Inc. 4,233,038
502,700 Plains Resources, Inc.* 3,990,181
244,000 Seagull Energy Corp.* 4,941,000
112,600 Southwestern Energy Co. 1,534,175
478,100 Vintage Petroleum, Inc. 10,040,100
1,096,400 Wainoco Oil Corp.* 4,111,500
------------
$ 35,331,852
------------
Total Energy $ 61,755,627
------------
FINANCIAL--11.6%
Commercial Bank--3.6%
442,500 Magna Group, Inc. $ 10,730,625
309,200 Meridian Bancorp, Inc. 11,826,900
425,801 Old Kent Financial Corp. 16,233,663
------------
$ 38,791,188
------------
Insurance-General--2.2%
475,000 American Bankers Insurance Group, Inc. $ 17,693,750
463,200 Western National Corp. 6,369,000
------------
$ 24,062,750
------------
Non-Life Insurance--4.7%
936,900 Allmerica Property & Casualty Companies, Inc. $ 22,368,488
530,000 Guaranty National Corp. 8,811,250
413,000 Selective Insurance Group, Inc. 15,074,500
563,712 Willis Corroon Group Plc (A.D.R.) 5,566,656
------------
$ 51,820,894
------------
Savings & Loan--0.8%
275,000 Albank Financial Corp. $ 8,250,000
------------
Misc. Financial--0.3%
262,900 DVI, Inc.* $ 3,614,875
------------
Total Financial $126,539,707
------------
SERVICES--16.8%
Health Services & Personal Care--11.7%
370,900 Allied Healthcare Products+ $ 6,815,288
421,100 American Healthcorp, Inc.*+ 2,947,700
558,560 Bergen Brunswig Corp. (Class A) 11,939,220
507,300 BioWhittaker, Inc.* 3,931,575
653,121 Boston Scientific Corporation* 27,839,283
550,000 Coastal Physician Group, Inc.* 9,625,000
384,199 Community Health Systems, Inc.* 15,512,035
81,495 Healthdyne Technologies, Inc.* 1,110,369
375,000 Integrated Health Services, Inc.* 10,593,750
410,000 Lincare Holdings, Inc.* 10,557,500
600,000 MediSense, Inc.* 14,475,000
300,000 Owen Healthcare, Inc.* 4,893,750
575,000 Sun Healthcare Group, Inc.* 7,403,125
------------
$127,643,595
------------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Pharmaceuticals--1.4%
925,800 Medeva Plc (A.D.R.) $ 15,044,250
------------
Publishing--0.9%
210,000 Houghton Mifflin Company $ 9,765,000
-----------
Services--2.8%
493,600 The Interpublic Group of Companies, Inc. $ 19,620,600
288,100 Ideon Group, Inc. 2,953,025
360,500 New England Business Service, Inc. 7,435,312
------------
$ 30,008,937
------------
Total Services $182,461,782
------------
TECHNOLOGY--8.7%
Business Machines--2.5%
900,000 Data General Corp.* $ 9,337,500
446,000 National Computer Systems, Inc. 9,589,000
300,000 Stratus Computer, Inc.* 7,875,000
------------
$ 26,801,500
------------
Computer Software--1.5%
450,000 BancTec, Inc.* $ 9,675,000
630,000 Banyan Systems, Inc.* 6,378,750
------------
$ 16,053,750
------------
Electronics--4.7%
606,015 Baldor Electric Co. $ 15,226,127
218,600 Belden, Inc. 5,738,250
87,500 Intergraph Corp.* 1,060,938
285,000 Kuhlman Corp. 3,455,625
249,100 Marshall Industries* 9,403,525
690,000 Micro Focus Group Plc (A.D.R.)* 7,762,500
302,100 Whittaker Corp.* 5,815,425
318,900 Zenith Electronics Corp.* 2,750,513
------------
$ 51,212,903
------------
Total Technology $ 94,068,153
------------
TRANSPORTATION--3.3%
Air Transport--1.0%
444,600 Airborne Freight Corp. $ 10,892,700
------------
Ships & Shipping--1.4%
507,900 American President Companies, Ltd. $ 14,856,075
------------
Truck Transport & Storage--0.9%
880,000 Arkansas Best Corp. $ 10,450,000
------------
Total Transportation $ 36,198,775
------------
UTILITIES--3.3%
Gas Utility--2.2%
591,300 KN Energy, Inc. $ 16,112,925
274,300 Peoples Energy Corp. 7,543,250
------------
$ 23,656,175
------------
Utility/Other--1.1%
373,000 Eastern Enterprises $ 11,982,625
------------
Total Utilities $ 35,638,800
------------
TOTAL COMMON STOCKS (Cost $706,166,519) (a) $997,861,410
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------- -------------
TEMPORARY CASH INVESTMENTS--8.2%
<S> <C> <C>
$13,236,000 Commercial Credit Co., 5.72%, 10/2/95 $ 13,254,924
12,104,000 Ford Motor Credit Co., 5.74%, 10/3/95 12,115,594
15,217,000 Norwest Financial Inc., 5.72%, 10/4/95 15,229,104
19,473,000 Prudential Funding Corp., 5.76%, 10/5/95 19,485,479
13,850,000 Exxon Credit Corp., 5.76%, 10/6/95 13,856,657
14,729,000 Associates Corp. of North America, 5.98%, 10/10/95 14,733,902
-------------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $88,609,000) $ 88,675,660
-------------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY
CASH INVESTMENTS--100.0% (Cost $794,775,519) $1,086,537,070
=============
</TABLE>
* Non-income producing security.
+ Investments held by the Fund representing 5% or more of the outstanding
voting stock of such company (see Note 5).
(a) At September 30, 1995, the net unrealized gain on investments based on
cost for federal income tax purposes of $706,166,519 was as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate gross unrealized gain for all investments in which there is an excess of
value over tax cost ............................................................... $356,662,977
Aggregate gross unrealized loss for all investments in which there is an excess of
tax cost over value ............................................................... (64,968,086)
------------
Net unrealized gain............................................................... $291,694,891
============
</TABLE>
Purchases and sales of securities (excluding temporary cash investments) for
the year ended September 30, 1995 aggregated approximately $184,933,000 and
$300,257,000, respectively.
BALANCE SHEET--SEPTEMBER 30, 1995
(Dollars In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in securities, at value (including temporary cash investment of $88,676) (cost
$794,776; see Schedule of Investments and Notes 1 and 5).................................. $1,086,537
Receivables--
Investment securities sold................................................................ 2,033
Dividends................................................................................. 1,021
Trust shares sold......................................................................... 207
Other...................................................................................... 32
----------
Total assets............................................................................. $1,089,830
----------
Liabilities:
Payables--
Investment securities purchased........................................................... $ 6,072
Trust shares repurchased.................................................................. 557
Due to bank............................................................................... 168
Accrued expenses--
Management fees (Note 2).................................................................. 68
Other (Notes 2, 3 and 4).................................................................. 811
---------
Total liabilities........................................................................ $ 7,676
----------
NET ASSETS:
Paid-in capital (Note 1)................................................................... $ 712,460
Accumulated undistributed net investment income............................................ 6,320
Accumulated undistributed net realized gain on investments (Note 1)........................ 71,679
Net unrealized gain on investments......................................................... 291,695
----------
Total net assets (equivalent to $21.48 per share based on 50,390,819 shares
outstanding--unlimited number of shares authorized)...................................... $1,082,154
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME (Note 1):
Dividends (net of foreign taxes withheld of $58) $ 17,273
Interest 2,593
Other (Note 6) 750
--------
Total investment income $ 20,616
--------
Expenses:
Management fees (Note 2) $ 4,701
Distribution fees (Note 4) 1,799
Transfer agent fees (Note 3) 1,705
Registration fees 50
Professional fees 82
Accounting (Note 2) 98
Custodian fees 83
Printing 55
Fees and expenses of nonaffiliated trustees 46
Miscellaneous 56
--------
Total expenses $ 8,675
Less fees paid indirectly (Note 7) (70)
--------
Net expenses $ 8,605
--------
Net investment income $ 12,011
--------
Realized and Unrealized Gain on Investments:
Net realized gain on investments (Note 1) $ 76,657
Change in net unrealized gain on investments 66,524
--------
Net gain on investments $143,181
--------
Net increase in net assets resulting from operations $155,192
========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1995 and 1994
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
---------- ----------
FROM OPERATIONS:
Net investment income $ 12,011 $ 12,317
Net realized gain on investments 76,657 61,071
Change in net unrealized gain on investments 66,524 (46,767)
---------- ----------
Net increase in net assets resulting from operations $ 155,192 $ 26,621
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ($0.23 and $0.25 per share, respectively) $ (11,708) $ (12,441)
Net realized gain on investments ($1.15 and $1.51 per share, respectively) (57,659) (72,766)
---------- ----------
Decrease in net assets resulting from distributions to shareholders $ (69,367) $ (85,207)
---------- ----------
FROM TRUST SHARE TRANSACTIONS:
SHARES
-------------------------
Net proceeds from sale of shares 4,234,630 6,605,985 $ 81,319 $ 134,158
Net asset value of shares issued to shareholders in
reinvestment of dividends 3,754,378 4,067,109 66,582 81,921
Cost of shares repurchased (8,669,270) (7,844,246) (168,805) (159,319)
----------- ----------- ---------- ----------
Net increase (decrease) in net assets resulting from
trust share transactions (680,262) 2,828,848 $ (20,904) $ 56,760
=========== =========== ---------- ----------
Net increase (decrease) in net assets $ 64,921 $ (1,826)
NET ASSETS:
Beginning of year 1,017,233 1,019,059
---------- ----------
End of year (including accumulated undistributed net investment income of $6,320
and $3,251, respectively) $1,082,154 $1,017,233
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Data For a Share Outstanding For The Years Presented
<TABLE>
<CAPTION>
For the Years Ended September 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year $19.92 $21.12 $18.03 $16.16 $12.96 $ 17.80 $15.09 $18.52 $16.01 $13.98
Increase (decrease)
from investment
operations:
Net investment
income $ 0.24 $ 0.24 $ 0.28 $ 0.33 $ 0.41 $ 0.41 $ 0.42 $ 0.30 $ 0.28 $ 0.34
Net realized and
unrealized gain
(loss) on
investments 2.70 0.32 3.72 2.04 3.94 (3.56) 3.33 (1.91) 3.76 2.41
------ ------ ------ ------ ------ -------- ------ ------- ------ ------
Total increase
(decrease) from
investment
operations $ 2.94 $ 0.56 $ 4.00 $ 2.37 $ 4.35 $ (3.15) $ 3.75 $(1.61) $ 4.04 $ 2.75
Distributions to
shareholders
from:
Net investment
income (0.23) (0.25) (0.29) (0.35) (0.41) (0.46) (0.36) (0.41) (0.36) (0.36)
Net realized gain (1.15) (1.51) (0.62) (0.15) (0.74) (1.23) (0.68) (1.41) (1.17) (0.36)
Net increase
(decrease) in
net asset value $ 1.56 $(1.20) $ 3.09 $ 1.87 $ 3.20 $ (4.84) $ 2.71 $(3.43) $ 2.51 $ 2.03
------ ------- ------ ------ ------ -------- ------ ------- ------ ------
Net asset value,
end of year $21.48 $19.92 $21.12 $18.03 $16.16 $ 12.96 $17.80 $15.09 $18.52 $16.01
====== ====== ====== ====== ====== ======== ====== ======= ====== ======
Total return* 16.24% 2.62% 22.82% 15.05% 35.80% (19.39%) 26.32% (6.00%) 27.50% 20.40%
Ratio of net
operating
expenses to
average net
assets 0.85%** 0.86% 0.84% 0.85% 0.74% 0.71% 0.72% 0.76% 0.68% 0.71%
Ratio of net
investment
income to
average net
assets 1.18%** 1.19% 1.43% 1.85% 2.72% 2.58% 2.56% 2.15% 1.74% 2.41%
Porfolio turnover
rate 19% 15% 18% 12% 5% 14% 16% 12% 23% 24%
Net assets,
end of year (in
thousands) $1,082,154 $1,017,233 $1,019,059 $779,631 $692,344 $562,343 $752,135 $616,953 $734,300 $543,173
</TABLE>
- ----------------
* Assumes initial investment at net asset value at the beginning of each
year, reinvestment of all distributions, the complete redemption of the
investment at the net asset value at the end of each year and no sales
charges. Total return would be reduced if sales charges were taken into
account.
** Ratios include expenses paid through certain expense offset arrangements.
Exclusion of such offset arrangements has no effect on these ratios.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS--September 30, 1995
-----------------------------------------------------------------------------
1. Pioneer Three (the Fund) is a Massachusetts business trust registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. 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. Each day, securities are valued at the last sale price on the
principal exchange where they are traded. Securities that have not traded
on the date of valuation, or securities for which sale prices are not
generally reported, are valued at the mean between the last bid and asked
prices. Securities for which market quotations are not readily available
are valued at their fair values as determined by, or under the direction
of, the Board of Trustees. Temporary cash investments are valued at
amortized cost plus accrued interest, which approximates value. Dividend
income is recorded on the ex-dividend date and interest income is recorded
on the accrual basis.
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 Taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and net
realized capital gains, if any, to its shareholders. Therefore, no federal
income tax provision is required.
The characterization of distributions to shareholders for financial
reporting purposes is determined in accordance with federal income tax
rules. Therefore, the source of the Fund's distributions may be shown in
the accompanying financial statements as either from or in excess of net
investment income or net realized gain on investment transactions, or from
paid-in capital, depending on the type of book/tax differences that may
exist.
At September 30, 1995, the Fund reclassified approximately $93,000 and
$2,673,000 from paid-in capital and accumulated undistributed net realized
gain, respectively, to accumulated undistributed net investment income.
This 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. Trust Shares -- The Fund records sales and repurchases of its trust
shares on the trade date. Net losses, if any, as a result of cancellations
are absorbed by Pioneer Funds Distributor, Inc. (PFD), the principal
underwriter for the Fund and an indirect subsidiary of The Pioneer Group,
Inc. (PGI). PFD earned approximately $185,000 in underwriting commissions
on the sale of the Fund's trust shares during the year ended September 30,
1995. Distributions to shareholders are recorded as of the ex-dividend
date.
2. Pioneering Management Corporation (PMC), the Fund's investment adviser,
manages the Fund's portfolio and is a wholly owned subsidiary of PGI.
Management fees are calculated daily at the annual rate of 0.50% of the
Fund's average daily net assets up to $250,000,000; 0.48% of the next
$50,000,000; and 0.45% of excess over $300,000,000.
In addition, under the management agreement, certain other services and
costs, including accounting, regulatory reporting and insurance premiums, are
paid by the Fund. Included in Accrued expenses -- Other is approximately
$27,000 in accounting fees payable to PMC at September 30, 1995.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--September 30, 1995 (Continued)
-----------------------------------------------------------------------------
3. Pioneering Services Corporation (PSC), a wholly owned subsidiary of PGI,
provides substantially all transfer agent and shareholder services to the
Fund at negotiated rates. Included in Accrued expenses -- Other is
approximately $184,000 in transfer fees payable to PSC at September 30, 1995.
4. The Fund adopted a Plan of Distribution (the Plan) that allows for the
Fund to reimburse PFD for expenditures to finance any activities primarily
intended to result in the sale of trust shares. The Plan provides for
reimbursement of such expenditures in an amount not to exceed 0.15% on
qualifying investments in the Fund made prior to August 19, 1991 and 0.25% on
qualifying investments made on or subsequent to that date. Included in
Accrued expenses -- Other is approximately $504,000 in distribution fees
payable to PFD at September 30, 1995.
5. The Fund's investment in certain companies may exceed 5% of the
outstanding voting stock. Such companies are deemed affiliates of the Fund
for financial reporting purposes. The following summarizes transactions with
affiliates of the Fund as of September 30, 1995:
Purchases Sales Dividend
Affiliates Cost Cost Income Value
Allied Healthcare Products $-- $-- $100,143 $ 6,815,288
American Healthcorp, Inc.* -- -- -- 2,947,700
Catherines Stores* -- -- -- 4,582,500
Shelby Williams Industries, Inc. -- 26,600 130,522 6,055,400
--- ------- -------- -----------
TOTAL $-- $26,600 $230,665 $20,400,888
=== ======= ======== ===========
*Non-income producing security
6. During the year ended September 30, 1995, PMC paid the Fund approximately
$750,000 as a result of a class action settlement related to one of the
Fund's portfolio investments.
7. PMC has entered into certain expense offset arrangements resulting in the
reduction in the Fund's total expenses. For the year ended September 30,
1995, transfer agent fees paid in connection with interest earned on account
balances maintained by the transfer agent were approximately $70,000.
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF PIONEER THREE:
We have audited the accompanying balance sheet of Pioneer Three, including
the schedule of investments, as of September 30, 1995, and the related
statement of operations, statements of changes in net assets and financial
highlights for the years 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 September 30, 1995 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 Three as of September 30, 1995, the results of its operations, the
changes in its net assets and financial highlights for the years presented,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 27, 1995
14
<PAGE>
TRUSTEES' FEES, PRINCIPAL SHAREHOLDERS AND SHARE OWNERSHIP OF TRUSTEES AND
OFFICERS (UNAUDITED)
-----------------------------------------------------------------------------
The aggregate direct remuneration paid by the Fund to nonaffiliated trustees
and officers during the year ended September 30, 1995 was approximately
$43,000, plus expenses incurred in attending trustees meetings of
approximately $4,000. Fees of trustees who are affiliated with or "interested
persons" of Pioneering Management Corporation and Pioneer Funds Distributor,
Inc., investment adviser and principal underwriter, respectively, of the Fund
($1,000 in 1995), are reimbursed to the Fund by Pioneering Management
Corporation in accordance with the management contract with the Fund. At
September 30, 1995, the trustees and officers of the Fund owned beneficially
27,190 shares of the Fund (approximately 0.05% of the outstanding shares).
The Pioneer Group, Inc., the parent company of Pioneering Management
Corporation and Pioneer Funds Distributor, Inc., is a publicly-held
corporation of which Mr. Cogan, Chairman and President of the Fund, owned
approximately 15% of the outstanding shares of capital stock at September 30,
1995.
-----------------------------------------------------------------------------
TAX TREATMENT OF DISTRIBUTIONS MADE DURING THE YEAR ENDED SEPTEMBER 30, 1995
.............................................................................
During the fiscal year ended September 30, 1995, the Fund paid the
following distributions:
<TABLE>
<CAPTION>
Distributions Per Share
-----------------------
From Net
To Shareholders Investment From Net
of Record Payment Date Income Realized Gain
--------- ------------ ------ -------------
Short-Term Long-Term
---------- ---------
<S> <C> <C> <C> <C>
December 20, 1994 December 28, 1994 $0.12 $0.192 $0.953
June 22, 1995 June 30, 1995 0.11 -- --
---- ----- -----
TOTAL $0.23 $0.192 $0.953
===== ====== ======
</TABLE>
On a per share basis, the distributions from net realized gain include
$0.953, which should be reported as long-term capital gain. The remaining
$0.192 should be combined with the $0.23 distribution from net investment
income for a total of $0.422, which represents ordinary income.
Corporate shareholders may deduct up to 70% of qualifying dividends
received during the year. For purposes of computing the exclusion, 100% of
distributions from net investment income represents qualifying dividends.
Shareholders who elected to take the Capital Gain Distribution in
additional shares of the Fund should report the distribution as explained
above. The tax cost of the shares received on December 28, 1994 is $17.56 per
share.
15
<PAGE>
PIONEER THREE
60 State Street
Boston, Massachusetts 02109
OFFICERS
JOHN F. COGAN, JR., Chairman and President
DAVID D. TRIPPLE, Executive Vice President
ROBERT W. BENSON, Vice President
WILLIAM H. KEOUGH, Treasurer
JOSEPH P. BARRI, Secretary
TRUSTEES
JOHN F. COGAN, JR.
RICHARD H. EGDAHL, M.D.
MARGARET B. W. GRAHAM
JOHN W. KENDRICK
MARGUERITE A. PIRET
DAVID D. TRIPPLE
STEPHEN K. WEST
JOHN WINTHROP
INVESTMENT ADVISER
PIONEERING MANAGEMENT
CORPORATION
PRINCIPAL UNDERWRITER
PIONEER FUNDS
DISTRIBUTOR, INC.
CUSTODIAN
BROWN BROTHERS HARRIMAN & CO.
INDEPENDENT PUBLIC
ACCOUNTANTS
ARTHUR ANDERSEN LLP
LEGAL COUNSEL
HALE AND DORR
SHAREHOLDER SERVICES AND TRANSFER AGENT
PIONEERING SERVICES CORPORATION
60 State Street
Boston, Massachusetts 02109
-----------------------------------------------------------------------------
Please call Pioneer for information on:
Existing accounts, new accounts,
prospectuses, applications,
and service forms 1-800-225-6292
Fund yields and prices 1-800-225-4321
Toll-free fax 1-800-225-4240
Retirement plans 1-800-622-0176
Telecommunications Device for the Deaf
(TDD) 1-800-225-1997
-----------------------------------------------------------------------------
When distributed to persons who are not shareowners of the Fund, this report
must be accompanied by an official prospectus, which discusses the
objectives, policies and other information about the Fund.
1195-2821
(C)Pioneer Funds Distributor, Inc.
[Pioneer Logo]
Pioneer
Three
ANNUAL REPORT
SEPTEMBER 30, 1995
