File No. 33-7592
File No. 811-04768
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
Pioneer Intermediate Tax-Free Fund
(Name of Registrant as Specified in Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
<PAGE>
PIONEER INTERMEDIATE TAX-FREE FUND
60 State Street
Boston, Massachusetts 02109
1-800-622-3265
NOTICE OF MEETING OF SHAREHOLDERS
SCHEDULED FOR MARCH 30, 1999
This is the formal agenda for your fund's shareholder meeting. It tells you
what matters will be voted on and the time and place of the meeting, in case you
want to attend in person.
To the shareholders of Pioneer Intermediate Tax-Free Fund:
A meeting of shareholders of your fund will be held at the offices of Hale
and Dorr LLP, 60 State Street, 26th Floor, Boston, Massachusetts on Tuesday,
March 30, 1999, at 2:00 p.m., Boston time, to consider the following:
1. A proposal to approve an Agreement and Plan of Reorganization between
your fund and Pioneer Tax-Free Income Fund. Under this Agreement your
fund would transfer all of its assets to Tax-Free Income Fund in
exchange for shares of Tax-Free Income Fund. These shares would be
distributed proportionately to you and the other shareholders of your
fund. Tax-Free Income Fund would also assume your fund's liabilities.
Your board of trustees recommends that you vote FOR this proposal.
2. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on February 1, 1999 are
entitled to vote at the meeting and any related follow-up meetings.
By order of the board of trustees,
Joseph P. Barri, Secretary
Boston, Massachusetts
February 1, 1999
-----------
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN THE
ENCLOSED PROXY CARD. IF SHAREHOLDERS DO NOT RETURN THEIR PROXIES IN SUFFICIENT
NUMBERS, YOUR FUND WILL INCUR THE COST OF EXTRA SOLICITATIONS, WHICH IS
INDIRECTLY BORNE BY YOU AND OTHER SHAREHOLDERS.
0299-6107
<PAGE>
<PAGE>
PIONEER INTERMEDIATE TAX-FREE FUND
PROXY STATEMENT
PIONEER TAX-FREE INCOME FUND
PROSPECTUS
For Class A, Class B and Class C Shares
This proxy statement and prospectus contains the information you should
know before voting on the proposed reorganization of your fund into Pioneer
Tax-Free Income Fund. Please read it carefully and retain it for future
reference.
How the reorganization will work:
o Your fund will transfer all of its assets to Tax-Free Income Fund.
Tax-Free Income Fund will assume your fund's liabilities.
o Tax-Free Income Fund will issue Class A shares to your fund in an amount
equal to the value of your fund's Class A shares. These shares will be
distributed to your fund's Class A shareholders in proportion to their
holdings on the reorganization date. In this same manner, Tax-Free
Income Fund will issue Class B and Class C shares to your fund that will
be distributed to your fund's Class B and Class C shareholders in
proportion to their respective holdings on the reorganization date.
o The reorganization will be tax-free.
o Your fund will be terminated and you will end up as a shareholder of
Tax-Free Income Fund.
Why Your Fund's Trustees Recommend the Reorganization:
The trustees of your fund believe that reorganizing your fund into a larger
fund with similar investment policies would enable the shareholders of your fund
to benefit from increased diversification, the ability to achieve better net
prices on securities trades and economies of scale that could contribute to a
lower expense ratio. Therefore, the trustees recommend you vote FOR the
reorganization.
<TABLE>
<CAPTION>
Investment Objectives
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Pioneer Intermediate Tax-Free Fund Pioneer Tax-Free Income Fund
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<S> <C>
As high a level of current income exempt from federal income taxes from a As high a level of current income exempt from
high-quality portfolio of municipal bonds as is consistent with prudent federal income taxes as possible consistent
investment risk. with the preservation of capital.
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<CAPTION>
More Information is Available
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What Where
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<S> <C>
o Tax-Free Income Fund's annual and semiannual reports to shareholders.
These reports are incorporated by reference into this proxy statement
and prospectus.
o Your fund's annual and semiannual reports to shareholders. On file with the Securities and Exchange
o Most recent prospectuses of your fund and Tax-Free Income Fund (each Commission (SEC) and available at
dated April 30, 1998, as supplemented) no charge by calling 1-800-622-3265.
o Statement of additional information dated February 1, 1999. It contains
additional information about your fund and Tax-Free Income Fund. This
statement of additional information is incorporated by reference into this
proxy statement and prospectus.
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To ask questions about this proxy statement and prospectus: Call our toll-free telephone number:
1-800-622-3265.
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</TABLE>
An investment in Tax-Free Income Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
No government securities commission or agency has approved Tax-Free Income
Fund's shares or determined whether this prospectus is accurate or complete.
Any representation to the contrary is a crime.
The date of this proxy statement and prospectus is February 1, 1999.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Introduction ........................................................... 2
Summary of Proxy Statement/Prospectus .................................. 3
Risk/Return Summary .................................................... 5
Proposal to Approve Agreement and Plan of Reorganization ............... 10
Capitalization ......................................................... 13
Boards' Evaluation and Recommendation .................................. 14
Voting Rights and Required Vote ........................................ 14
Additional Information about the Funds ................................. 15
Information Concerning the Meeting ..................................... 27
Ownership of Shares of the Funds ....................................... 28
Experts ................................................................ 28
Available Information .................................................. 28
Exhibits
Exhibit A: Agreement and Plan of Reorganization ..................... 29
Exhibit B: Excerpts from each Fund's June 30, 1998 Semiannual Report 37
</TABLE>
INTRODUCTION
This proxy statement and prospectus is being used by the board of trustees
of your fund to solicit proxies to be voted at a meeting of shareholders of your
fund. This meeting will be held at the offices of Hale and Dorr LLP, 60 State
Street, 26th Floor, Boston, Massachusetts on Tuesday, March 30, 1999, at 2:00
p.m., Boston time. The purpose of the meeting is to consider a proposal to
approve an Agreement and Plan of Reorganization providing for the reorganization
of your fund into Pioneer Tax-Free Income Fund. This proxy statement and
prospectus is being mailed to your fund's shareholders on or about February 1,
1999.
Who is Eligible to Vote?
Shareholders of record on February 1, 1999 are entitled to attend and vote
at the meeting or any adjourned meeting. Each share is entitled to one vote.
Shares represented by properly executed proxies, unless revoked before or at the
meeting, will be voted according to shareholders' instructions. If you sign a
proxy, but do not fill in a vote, your shares will be voted to approve the
Agreement and Plan of Reorganization. If any other business comes before the
meeting, your shares will be voted at the discretion of the persons named as
proxies.
2
<PAGE>
SUMMARY OF PROXY STATEMENT AND PROSPECTUS
The following is a summary of more complete information appearing later in
this proxy statement. You should carefully read the entire proxy statement and
exhibits because they contain details that are not in the summary.
<TABLE> <CAPTION>
BUSINESS AND INVESTMENTS COMPARISON
Intermediate Tax-Free Fund
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<S> <C>
Net assets as of $62,058,674
December 31, 1998:
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Investment objective: As high a level of current income exempt from federal income taxes from a
high-quality portfolio of municipal bonds as is consistent with prudent
investment risk.
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Primary investments: Your fund invests at least 80% of its assets in bonds, notes and other debt
instruments issued by or on behalf of states, territories or possessions of
the U.S. and the District of Columbia and their political subdivisions,
agencies or instrumentalities, the interest on which is exempt from federal
income tax ("Municipal Securities").
- ---------------------------------------------------------------------------------------------------------
Quality of investments: The Municipal Securities in which your fund invests are rated in the three
highest rating categories by a nationally recognized statistical rating
organization or determined by Pioneer to be of comparable quality; provided
that up to 15% of the fund's assets may be rated BBB.
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Maturity: The dollar weighted average maturity of your fund's portfolio will not
exceed 10 years. Normally, at least 80% of the fund's assets have a
remaining maturity of 15 years or less at the time of purchase.
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Investment concentration: Your fund does not concentrate its assets in any state or industry.
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Options and futures Both funds may use options and futures.
contracts:
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Investment adviser and The investment adviser for both funds is Pioneer Investment Management,
portfolio managers: Inc. ("Pioneer"). Research and management for the funds is the
responsibility of a team of portfolio managers and analysts focusing on
fixed income securities. Sherman B. Russ and Kenneth J. Taubes are jointly
responsible for overseeing Pioneer's U.S. and global fixed income team. Mr.
Russ, senior vice president of Pioneer, joined Pioneer in 1983 and has been
an investment professional since 1962. Mr. Taubes joined Pioneer as a
senior vice president in September 1998 and has been an investment
professional since 1986. Prior to joining Pioneer, Mr. Taubes had served
since 1991 as a senior vice president and senior portfolio manager for
several institutional accounts and mutual funds managed by Putnam
Investments, Inc.
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Business: Your fund is a diversified open-end investment company organized as a
Massachusetts business trust.
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<CAPTION>
Tax-Free Income Fund
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<S> <C>
Net assets as of $407,442,319
December 31, 1998:
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Investment objective: As high a level of current income exempt from federal income taxes as
possible consistent with the preservation of capital.
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Primary investments: Tax-Free Income Fund invests in a diversified portfolio of Municipal Securities.
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Quality of investments: Tax-Free Income Fund invests in Municipal Securities rated in the three
highest rating categories by Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group.
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Maturity: Tax-Free Income Fund has no maturity policy.
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Investment concentration: Tax-Free Income Fund may invest 25% or more of its
assets in issuers in one state or securities the
payments on which are derived from gas, electric,
telephone, sewer and water segments of the
municipal bond market. The fund may also invest
25% or more of its assets in industrial
development bonds.
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Options and futures Both funds may use options and futures.
contracts:
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Investment adviser and [same as Intermediate Tax-Free Fund above]
portfolio managers:
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Business: Tax-Free Income Fund is a diversified open-end investment
company organized as a Delaware business trust.
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</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CLASSES OF SHARES
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Intermediate Tax-Free
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<S> <C>
Class A shares: Your fund's Class A shares are offered with front-end sales
charges up to 3.5% of the fund's offering price, depending on
Class A shares of both funds the amount invested.
have the same characteristics, -----------------------------------------------------------------------
but the sales charges For both funds:
are different. o There is no front-end sales charge for
investments of $1 million or more, but there
is a contingent deferred sales charge
(CDSC) of 1.00% on shares sold within one year
of purchase.
o Investors can combine multiple purchases of Class A
shares to take advantage of breakpoints in the sales
charge schedule.
o Class A shares are subject to 12b-1
distribution and service fees up to 0.25%
annually of average net assets.
o Sales charges are waived or reduced for the
categories of investors listed in each fund's
prospectus.
- ---------------------------------------------------------------------------------------------------------
Class B shares: Your fund's Class B shares are offered without a front-end
sales charge, but are subject to a CDSC if sold within four
Class B shares of both funds years after purchase. The CDSC is up to 3.00% depending on
have the same characteristics, how long they are held. No CDSC is imposed on shares held
but the CDSC structures are more than four years. Class B shares automatically convert
different. to Class A shares after six years.
- ---------------------------------------------------------------------------------------------------------
For both funds:
o CDSCs are waived for the categories of investors
listed in each fund's prospectus.
o Class B shares are subject to 12b-1 distribution
and service fees of up to 1.00% annually of average
net assets.
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Class C shares: For both funds:
o Class C shares are offered without a front-end sales charge,
Class C shares of both funds but are subject to a CDSC of 1.00% if sold within one year
have the same characteristics after purchase. No CDSC is imposed thereafter.
and CDSC structure. o The CDSC is waived for the categories of
investors listed in each fund's prospectus.
o Class C shares are subject to 12b-1
distribution and service fees of up to 1.00%
annually of average net assets.
o Class C shares have no conversion feature.
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<CAPTION>
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Tax-Free Income
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<S> <C>
Class A shares: Tax-Free Income Fund's Class A shares are offered with
front-end sales charges up to 4.5% of the fund's offering
Class A shares of both funds price, depending on the amount invested.
have the same characteristics,
but the sales charges
are different.
- ---------------------------------------------------------------------------------------------------------
Class B shares: Tax-Free Income Fund's Class B shares are offered without
a front-end sales charge, but are subject to a CDSC if sold
Class B shares of both funds within six years after purchase. The CDSC is up to 4.00%
have the same characteristics, depending on how long they are held. No CDSC is imposed
but the CDSC structures are on shares held more than six years. Class B shares
different. automatically convert to Class A shares after eight years.
- ---------------------------------------------------------------------------------------------------------
Class C shares:
Class C shares of both funds
have the same characteristics
and CDSC structure.
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<CAPTION>
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Intermediate Tax-Free Tax-Free Income
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<S> <C>
Buying, selling and The procedures for buying, selling and exchanging shares are identical for
in exchanging: both funds. These procedures are described detail below.
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</TABLE>
Comparison of Risks
Since each fund primarily invests in Municipal Securities, the two funds
have similar risk characteristics. These risks are discussed in the Risk/Return
Summary under "Principal risks of investing in the funds." Because Tax-Free
Income Fund can invest in Municipal Securities with longer maturities, it is
more susceptible than Intermediate Tax-Free Fund to changes in interest rates.
However, Intermediate Tax-Free Fund can invest in lower rated securities, which
entail greater risk of default.
Reorganization
o The reorganization is scheduled to occur as of 5:00 p.m., Eastern time,
on March 31, 1999, but may occur as of any later date before September
30, 1999. Your fund will transfer all of its assets to Tax-Free Income
Fund. Tax-Free Income Fund will assume your fund's liabilities. The net
asset values of both funds will be computed as of the close of the New
York Stock Exchange (normally 4:00 p.m. Eastern time) on the
reorganization date.
o Tax-Free Income Fund will issue to your fund Class A shares of Tax-Free
Income Fund in an amount equal to the aggregate net asset value of your
fund's Class A shares. Your fund will immediately distribute these
shares to your fund's Class A shareholders in proportion to their
holdings on the reorganization date. In this same manner, Tax-Free
Income Fund will issue to your fund Class B and Class C shares that will
be distributed to your fund's Class B and Class C shareholders in
proportion to their respective holdings on the reorganization date. As a
result, Class A shareholders of your fund will end up as Class A
shareholders of Tax-Free Income Fund, Class B shareholders of your fund
will end up as Class B shareholders of Tax-Free Income Fund, and Class C
shareholders of your fund will end up as Class C shareholders of
Tax-Free Income Fund.
o After the reorganization is over, your fund will be terminated.
4
<PAGE>
o The reorganization will be federally tax-free and will not take place
unless both funds receive a satisfactory opinion concerning the federal
income tax consequences of the reorganization from Hale and Dorr LLP,
counsel to the funds.
Other Consequences of the Reorganization. Each fund pays monthly advisory
fees equal to the following annual percentage of average daily net assets:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fund Asset Breakpoints Intermediate Tax-Free Tax-Free Income
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<S> <C> <C>
First $250 million 0.50%
- ------------------------------------- ----------------
Over $250 million up to $300 million 0.50% 0.48%
- ------------------------------------- ----------------
Over $300 million 0.45%
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</TABLE>
Thus, at all asset levels, the annual advisory fee rate payable by Tax-Free
Income Fund is the same as or lower than the rate paid by your fund. Because of
Tax-Free Income Fund's current asset size, which at December 31, 1998 exceeded
$300 million, your fund's advisory fee rate (without giving effect to fee
waivers) is higher than the fee rate payable by Tax-Free Income Fund. Your fund
is currently paying a lower advisory fee because of voluntary fee waivers. These
fee waivers may be discontinued by Pioneer at any time.
In addition to lower advisory fee rates, Tax-Free Income Fund's Class A
expense ratio of 0.93% for the calendar year ended December 31, 1997, as well as
its pro forma expense ratio of 0.95%, are lower than your fund's gross Class A
expense ratio of 1.18% (1.00% for net expenses with the expense limitation).
Furthermore, Tax-Free Income Fund's other expenses are lower than your fund's
gross other expenses. Both funds pay the same 12b-1 fee rates for each class.
Although Pioneer has voluntarily agreed to limit your fund's expenses, your
fund's total annual operating expenses are still higher than Tax-Free Income
Fund's. In light of your fund's inability to attract significant assets, Pioneer
may not continue to subsidize a portion of your fund's expenses indefinitely. If
Pioneer discontinued this voluntary limitation, your fund's total annual
operating expenses would rise even further above Tax-Free Income Fund's.
RISK/RETURN SUMMARY
Investment objectives
Intermediate Tax-Free Fund. As high a level of current income exempt from
federal income taxes from a high-quality portfolio of municipal bonds as is
consistent with prudent investment risk.
Tax-Free Income Fund. As high a level of current income exempt from federal
income taxes as possible consistent with the preservation of capital.
Investment strategies
Intermediate Tax-Free Fund. Intermediate Tax-Free Fund invests at least 80%
of its assets in bonds, notes and other debt instruments issued by or on behalf
of states, territories or possessions of the U.S. and the District of Columbia
and their political subdivisions, agencies or instrumentalities, the interest on
which is exempt from federal income tax ("Municipal Securities"). The municipal
bonds in which the fund invests are rated in the three highest rating categories
by a nationally recognized statistical rating organization or determined by
Pioneer to be of comparable quality; provided that up to 15% of the fund's
assets may be rated BBB. The municipal notes in which the fund may invest are
rated AAA, AA or A by a nationally recognized statistical rating organization or
determined by Pioneer to be of comparable quality. No more than 15% of the
fund's assets may be rated BBB. The dollar weighted average maturity of the
fund's portfolio will not exceed 10 years. At least 80% of the fund's assets
have a remaining maturity of 15 years or less.
Tax-Free Income Fund. Tax-Free Income Fund invests in a diversified
portfolio of Municipal Securities rated in the three highest rating categories
by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group. The
Municipal Securities in which the fund invests may be of any maturity and the
fund has no policy with respect to the average maturity of its portfolio.
Pioneer, each fund's investment adviser, considers both macroeconomic and
issuer specific factors in selecting a portfolio designed to achieve each fund's
investment objective. In assessing the appropriate maturity, rating and sector
weighing of a fund's portfolio, Pioneer considers a variety of macroeconomic
factors that are expected to influence economic activity and interest rates.
These factors include fundamental economic indicators, Federal Reserve monetary
policy and the relative value of the U.S. dollar compared to other currencies.
Once Pioneer determines the preferable portfolio characteristics, Pioneer
selects individual securities based upon the terms of the securities (such as
yields compared to U.S. Treasuries or comparable issuers), liquidity and rating,
and sector and issuer diversification. Pioneer also employs fundamental research
and due diligence to assess an issuer's credit quality, taking into account
financial condition, future capital needs, and potential for change in rating.
In making these portfolio decisions, Pioneer relies on the knowledge, experience
and judgment of its own staff who have access to a wide variety of research.
5
<PAGE>
Principal risks of investing in the funds
Each fund is subject to similar risks. Even though each fund seeks current
income, you could lose money on your investment or not make as much as if you
invested elsewhere if:
o Interest rates increase, causing the value of a fund's portfolio to
decline
o The issuer of a security owned by a fund defaults on its obligation to
pay principal or interest or has its credit rating downgraded
o New federal or state legislation adversely affects the tax-exempt status
of securities held by a fund or the financial ability of municipalities
to repay these obligations
o The issuer of a Municipal Security may not be able to make timely
payments because of a general economic downturn or increased
governmental costs
o Pioneer is incorrect in its expectation of changes in interest rates or
the credit quality of an issuer
It is possible that some of a fund's income distributions may be, and
distributions of a fund's capital gains will be, subject to federal taxation. A
fund may realize taxable gains on the sale of its securities or other
transactions, and some of a fund's income distributions may be subject to the
federal alternative minimum tax. In addition, distribution of a fund's income
and gains generally will be subject to state taxation.
6
<PAGE>
Each fund's past performance
The bar chart and table indicate the risks of investing in the fund by
showing how the funds have performed in the past. Each fund's performance varies
from year to year. A fund's past performance does not necessarily indicate how
it will perform in the future. As a shareholder, you may lose or make money on
your investment.
Intermediate Tax-Free Fund's highest calendar quarterly return was 6.12%
(12/31/94 to 3/31/95); Tax-Free Income Fund's highest calendar quarterly return
was 7.11% (12/31/94 to 3/31/95)
Intermediate Tax-Free Fund's lowest calendar quarterly return was -5.06%
(12/31/93 to 3/31/94); Tax-Free Income Fund's lowest calendar quarterly return
was -5.87% (12/31/93 to 3/31/94)
Annual return Class A shares
(Year ended December 31)
<TABLE>
<CAPTION>
Intermediate Tax-Free Fund Tax-Free Income Fund
<S> <C> <C>
'89 9.77% 10.12%
'90 6.42% 7.40%
'91 11.17% 12.49%
'92 8.65% 8.73%
'93 11.08% 12.98%
'94 -6.02% -6.38%
'95 13.80% 16.83%
'96 3.03% 3.57%
'97 6.87% 8.94%
'98 5.28% 6.20%
</TABLE>
Comparative performance
The table shows the average annual total returns of each class of the funds
and compares these returns to the returns of the Lehman Brothers Municipal Bond
Index, an unmanaged index of municipal bonds. Unlike either fund, the index is
not managed and does not incur expenses. The table:
o Reflects sales charges applicable to the class
o Assumes that you sell your shares at the end of the period
o Assumes you reinvest all of your dividends and distributions
Average annual total return (%)
(for periods ended December 31, 1998)
<TABLE><CAPTION>
Since Inception
1 Year 5 Years 10 Years Inception Date
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Intermediate Tax-Free:
Class A 1.59 3.65 6.49 6.00 10/22/86
Class B 1.39 n/a n/a 5.01 4/29/94
Class C 4.29 n/a n/a 3.94 1/31/96
- ---------------------------------------------------------------------------------------
Tax-Free Income:
Class A 1.44 4.59 7.42 6.62 1/18/77
Class B 1.48 n/a n/a 5.87 4/28/95
Class C 5.33 n/a n/a 5.40 1/31/96
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Lehman Brothers
Municipal Bond Index 6.48 6.22 8.21 -- --
- ---------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Fees and expenses
Shareholders of both funds pay various expenses, either directly or
indirectly. The first two expense tables appearing below show fund expenses for
the year ended December 31, 1997. Future expenses may be greater or less.
Intermediate Tax-Free Fund
<TABLE>
<CAPTION>
Shareholder fees paid directly from your investment Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge (load) when you buy shares as a percentage of offering price .. 3.50% None None
Maximum deferred sales charge (load) as a percentage of offering price or the amount
you receive when you sell shares, whichever is less ............................. None(1) 3.00% 1.00%
<CAPTION>
Annual fund operating expenses paid from the assets
of the fund as a % of average net assets Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Management Fee(2) .................................................................. 0.50% 0.50% 0.50%
Distribution and Service (12b-1) Fee ............................................... 0.25% 1.00% 1.00%
Other Expenses(3) .................................................................. 0.43% 0.46% 0.49%
Total Annual Fund Operating Expenses(2,3) .......................................... 1.18% 1.96% 1.99%
</TABLE>
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(1) Except for investments of $1 million or more.
(2) Does not reflect the adviser's voluntary agreement to limit your fund's
management fees and other expenses. With this limitation, actual management
fees paid were 0.35% for each class of your fund.
(3) Does not reflect amounts paid to Intermediate Tax-Free Fund in connection
with certain expense offset arrangements. Intermediate Tax-Free Fund's
actual other expenses, including these amounts, were 0.41% for Class A,
0.44% for Class B and 0.47% for Class C. Total annual fund operating
expenses, including these amounts and the adviser's voluntary waiver, were
1.00% for Class A, 1.79% for Class B and 1.82% for Class C. The advisory fee
waiver is voluntary and temporary and may be revised or terminated at any
time.
Intermediate Tax-Free Fund example
This example helps you compare the costs of investing in the fund with the
cost of investing in other mutual funds. It assumes that: a) you invest $10,000
in the fund for the time periods shown, b) you reinvest all dividends and
distributions, c) your investment has a 5% return each year and d) the fund's
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
Intermediate Tax-Free Fund
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
------ ------ ------ -------
<S> <C> <C> <C> <C>
Class A shares ................................................................ $466 $712 $ 976 $1,732
Class B shares:
Assuming redemption at end of period ........................................ 499 815 1,057 1,898
Assuming no redemption ...................................................... 199 615 1,057 1,898
Class C shares:
Assuming redemption at end of period ........................................ 302 624 1,073 2,317
Assuming no redemption ...................................................... 202 624 1,073 2,317
<CAPTION>
Tax-Free Income Fund
Class A Class B Class C
Shareholder fees paid directly from your investment ------- ------- --------
<S> <C> <C> <C>
Maximum sales charge (load) when you buy shares as a percentage of offering price ........ 4.50% None None
Maximum deferred sales charge (load) as a percentage of offering price or the amount you
receive when you sell shares, whichever is less ........................................ None(1) 4.00% 1.00%
<CAPTION>
Annual fund operating expenses paid from the Class A Class B Class B
assets of the fund as a % of average net assets ------- ------- --------
<S> <C> <C> <C>
Management Fee ............................................................................ 0.48% 0.48% 0.48%
Distribution and Service (12b-1) Fee ...................................................... 0.25% 1.00% 1.00%
Other Expenses(2) ......................................................................... 0.20% 0.20% 0.22%
Total Annual Fund Operating Expenses(2) ................................................... 0.93% 1.68% 1.70%
</TABLE>
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(1) Except for investments of $1 million or more.
(2) Does not reflect amounts paid to Tax-Free Income Fund in connection with
certain expense offset arrangements. Tax-Free Income Fund's actual other
expenses, including these amounts, were 0.18% for Class A, 0.18% for Class B
and 0.19% for Class C. Total annual fund operating expenses, including these
amounts, were 0.91% for Class A, 1.66% for Class B and 1.67% for Class C.
8
<PAGE>
Tax-Free Income Fund example
This example helps you compare the costs of investing in the fund with the
cost of investing in other mutual funds. It assumes that: a) you invest $10,000
in the fund for the time periods shown, b) you reinvest all dividends and
distributions, c) your investment has a 5% return each year and d) the fund's
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
Tax-Free Income Fund ------ ------ ------ -------
<S> <C> <C> <C> <C>
Class A shares ................................ $541 $733 $ 942 $1,542
Class B shares:
Assuming redemption at end of period ........ 571 830 1,113 1,788
Assuming no redemption ...................... 171 530 913 1,788
Class C shares:
Assuming redemption at end of period ........ 273 536 923 2,099
Assuming no redemption ...................... 173 536 923 2,099
</TABLE>
Pro forma expense table
The next expense table shows the pro forma expenses of Tax-Free Income Fund
assuming that a reorganization with your fund occurred on January 1, 1997. The
expenses shown in the table are based on fees and expenses incurred by the funds
during the fiscal year ended December 31, 1997. Tax-Free Income Fund's actual
expenses after the reorganization may be greater or less than those shown. The
pro forma expense example shows what you would pay on a $10,000 investment if
the reorganization had occurred on January 1, 1997 using the assumptions
previously stated for the funds individually. The pro forma example is for
comparison purposes only and is not a representation of Tax-Free Income Fund's
actual expenses or returns, either past or future.
Tax-Free Income Fund (pro forma)
(Assuming reorganization with Intermediate Tax-Free Fund)
<TABLE>
<CAPTION>
Class A Class B Class C
Shareholder fees paid directly from your investment ------- ------- -------
<S> <C> <C> <C>
Maximum sales charge (load) when you buy shares as a percentage of offering price ........ 4.50% None None
Maximum deferred sales charge (load) as a percentage of offering price or the amount you
receive when you sell shares, whichever is less ........................................ None(1) 4.00% 1.00%
<CAPTION>
Annual fund operating expenses paid from the assets
of the fund as a percentage of average net assets Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Management Fee ........................................................................... 0.48% 0.48% 0.48%
Distribution and Service (12b-1) Fee ..................................................... 0.25% 1.00% 1.00%
Other Expenses ........................................................................... 0.22% 0.26% 0.25%
Total Annual Fund Operating Expenses ..................................................... 0.95% 1.74% 1.73%
</TABLE>
- --------
(1) Except for investments of $1 million or more.
Pro forma example
<TABLE>
<CAPTION>
Year 1 Year 3 Year 5 Year 10
Share class ------ ------ ------ -------
<S> <C> <C> <C> <C>
Class A shares ................................................................. $543 $739 $ 952 $1,564
Class B shares:
Assuming redemption at end of period ......................................... 577 848 1,144 1,843
Assuming no redemption ....................................................... 177 548 944 1,843
Class C shares:
Assuming redemption at end of period ......................................... 276 545 939 2,041
Assuming no redemption ....................................................... 176 545 939 2,041
</TABLE>
9
<PAGE>
Other investment strategies
As discussed, each fund invests primarily in Municipal Securities to seek
current income exempt from federal income tax.
This section describes additional investments that a fund may make or
strategies that it may pursue to a lesser degree to achieve the fund's goal.
Some of the funds' secondary investment policies also entail risks. To learn
more about these investments and risks, you should obtain and read the statement
of additional information (SAI).
Temporary investments
Normally, each fund invests substantially all of its assets to meet its
investment objective. Each fund may invest the remainder of its assets in
securities with a remaining maturity of less than one year, cash equivalents or
may hold cash. For temporary defensive purposes, each fund may depart from its
principal investment strategies and invest part or all of its assets in these
securities. During such periods, the fund may not be able to achieve its
investment objective. The funds intend to adopt a defensive strategy only when
Pioneer believes Municipal Securities have extraordinary risks due to political
or economic factors.
Short-term trading
The funds usually do not trade for short-term profits. Each fund will sell
an investment, however, even if it has only been held for a short time, if it no
longer meets the fund's investment criteria. If a fund does a lot of trading, it
may incur additional operating expenses, which would reduce performance and
could cause shareholders to receive larger distributions of taxable income or
capital gains.
Derivatives
Each fund may use futures, options and other derivatives. A derivative is a
security or instrument whose value is determined by reference to the value or
the change in value of one or more securities, currencies, indices or other
financial instruments. Each fund does not use derivatives as a primary
investment technique and generally limits their use to hedging. However, a fund
may use derivatives for a variety of purposes, including:
o As a hedge against adverse changes in interest rates
o As a substitute for purchasing or selling securities
o To increase the fund's return
Even a small investment in derivatives can have a significant impact on a
fund's exposure to interest rates. If changes in a derivative's value do not
correspond to changes in the value of the fund's other investments, the fund may
not fully benefit from or could lose money on the derivative position. In
addition, some derivatives involve risk of loss if the person who issued the
derivative defaults on its obligation. Certain derivatives may be less liquid
and more difficult to value.
Year 2000
Information technology experts are concerned about computer and other
electronic systems' ability to process date related information on and after
January 1, 2000. This scenario, commonly referred to as the "Year 2000 problem,"
could have an adverse impact on the funds and the provision of services to their
shareholders. Pioneer is addressing the Year 2000 problem with respect to its
systems and those used by the distributor and transfer agent. During 1999,
Pioneer expects to finish addressing all material Year 2000 issues and to
participate in industry-wide testing. The funds have obtained assurances from
their other service providers that they are taking appropriate Year 2000
measures and Pioneer is monitoring their efforts. Although neither fund expects
the Year 2000 problem to adversely impact it, neither fund can guarantee that
its, or the fund's service providers', efforts will be successful.
PROPOSAL 1
APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
Description of Reorganization
The shareholders of your fund are being asked to approve an Agreement and
Plan of Reorganization, a copy of which is attached as Exhibit A. The Agreement
provides for a reorganization on the following terms:
o The reorganization is scheduled to occur as of 5:00 p.m., Eastern time,
on March 31, 1999, but may occur on any later date before September 1,
1999. Your fund will transfer all of its assets to Tax-Free Income Fund,
and Tax-Free Income Fund will assume all of your fund's liabilities.
This will result in the addition of your fund's assets to Tax-Free
Income Fund's portfolio. The net asset values of both funds will be
computed as of the close of the New York Stock Exchange (normally 4:00
p.m. Eastern time) on the reorganization date.
10
<PAGE>
o Tax-Free Income Fund will issue to your fund Class A shares of Tax-Free
Income Fund in an amount equal to the aggregate net asset value of your
fund's Class A shares. As part of the liquidation of your fund, your
fund will immediately distribute these shares to Class A shareholders of
record of your fund in proportion to their holdings on the
reorganization date. In this same manner, Tax-Free Income Fund will
issue to your fund Class B and Class C shares that will be distributed
to your fund's Class B and Class C shareholders in proportion to their
respective holdings on the reorganization date. As a result, Class A
shareholders of your fund will end up as Class A shareholders of
Tax-Free Income Fund, Class B shareholders of your fund will end up as
Class B shareholders of Tax-Free Income Fund, and Class C shareholders
of your fund will end up as Class C shareholders of Tax-Free Income
Fund.
o After the reorganization is over, your fund will be terminated.
Reasons for the Proposed Reorganization
The board of trustees of your fund believes that the proposed
reorganization will be advantageous to the shareholders of your fund for several
reasons. The board of trustees considered the following matters, among others,
in approving the proposal.
First, that a combined fund offers economies of scale that may lead to
better control over expenses than is possible for your fund. Both funds incur
substantial costs for accounting, legal, transfer agency, insurance, and
custodial and administrative services.
Second, that shareholders may be better served by a less restrictive fund.
Your fund has a policy of concentrating its investments in municipal bonds with
a dollar-weighted average maturity not exceeding 10 years. This has limited the
fund's ability to purchase higher yielding bonds with longer maturities and has
limited the fund's ability to gather assets. Tax-Free Income Fund has no stated
policy with respect to maturity, allowing it to invest in a broader range of
securities, and it has a significantly larger asset size than your fund.
Third, that Tax-Free Income Fund has performed better than your fund since
its inception. While past performance cannot predict future results, the
trustees believe that Tax-Free Income Fund is better positioned than your fund
to continue to generate strong returns because of its lower expense ratio and
more flexible investment policies.
Fourth, that Tax-Free Income Fund's expenses are currently lower than your
fund's expenses. Additionally, if the voluntary limitation on your fund's
expenses were discontinued, your fund's expenses would be substantially higher.
Shareholders of your fund would pay relatively lower fees each month as
shareholders of Tax-Free Income Fund than they would if the reorganization did
not occur, and even less if the voluntary expense limitation on your fund's
expenses were discontinued.
Fifth, that Tax-Free Income Fund is more widely recognized in the broker
community as Pioneer's primary municipal bond fund. By offering both funds
simultaneously, it has been increasingly difficult to attract assets to your
fund.
Sixth, that the Tax-Free Income Fund shares received in the reorganization
will provide your fund's shareholders with substantially the same investment
advantages as they currently have, with potential for higher return.
The board of trustees of Tax-Free Income Fund considered that the
reorganization presents an excellent opportunity for Tax-Free Income Fund to
acquire investment assets without the obligation to pay commissions or other
transaction costs that are normally associated with the purchase of securities.
The trustees also believe that your fund's shareholders and Tax-Free Income
Fund's shareholders will benefit from improved diversification as a result of
the reorganization. Because Tax-Free Income Fund is a significantly larger fund
than your fund and because it does not place restrictions on portfolio maturity,
the trustees feel that the addition of your fund's assets will improve the
diversification of Tax-Free Income Fund's overall portfolio. This opportunity
provides an economic benefit to Tax-Free Income Fund and its shareholders.
Similarly, the trustees feel that shareholders of your fund will benefit from
the greater diversification of Tax-Free Income Fund's investment portfolio after
the transaction.
The boards of trustees of both funds also considered that the adviser and
the funds' distributor will also benefit from the reorganization. For example,
the adviser might realize time savings from a consolidated portfolio management
effort and from the need to prepare fewer reports and regulatory filings as well
as prospectus disclosure for one fund instead of two. The trustees believe,
however, that these savings will not amount to a significant economic benefit.
Because of the fee waiver on your fund, Pioneer will also receive a higher
effective fee from managing the assets attributable to your fund if they are a
part of Tax-Free Income Fund than if the reorganization does not take place.
Comparative Fees and Expense Ratios. As discussed above in the Summary,
Tax-Free Income Fund pays the same advisory fee rate as your fund for assets up
to $250 million, and pays a rate lower than your fund's fee rate at all other
asset levels. In addition, because your fund's advisory fee does not have
breakpoints, the management fee will remain the same indefinitely.
In addition to lower advisory fee rates, Tax-Free Income Fund's Class A
expense ratio of 0.93% for the calendar year ended December 31, 1997, as well as
its pro forma expense ratio of 0.95%, are lower than your fund's gross Class A
expense ratio of 1.18% (1.00% for net expenses with the expense limitation).
Furthermore, Tax-Free Income Fund's other expenses are lower than your fund's
gross other expenses. Both funds pay the same 12b-1 fee rates for each class.
11
<PAGE>
The trustees do not believe, given your fund's current size and growth
rate, that your fund will grow to an asset size which would allow your fund to
realize the benefits of economies of scale, including better control over
expenses. The trustees also do not believe that your fund will reach an asset
size which will allow your fund to significantly improve the diversification of
its investment portfolio. In light of your fund's inability to attract
significant assets, the adviser may not continue to subsidize a portion of your
fund's expenses indefinitely. When the adviser discontinues this voluntary
limitation, your fund's expense ratio will rise even higher above Tax-Free
Income Fund's.
Comparative Performance. The trustees also took into consideration the
relative performance of your fund and Tax-Free Income Fund. As shown in the
table in the Risk/Return Summary, Tax-Free Income Fund has had better
performance than your fund over time.
Unreimbursed Class A Distribution and Shareholder Service Expenses
The boards of trustees of your fund and Tax-Free Income Fund have
determined that, if the reorganization occurs, unreimbursed distribution and
shareholder service expenses incurred under your fund's Class A 12b-1 Plan will
be reimbursable expenses under Tax-Free Income Fund's Class A Rule 12b-1 Plan.
However, the maximum aggregate amount payable annually under Tax-Free Income
Fund's Class A 12b-1 Plan (0.25% of average daily net assets attributable to
Class A shares) will not increase. The 12b-1 Plans for Class B and C are
compensation plans and, consequently, the amounts payable under such plans are
not determined by references to actual distribution expenses incurred.
The following table shows the actual and pro forma unreimbursed
distribution and shareholder service expenses of Class A shares of your fund and
Tax-Free Income Fund. The table shows both the dollar amount of these expenses
and the percentage of each class' net assets on December 31, 1998 that they
represent.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Intermediate Tax-Free Tax-Free Income
Unreimbursed Class A 12b-1 Expenses Class A shares Class A shares
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
$56,915
Actual expenses as of December 31, 1998 $0 less than 0.01%
- ------------------------------------------------------------------------------------------------
$56,915
Pro forma combined expenses as of January 1, 1998 -- less than 0.01%
- ------------------------------------------------------------------------------------------------
</TABLE>
The Class A Plan does not provide for the carryover of reimbursable
expenses beyond 12 months from the time a fund is first invoiced for an expense.
The limited carryover provision in the Class A Plan may result in an expense
invoiced to a fund in one fiscal year being paid in the subsequent fiscal year
and thus being treated for purposes of calculating the maximum expenditures of
the fund as having been incurred in the subsequent fiscal year. In the event of
termination or non-continuance of the Class A Plan, a fund has 12 months to
reimburse any expense which it incurs prior to such termination or
non-continuance, provided that payments by the fund during such 12-month period
shall not exceed 0.25% of the fund's average daily net assets during such
period.
Tax Status of the Reorganization
The reorganization will be tax-free for federal income tax purposes and
will not take place unless both funds receive a satisfactory opinion from Hale
and Dorr LLP, counsel to the funds, substantially to the effect that:
o The reorganization described above will be a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and each fund will be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
o No gain or loss will be recognized by your fund upon (1) the transfer of
all of its assets to Tax-Free Income Fund as described above or (2) the
distribution by your fund of Tax-Free Income Fund shares to your fund's
shareholders;
o No gain or loss will be recognized by Tax-Free Income Fund upon the
receipt of your fund's assets solely in exchange for the issuance of
Tax-Free Income Fund shares to your fund and the assumption of all of
your fund's liabilities by Tax-Free Income Fund;
o The basis of the assets of your fund acquired by Tax-Free Income Fund
will be the same as the basis of those assets in your fund immediately
before the transfer;
o The tax holding period of the assets of your fund in Tax-Free Income
Fund will include your fund's tax holding period for those assets;
o The shareholders of your fund will not recognize gain or loss upon the
exchange of all their shares of your fund solely for Tax-Free Income
Fund shares as part of the reorganization;
o The basis of Tax-Free Income Fund shares received by your fund's
shareholders in the reorganization will be the same as the basis of the
shares of your fund surrendered in exchange; and
12
<PAGE>
o The tax holding period of the Tax-Free Income Fund shares received by
your fund's shareholders will include, for each shareholder, the tax
holding period of the shares of your fund surrendered in exchange,
provided that shares of your fund were held as capital assets on the
date of the exchange.
Additional Terms of Agreement and Plan of Reorganization
Surrender of Share Certificates. Shareholders of your fund whose shares are
represented by one or more share certificates need not surrender their
certificates. After the reorganization, certificates evidencing ownership of
your fund's shares will evidence ownership of Tax-Free Income Fund shares
received in the reorganization. Shareholders must continue to follow procedures
for surrendering share certificates (or delivering the appropriate affidavit) in
order to redeem shares of Tax-Free Income Fund after the reorganization.
Tax-Free Income Fund will not issue share certificates in the reorganization.
Conditions to Closing the Reorganization. The obligation of your fund to
consummate the reorganization is subject to the satisfaction of certain
conditions, including the performance by Tax-Free Income Fund of all its
obligations under the Agreement and the receipt of all consents, orders and
permits necessary to consummate the reorganization (see Agreement, sections 6
and 8). The obligation of Tax-Free Income Fund to consummate the reorganization
is subject to the satisfaction of certain conditions, including your fund's
performance of all of its obligations under the Agreement, the receipt of
certain documents and financial statements from your fund and the receipt of all
consents, orders and permits necessary to consummate the reorganization (see
Agreement, sections 7 and 8).
The obligations of both funds are subject to the approval of the Agreement
by the necessary vote of the outstanding shares of your fund, in accordance with
the provisions of your fund's declaration of trust and by-laws. The funds'
obligations are also subject to the receipt of a favorable opinion of Hale and
Dorr LLP as to the federal income tax consequences of the reorganization (see
Agreement, paragraph 8.7).
Termination of Agreement. The board of trustees of either your fund or
Tax-Free Income Fund may terminate the Agreement (even if the shareholders of
your fund have approved it) at any time before the reorganization date, if that
board believes that proceeding with the reorganization would no longer be
advisable.
Expenses of the Reorganization. Tax-Free Income Fund and your fund will
each be responsible for its own expenses incurred in connection with entering
into and carrying out the provisions of the Agreement, whether or not the
reorganization occurs. These expenses are estimated to be approximately $40,000,
which will be allocated to the funds on the basis of their relative net assets.
CAPITALIZATION
The following table sets forth the capitalization of each fund as of
December 31, 1998, and the pro forma combined capitalization of both funds as if
the reorganization had occurred on such date. The table reflects pro forma
exchange ratios of approximately 0.8603 Class A Tax-Free Income Fund shares
being issued for each Class A share of your fund, approximately 0.8724 Class B
Tax-Free Income Fund shares being issued for each Class B share of your fund and
approximately 0.8665 Class C Tax-Free Income Fund shares being issued for each
Class C share of your fund. If the reorganization occurs, the actual exchange
ratios on the reorganization date will vary due to changes in the market value
of the portfolio securities of both Tax-Free Income Fund and your fund between
December 31, 1998 and the reorganization date, changes in the amount of
undistributed net investment income and net realized capital gains of Tax-Free
Income Fund and your fund during that period resulting from income and
distributions, and changes in the accrued liabilities of Tax-Free Income Fund
and your fund during the same period.
<TABLE>
<CAPTION>
December 31, 1998
Intermediate Tax-Free Tax Free Income
Tax-Free Income Pro Forma
-------- ------ ---------
<S> <C> <C> <C>
Net Assets .............. $62,058,674 $407,442,319 $469,500,993
Net Asset Value Per Share
Class A ................ $ 10.35 $ 12.02 $ 12.02
Class B ................ $ 10.39 $ 11.93 $ 11.93
Class C ................ $ 10.34 $ 11.94 $ 11.94
Shares Outstanding
Class A ................ 5,561,494 32,730,448 37,514,855
Class B ................ 351,026 904,102 1,210,327
Class C ................ 84,260 273,127 346,137
</TABLE>
It is impossible to predict how many Class A, Class B and Class C shares of
Tax-Free Income Fund will actually be received and distributed by your fund on
the reorganization date. The table should not be relied upon to determine the
number or value of Tax-Free Income Fund shares that will actually be received
and distributed.
13
<PAGE>
COMPARISON OF BUSINESS TRUSTS UNDER DELAWARE AND MASSACHUSETTS LAW
Your fund is organized as a Massachusetts business trust. Tax-Free Income
Fund is organized as a Delaware business trust. The following is a comparison of
the laws of Massachusetts and Delaware applicable to business trusts.
Limitation of Shareholders' and Funds' Liability. Delaware law provides
that the shareholders of a Delaware business trust shall not be subject to
liability for the debts or obligations of the trust. Under Massachusetts law,
shareholders of a Massachusetts business trust (such as your fund) may, under
certain circumstances, be liable for the debts and obligations of that trust.
Although the risk of liability of shareholders of a Massachusetts business trust
who do not participate in the management of the trust may be remote, your board
of trustees has determined that Delaware law affords greater protection against
potential shareholder liability. Similarly, Delaware law provides that, to the
extent that a Delaware business trust issues multiple series of shares, each
series shall not be liable for the debts or obligations of any other series,
another potential, although remote, risk in the case of multiple series of a
Massachusetts business trust. While your board of trustees believes that a
Massachusetts business trust will only be liable for its own obligations, there
is no direct statutory or judicial support for that position.
Limitation of Trustee Liability. Delaware law provides that, except to the
extent otherwise provided in a trust's declaration of trust or by-laws, trustees
will not be personally liable to any person (other than the business trust or a
shareholder thereof) for any act, omission or obligation of the business trust
or any trustee thereof. Delaware law also provides that a trustee's actions
under a Delaware business trust's declaration of trust or by-laws will not
subject the trustee to liability to the business trust or its shareholders if
the trustee takes such action in good faith reliance on the provisions of the
business trust's declaration of trust or by-laws. The declaration of trust of a
Massachusetts business trust may limit the liability of a trustee who is not
also an officer of the trust for breach of fiduciary duty except for, among
other things, any act or omission not in good faith which involves intentional
misconduct or a knowing violation of law or any transaction from which such
trustee derives an improper direct or indirect financial benefit. The
limitations on trustee liability under Delaware law are equivalent to the
protections for liability provided to directors of a corporation under Delaware
law. These limitations will be beneficial in attracting and retaining in future
qualified persons to act as trustees.
Shareholder Voting. Delaware law provides that a Delaware business trust's
declaration of trust or by-laws may set forth provisions related to voting in
any manner. This provision appears to permit trustee and shareholder voting
through computer or electronic media. For an investment company with a
significant number of institutional shareholders, all with access to computer or
electronic networks, the use of such voting methods could significantly reduce
the costs of shareholder voting. However, the advantage of such methods may not
be realizable unless the SEC modifies its proxy rules. Also, as required by the
Investment Company Act of 1940 (the "1940 Act"), votes on certain matters by
trustees would still need to be taken at in-person meetings.
Declarations of Trust. Although neither a Delaware business trust nor a
Massachusetts business trust is required to hold annual shareholder meetings,
Delaware law affords to the trustees the ability to adapt the Delaware business
trust to future contingencies without the necessity of holding a special
shareholder meeting. The trustees of a Delaware business trust may have the
power to amend the business trust's governing instrument to create a class or
series of shares of beneficial interest that was not previously outstanding; to
dissolve the business trust; to incorporate the Delaware business trust; to
merge or consolidate with another entity; to sell, lease, exchange, transfer,
pledge or otherwise dispose of all or any part of the business trust's assets;
to cause any series to become a separate trust; and to change the Delaware
business trust's domicile--all without shareholder vote. Any exercise of
authority by the trustees will be subject to applicable state and federal law.
The flexibility of Delaware business trusts should help to assure that a
Delaware business trust always operates under the most advantageous form of
organization and is intended to reduce the expense and frequency of future
shareholder meetings for non-investment-related operational issues.
BOARDS' EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of your fund,
including the trustees who are not "interested persons" of your fund or the
adviser (the independent trustees), approved the reorganization. In particular,
the trustees determined that the reorganization was in the best interests of
your fund and that the interests of your fund's shareholders would not be
diluted as a result of the reorganization. Similarly, the board of trustees of
Tax-Free Income Fund, including the independent trustees, approved the
reorganization. They also determined that the reorganization was in the best
interests of Tax-Free Income Fund and that the interests of Tax-Free Income
Fund's shareholders would not be diluted as a result of the reorganization.
The trustees of your fund recommend that you vote FOR the proposal to
approve the Agreement and Plan of Reorganization.
VOTING RIGHTS AND REQUIRED VOTE
Each share of your fund is entitled to one vote. Approval of the above
proposal requires the affirmative vote of a majority of the shares of your fund
outstanding and entitled to vote. For this purpose, a majority of the
outstanding shares of your fund means the vote of the lesser of:
14
<PAGE>
(1) 67% or more of the shares present at the meeting, if the holders of
more than 50% of the shares of the fund are present or represented by
proxy, or
(2) more than 50% of the outstanding shares of the fund.
Shares of your fund represented in person or by proxy, including shares
which abstain or do not vote with respect to the proposal, will be counted for
purposes of determining whether there is a quorum at the meeting. Accordingly,
an abstention from voting has the same effect as a vote against the proposal.
However, if a broker or nominee holding shares in "street name" indicates
on the proxy card that it does not have discretionary authority to vote on the
proposal, those shares will not be considered present and entitled to vote on
the proposal. Thus, a "broker non-vote" has no effect on the voting in
determining whether the proposal has been adopted in accordance with clause (1)
above, if more than 50% of the outstanding shares (excluding the "broker
non-votes") are present or represented. However, for purposes of determining
whether the proposal has been adopted in accordance with clause (2) above, a
"broker non-vote" has the same effect as a vote against the proposal because
shares represented by a "broker non-vote" are considered to be outstanding
shares.
If the required approval of shareholders is not obtained, your fund will
continue to engage in business as a separate mutual fund and the board of
trustees will consider what further action may be appropriate.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Net asset value
Each fund's net asset value is the value of its portfolio of securities
plus any other assets minus its operating expenses and any other liabilities.
Each fund calculates a net asset value for each class of shares every day the
New York Stock Exchange is open when regular trading closes (normally 4:00 p.m.
Eastern time).
Each fund generally values its portfolio securities based on market prices
or quotations. When market prices are not available or are considered by Pioneer
to be unreliable, the fund may use an asset's fair value. Fair value is
determined in accordance with procedures approved by the fund's trustees.
You buy or sell shares at the net asset value per share calculated on the
day of your transaction, adjusted for any applicable sales charge. When you buy
Class A shares, you pay an initial sales charge. When you sell Class B or Class
C shares, you may pay a CDSC depending on how long you have owned your shares.
Choosing a class of shares
Each fund offers three classes of shares. Each class has different sales
charges and expenses, allowing you to choose the class that best meets your
needs.
Factors you should consider include:
o How long you expect to own the shares
o The expenses paid by each class
o Whether you qualify for any reduction or waiver of sales charges
Your investment professional can help you determine which class meets your
goals. Your investment firm may receive different compensation depending upon
which class you choose. If you are not a U.S. citizen and are purchasing shares
outside the U.S., you may pay different sales charges under local laws and
business practices.
Distribution plans
Each fund has adopted a distribution plan for each class of shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940. Under each
plan, the fund pays distribution and service fees to the distributor. Because
these fees are an ongoing expense, over time they increase the cost of your
investment and your shares may cost more than shares that are not subject to a
distribution fee but subject to other sales charges.
15
<PAGE>
Comparing classes of shares
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Why you might prefer Class A shares may be your best
each class alternative if you prefer to pay an
initial sales charge and have lower annual
expenses, or if you qualify for any reduction
or waiver of the initial sales charge.
Initial sales charge Up to 4.5% for Tax-Free Income Fund
and 3.5% for Intermediate Tax-Free
Fund of the offering price, which is
reduced or waived for large purchases
and certain types of investors. At the
time of your purchase your investment
firm may receive a commission from
the distributor of up to 4% for Tax-
Free Income Fund and 3% for
Intermediate Tax-Free Fund, declining
as the size of your investment
increases.
Contingent deferred None, except in certain circumstances
sales charges when the initial sales charge is waived.
Distribution and service fees Up to 0.25% of average daily net
assets.
Annual expenses (including Lower than Class B or Class C.
distribution and service fees)
Exchange privilege Class A shares of other Pioneer
mutual funds.
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class B Class C
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Why you might prefer You may prefer Class B shares if you You may prefer Class C shares if you
each class do not want to pay an initial sales do not wish to pay an initial sales
charge, or if you plan to hold your charge and you would rather pay
investment for at least six years for higher annual expenses over time.
Intermediate Tax-Free Fund or four years for
Intermediate Tax Free Fund. Class B shares are
not recommended if you are investing $250,000
or more.
Initial sales charge None None
Contingent deferred Up to 4% for Tax-Free Income Fund A 1% charge if you sell your shares
sales charges and 3% for Intermediate Tax-Free Fund within one year of purchase. Your
is charged if you sell your shares. The investment firm may receive a
charge is reduced over time and not commission from the distributor at the
charged after six years for Tax-Free time of your purchase of up to 1%.
Income Fund and four years for
Intermediate Tax-Free Fund. Your
investment firm may receive a
commission from the distributor at the
time of your purchase of up to 4% for
Tax-Free Income Fund and 3% for
Intermediate Tax-Free Fund.
Distribution and service fees Up to 1% of average daily net assets. Up to 1% of average daily net assets.
Annual expenses (including Higher than Class A shares; Class B Higher than Class A shares; Class C
distribution and service fees) shares convert to Class A shares after shares do not convert to any other
eight years for Tax-Free Income Fund class of shares. You continue to pay
and six years for Intermediate Tax-Free higher annual expenses.
Fund.
Exchange privilege Class B shares of other Pioneer Class C shares of other Pioneer
mutual funds. mutual funds.
</TABLE>
Sales charges: Class A shares
You pay the offering price when you buy Class A shares unless you qualify
to purchase shares at net asset value. You pay a lower sales charge as the size
of your investment increases. You do not pay a sales charge when you reinvest
dividends or distribution paid by the fund.
Investments of $1 million or more
You do not pay a sales charge when you purchase Class A shares if you are
investing $1 million or more, or you are a participant in certain group plans.
However, you pay a contingent deferred sales charge if you sell your Class A
shares within one year of purchase. The contingent deferred sales charge is
equal to 1% of your investment or your sales proceeds, whichever is less.
Reduced sales charges
You may qualify for a reduced Class A sales charge if you own or are
purchasing shares of Pioneer mutual funds. If you or your investment
professional notifies the distributor of your eligibility for a reduced sales
charge at the time of your purchase, the distributor will credit you with the
combined value (at the current offering price) of all your Pioneer mutual fund
shares and the shares of your spouse and the shares of any children under 21.
Certain trustees and fiduciaries may also qualify for a reduced sales charge.
For this purpose,
16
<PAGE>
Pioneer mutual funds include any fund for which the distributor is principal
underwriter and, at the distributor's discretion, may include funds organized
outside the U.S. managed by Pioneer.
Sales charges: Class A shares
<TABLE>
<CAPTION>
Sales charge as a % of
Tax-Free Income Fund --------------------------------------
Offering price Net amount invested
Amount of purchase -------------- -------------------
<S> <C> <C>
Less than $100,000 ........................ 4.50 4.71
$100,000 but less than $250,000 ........... 3.50 3.63
$250,000 but less than $500,000 ........... 2.50 2.56
$500,000 but less than $1 million ......... 2.00 2.04
$1 million or more ........................ -0- -0-
<CAPTION>
Sales charge as a % of
Intermediate Tax-Free Fund ---------------------------------------
Offering price Net amount invested
Amount of purchase -------------- -------------------
<S> <C> <C>
Less than $50,000 ......................... 3.50 3.63
$50,000 but less than $100,000 ............ 3.00 3.09
$100,000 but less than $500,000 ........... 2.50 2.56
$500,000 but less than $1 million ......... 2.00 2.04
$1 million or more ........................ -0- -0-
</TABLE>
Sales charges: Class B shares
You buy Class B shares at net asset value per share without paying an
initial sales charge. However, you will pay a CDSC to the distributor if you
sell your Class B shares within six years of purchase for Tax-Free Income Fund
and four years for Intermediate Tax-Free Fund. The CDSC decreases as the number
of years since your purchase increases.
Contingent deferred sales charge
<TABLE>
<CAPTION>
On shares sold before the end of year As a % of dollar amount subject to the sales charge
------------------------------------- ---------------------------------------------------
Tax-Free Income Fund Intermediate Tax-Free Fund
-------------------- --------------------------
<S> <C> <C>
1 4 3
2 4 3
3 3 2
4 3 1
5 2 -0-
6 1 -0-
Convert to Class A shares
7 -0- after six years
8 -0- --
Convert to Class A shares --
9 after eight years
</TABLE>
Conversion to Class A shares
Class B shares automatically convert into Class A shares. This helps you
because Class A shares pay lower expenses.
Your Class B shares will convert to Class A shares at the beginning of the
calendar month (calendar quarter for shares purchased before October 1, 1998)
that is eight years, in the case of Tax-Free Income Fund, or six years, in the
case of Intermediate Tax-Free Fund, after the date of purchase, except that:
o Shares bought by reinvesting dividends and capital gains will convert to
Class A shares at the same time as shares on which the dividend or
distribution was paid
o Shares purchased by exchanging shares from another fund will convert on
the date that the shares originally acquired would have converted into
Class A shares
Currently, the Internal Revenue Service permits the conversion of shares to
take place without imposing a federal tax. Conversion may not occur if the
Internal Revenue Service deems it a taxable event for federal tax purposes.
17
<PAGE>
Paying the contingent deferred sales charge
Several rules apply for Class B shares so that you pay the lowest possible
CDSC.
o The CDSC is calculated on the current market value, or the original
cost, of the shares you are selling, whichever is less
o You do not pay a CDSC on reinvested dividends or distributions
o In determining the number of years since your purchase, all purchases
are considered to have been made on the first day of that month (quarter
for shares purchased before October 1, 1998)
o If you sell only some of your shares, the transfer agent will first sell
your shares that are not subject to any CDSC and then the shares that
you have owned the longest
o You may qualify for a waiver of the CDSC normally charged
Sales charges: Class C shares
You buy Class C shares at net asset value per share without paying an
initial sales charge. However, if you sell your Class C shares within one year
of purchase, you will pay to the distributor a contingent deferred sales charge
of 1% of the current market value, or the original cost, of the shares you are
selling, whichever is less.
Paying the contingent deferred sales charge
Several rules apply for Class C shares so that you pay the lowest possible
CDSC.
o The CDSC is calculated on the current market value, or the original
cost, of the shares you are selling, whichever is less
o You do not pay a CDSC on reinvested dividends or distributions
o In determining the number of years since your purchase, all purchases
are considered to have been made on the first day of that month (quarter
for shares purchased before October 1, 1998)
o If you sell only some of your shares, the transfer agent will first sell
your shares that are not subject to any CDSC and then the shares that
you bought most recently.
o You may qualify for a waiver of the CDSC normally charged
Opening your account
If your shares are held in your investment firm's name, the options and
services available to you may be different from those discussed in this
prospectus. Ask your investment professional for more information.
Account options
Use your account application to select options and privileges for your
account. You can change your selections at any time by sending a completed
account options form to the transfer agent. You may be required to obtain a
signature guarantee to make certain changes to an existing account.
Call or write to the fund's transfer agent for account applications,
account options forms and other account information:
Pioneering Services Corporation
P.O. Box 9014
Boston, Massachusetts 02205-9014
Telephone 1-800-225-6292
Telephone transaction privileges
If your account is registered in your name, you can buy, exchange or sell
fund shares by telephone. If you do not want your account to have telephone
transaction privileges, you must indicate that choice on your account
application or by writing to the transfer agent.
When you request a telephone transaction the transfer agent will try to
confirm that the request is genuine. The transfer agent records the call,
requires the caller to provide the personal identification number for the
account and sends you a written confirmation. The fund may implement other
confirmation procedures from time to time. Different procedures may apply if you
have a non-U.S. account or if your account is registered in the name of an
institution, broker-dealer or other third party.
18
<PAGE>
General rules on buying, exchanging and selling your fund shares
Share price
If you place an order with your investment firm before the New York Stock
Exchange closes and your investment firm submits the order to the distributor
prior to the distributor's close of business (usually 5:30 p.m. Eastern time),
your share price will be calculated that day. Otherwise, your price per share
will be calculated at the close of the New York Stock Exchange after the
distributor receives your order. Your investment firm is responsible for
submitting your order to the distributor.
Buying
You may buy fund shares from any investment firm that has a sales agreement
with the distributor. If you do not have an investment firm, please call
1-800-225-6292 for information on how to locate an investment professional in
your area.
You can buy fund shares at the offering price. The distributor may reject
any order until it has confirmed the order in writing and received payment. The
fund reserves the right to stop offering any class of shares.
Minimum investment amounts
Your initial investment must be at least $1,000. Additional investments
must be at least $100 for Class A shares and $500 for Class B or Class C shares.
You may qualify for lower initial or subsequent investment minimums if you are
opening a retirement plan account, establishing an automatic investment plan or
placing your trade through your investment firm.
Exchanging
You may exchange your shares for shares of the same class of another
Pioneer mutual fund.
Your exchange request must be for at least $1,000 unless the fund you are
exchanging into has a different minimum. The fund allows you to exchange your
shares at net asset value without charging you either an initial or contingent
deferred sales charge at the time of the exchange. Shares you acquire as part of
an exchange will continue to be subject to any contingent deferred sales charge
that applies to the shares you originally purchased. When you ultimately sell
your shares, the date of your original purchase will determine your contingent
deferred sales charge.
Before you request an exchange, consider each fund's investment objective
and policies as described in the fund's prospectus.
Selling
Your shares will be sold at net asset value per share next calculated after
the fund receives your request in good order.
If the shares you are selling are subject to a deferred sales charge, it
will be deducted from the sale proceeds. The fund generally will send your sale
proceeds by check, bank wire or electronic funds transfer. Normally you will be
paid within seven days. If you recently sent a check to purchase the shares
being sold, the fund may delay payment of the sale proceeds until your check has
cleared. This may take up to 15 calendar days from the purchase date.
If you are selling shares from a non-retirement account or certain IRAs,
you may use any of the methods described below. If you are selling shares from a
retirement account other than an IRA, you must make your request in writing.
You may have to pay federal income taxes on a sale or an exchange.
Good order means that:
o You have provided adequate instructions
o There are no outstanding claims against your account
o There are no transaction limitations on your account
o If you have any fund share certificates, you submit them and they are
signed by each record owner exactly as the shares are registered
o Your request includes a signature guarantee if you:
-- Are selling over $100,000 worth of shares
-- Changed your account registration or address within the last 30 days
-- Instruct the transfer agent to mail the check to an address different
from the one on your account
-- Want the check paid to someone other than the account owner(s)
-- Are transferring the sale proceeds to a Pioneer mutual fund account
with a different registration
19
<PAGE>
Buying, exchanging and selling shares
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Buying shares Exchanging shares
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through Normally, your investment firm will send your Normally, your investment firm will send your exchange
your purchase request to the fund's transfer agent. request to the fund's transfer agent.
investment Consult your investment professional for more Consult your investment professional for more
firm information. Your investment firm may receive a information about exchanging your shares.
commission from the distributor for your purchase
of fund shares. The distributor or its affiliates
may pay additional compensation, out of their own
assets, to certain investment firms or their
affiliates based on objective criteria
established by the distributor.
By phone You can use the telephone purchase privilege if After you establish your fund account, you can
you have an existing non-retirement account or exchange fund shares by phone if:
certain IRAs. You can purchase additional fund o You are using the exchange to establish a new
shares by phone if: account, provided the new account has a
o You established your bank account of record at registration identical to the original account
least 30 days ago o The fund into which you are exchanging offers the
o Your bank information has not changed for at least same class of shares
30 days o You are not exchanging more than $500,000 worth
o You are not purchasing more than $25,000 worth of shares per account per day
of shares per account per day o You can provide the proper account identification
o You can provide the proper account identification information
When you request a telephone purchase, the transfer
agent will electronically debit the amount of the
purchase from your bank account of record. The
transfer agent will purchase fund shares for the
amount of the debit at the offering price determined
after the transfer agent receives your telephone
purchase instruction and good funds. It usually takes
three business days for the transfer agent to receive
notification from your bank that good funds are
available in the amount of your investment.
In writing, You can purchase fund shares for an existing fund You can exchange fund shares by mailing or faxing
by mail account by mailing a check to the transfer agent. a letter of instruction to the transfer agent. You can
or by fax Make your check payable to the fund. Neither initial exchange fund shares directly through the fund only
nor subsequent investments should be made by third if your account is registered in your name. However,
party check. Your check must be in U.S. dollars and you may not fax an exchange request for more than
drawn on a U.S. bank. Include in your purchase $500,000. Include in your letter:
request the fund's name, the account number and o The names and signatures of all registered owners
the name or names in the account registration. o A signature guarantee for each registered owner if
the amount of the exchange is more than $500,000
o The name of the fund out of which you are exchanging
and the name of the fund into which you are exchanging
o The class of shares you are exchanging
o The dollar amount or number of shares you are exchanging
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Selling shares How to contact us
- ----------------------------------------------------------------------------------------
<S> <C>
Normally, your investment firm will send your request to sell shares to the fund's By phone
transfer agent. Consult your investment professional for more information. The fund
has authorized the distributor to act as its agent in the repurchase of fund shares from For information or to request a telephone
qualified investment firms. The fund reserves the right to terminate this procedure at transaction between 8:00 a.m. and 9:00
any time. p.m. (Eastern time) by speaking with a
shareholder services representative call
1-800-225-6292
To request a transaction using FactFoneSM
call
1-800-225-4321
Telecommunications Device for the Deaf
You may sell up to $100,000 per account per day. You may sell fund shares held in a (TDD)
retirement plan account by phone only if your account is an IRA. You may not 1-800-225-1997
sell your shares by phone if you have changed your address (for checks) or your
bank information (for wires and transfers) in the last 30 days. By mail
Send your written instructions to:
Pioneering Services Corporation
You may receive your sale proceeds: P.O. Box 9014
Boston, Massachusetts 02205-9014
o By check, provided the check is made payable exactly as your account is registered
o By bank wire or by electronic funds transfer, provided the sale proceeds are By fax
being sent to your bank address of record
Fax your exchange and sale requests to:
1-800-225-4240
Exchange privilege
The fund and the distributor reserve the
right to refuse any exchange request or
restrict, at any time without notice, the
number and/or frequency of exchanges
You can sell some or all of your fund shares by writing directly to the fund only if to prevent abuses of the exchange
your account is registered in your name. Include in your request your name, the fund's privilege. Abuses include frequent
name, your fund account number, the class of shares to be sold, the dollar amount or trading in response to short-term market
number of shares to be sold and any other applicable requirements as described below. fluctuations and a pattern of trading
The transfer agent will send the sale proceeds to your address of record unless you that appears to be an attempt to "time
provide other instructions. Your request must be signed by all registered owners and be the market." In addition, the fund and
in good order. The transfer agent will not process your request until it is received in the distributor reserve the right, at any
good order. You may not sell more than $100,000 per account per day by fax. time without notice, to charge a fee for
exchanges or to modify, limit, suspend or
discontinue the exchange privilege.
</TABLE>
21
<PAGE>
Shareholder account policies
Signature guarantees and other requirements
You are required to obtain a signature guarantee when you are:
o Requesting certain types of exchanges or sales of fund shares
o Redeeming shares for which you hold a share certificate
o Requesting certain types of changes for your existing account
You can obtain a signature guarantee from most broker-dealers, banks,
credit unions (if authorized under state law) and federal savings and loan
associations. You cannot obtain a signature guarantee from a notary public.
Fiduciaries and corporations are required to submit additional documents to
sell fund shares.
Minimum account size
The fund requires that you maintain a minimum account value of $500. If you
hold less than the minimum in your account because you have sold or exchanged
some of your shares, the fund will notify you of its intent to sell your shares
and close your account. You may avoid this by increasing the value of your
account to at least the minimum within six months of the notice from the fund.
Telephone access
You may have difficulty contacting the fund by telephone during times of
market volatility or disruption in telephone service. If you are unable to reach
the fund by telephone, you should communicate with the fund in writing.
Share certificates
Normally, your shares will remain on deposit with the transfer agent and
certificates will not be issued. Under certain legal circumstances, you may
request a certificate for your Class A shares only. A fee may be charged for
this service.
Other policies
The fund may suspend payment of sale proceeds under certain circumstances.
The fund or the distributor may revise, suspend or terminate the account options
and services available to shareholders at any time.
Dividends and capital gains
The fund declares a dividend from any net investment income and any net
short-term capital gains each business day. You begin earning dividends on the
first business day following receipt of payment for shares; your shares continue
to earn dividends up to and including the date you redeem them. Dividends are
normally paid on the last business day of the month or shortly thereafter. The
fund distributes net long-term capital gains, if any, in November. The fund may
also pay dividends and distributions at other times if necessary for the fund to
avoid federal income or excise tax. If you invest in the fund close to the time
that the fund makes a capital gains distribution, generally you will pay a
higher price per share and you will pay taxes on the amount of the capital gains
distribution whether you reinvest the distribution or receive it as cash.
Sales and exchanges may be taxable transactions to shareholders.
22
<PAGE>
Taxes
For federal income tax purposes, your distributions from the fund's net
long-term capital gains (capital gain dividends) are considered long-term
capital gains. Dividends the fund pays from its tax-exempt interest income will
be designated as exempt-interest dividends and will be treated as tax-exempt
interest for federal income tax purposes, although they may increase a
shareholder's liability for alternative minimum tax in certain circumstances.
Dividends (other than capital gain dividends and exempt-interest dividends) and
short-term capital gain distributions are taxable as ordinary income. Dividends
and distributions are taxable, whether you take payment in cash or reinvest them
to buy additional fund shares. You may also have tax consequences (generally, a
capital gain or loss) when you sell or exchange fund shares. Each year the fund
will mail to you information about your dividends and distributions for, and the
shares you sold in, the previous calendar year.
You must provide your social security number or other taxpayer
identification number to the fund along with the certifications required by the
Internal Revenue Service when you open an account. If you do not or if it is
otherwise legally required to do so, the fund will withhold 31% "backup
withholding" tax from your dividends (other than exempt-interest dividends) and
distributions, sales proceeds and any other payments to you.
You should ask your own tax adviser about any federal or state tax
considerations, including possible additional withholding taxes for non-U.S.
shareholders. You may also consult the fund's statement of additional
information for a more detailed discussion of federal income tax considerations
that may affect the fund and its shareholders.
23
<PAGE>
FINANCIAL HIGHLIGHTS
Pioneer Intermediate Tax-Free Fund
Selected Data for a Class A Share Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1998
-------------
<S> <C>
Net asset value, beginning of period ............................ $ 10.45
Increase (decrease) from investment operations:
Net investment income (loss) .................................... $ 0.21
Net realized and unrealized gain (loss) on investments .......... (0.03)
Net increase (decrease) from investment operations .............. $ 0.18
Distributions to shareholders:
Net investment income ........................................... (0.22)
Net realized gain ............................................... --
Net increase (decrease) in net asset value ...................... $ (0.04)
Net asset value, end of period .................................. $ 10.41
Total return* ................................................... 1.69%
Ratios/Supplemental Data
Ratio of net expenses to average net assets ..................... 1.01%**+
Ratio of net investment income (loss) to average net assets ..... 4.06%**+
Portfolio turnover rate ......................................... 36%**
Net assets, end of period (in thousands) ........................ $59,729
Ratios assuming no waiver of management fees by Pioneer and
no reduction for fees paid indirectly:
Net expenses .................................................... 1.23%**
Net investment income (loss) .................................... 3.84%**
Ratios assuming waiver of management fees by Pioneer and
reduction for fees paid indirectly:
Net expenses .................................................... 1.00%**
Net investment income (loss) .................................... 4.07%**
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994(a) 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............................ $ 10.28 $ 10.44 $ 9.62 $ 10.76 $ 10.32
Increase (decrease) from investment operations:
Net investment income (loss) .................................... $ 0.44 $ 0.46 $ 0.49 $ 0.49 $ 0.56
Net realized and unrealized gain (loss) on investments .......... 0.25 (0.15) 0.82 (1.13) 0.56
Net increase (decrease) from investment operations .............. $ 0.69 $ 0.31 $ 1.31 $ (0.64) $ 1.12
Distributions to shareholders:
Net investment income ........................................... (0.44) (0.47) (0.49) (0.49) (0.56)
Net realized gain ............................................... (0.08) -- -- (0.01) (0.12)
Net increase (decrease) in net asset value ...................... $ 0.17 $ (0.16) $ 0.82 $ (1.14) $ 0.44
Net asset value, end of period .................................. $ 10.45 $ 10.28 $ 10.44 $ 9.62 $ 10.76
Total return* ................................................... 6.87% 3.03% 13.80% (6.02)% 11.08%
Ratios/Supplemental Data
Ratio of net expenses to average net assets ..................... 1.02%+ 1.03%+ 1.02%+ 1.00% 0.85%
Ratio of net investment income (loss) to average net assets ..... 4.23%+ 4.47%+ 4.77%+ 4.89% 5.23%
Portfolio turnover rate ......................................... 35% 34% 29% 39% 14%
Net assets, end of period (in thousands) ........................ $65,255 $73,387 $79,432 $76,674 $82,907
Ratios assuming no waiver of management fees by Pioneer and no
reduction for fees paid indirectly:
Net expenses .................................................... 1.17% 1.14% 1.12% 1.22% 1.12%
Net investment income (loss) .................................... 4.08% 4.36% 4.67% 4.67% 4.97%
Ratios assuming waiver of management fees by Pioneer and reduction
for fees paid indirectly:
Net expenses .................................................... 1.00% 1.00% 1.00% -- --
Net investment income (loss) .................................... 4.25% 4.50% 4.79% -- --
</TABLE>
Pioneer Intermediate Tax-Free Fund
Selected Data for a Class B Share Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
----------------
<S> <C>
Net asset value, beginning of period ..................................... $ 10.47
Increase (decrease) from investment operations:
Net investment income (loss) ............................................. $ 0.17
Net realized and unrealized gain (loss) on investments ................... (0.04)
Net increase (decrease) from investment operations: ...................... $ 0.13
Distributions to shareholders:
Net investment income .................................................... (0.15)
Net realized gain ........................................................ --
Net increase (decrease) in net asset value ............................... $(0.02)
Net asset value, end of period ........................................... $10.45
Total return* ............................................................ 1.29%
Ratios/Supplemental Data
Ratio of net expenses to average net assets .............................. 1.84%**+
Ratio of net investment income (loss) to average net assets .............. 3.23%**+
Portfolio turnover rate .................................................. 36%**
Net assets, end of period (in thousands) ................................. $2,667
Ratios assuming no waiver of management fees by Pioneer and no reduction
for fees paid indirectly:
Net expenses ............................................................. 2.05%**
Net investment income (loss) ............................................. 3.02%**
Ratios assuming waiver of management fees by Pioneer and reduction for
fees paid indirectly:
Net expenses ............................................................. 1.83%**
Net investment income (loss) ............................................. 3.24%**
<CAPTION>
For the Year Ended
December 31,
-------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net asset value, beginning of period ..................................... $10.31 $10.46 $ 9.65
Increase (decrease) from investment operations:
Net investment income (loss) ............................................. $ 0.36 $ 0.38 $ 0.41
Net realized and unrealized gain (loss) on investments ................... 0.25 (0.15) 0.80
Net increase (decrease) from investment operations: ...................... $ 0.61 $ 0.23 $ 1.21
Distributions to shareholders:
Net investment income .................................................... (0.37) (0.38) (0.40)
Net realized gain ........................................................ (0.08) -- --
Net increase (decrease) in net asset value ............................... $ 0.16 $(0.15) $ 0.81
Net asset value, end of period ........................................... $10.47 $10.31 $10.46
Total return* ............................................................ 6.08% 2.25% 12.71%
Ratios/Supplemental Data
Ratio of net expenses to average net assets .............................. 1.81%+ 1.81%+ 1.86%+
Ratio of net investment income (loss) to average net assets .............. 3.44%+ 3.68%+ 3.90%+
Portfolio turnover rate .................................................. 35% 34% 29%
Net assets, end of period (in thousands) ................................. $3,010 $2,864 $2,553
Ratios assuming no waiver of management fees by Pioneer and no reduction
for fees paid indirectly:
Net expenses ............................................................. 1.96% 1.91% 1.96%
Net investment income (loss) ............................................. 3.29% 3.58% 3.80%
Ratios assuming waiver of management fees by Pioneer and reduction for
fees paid indirectly:
Net expenses ............................................................. 1.79% 1.76% 1.82%
Net investment income (loss) ............................................. 3.46% 3.73% 3.94%
<CAPTION>
April 29, 1994 to
December 31, 1994(a)
--------------------
<S> <C>
Net asset value, beginning of period ..................................... $10.07
Increase (decrease) from investment operations:
Net investment income (loss) ............................................. $0.27
Net realized and unrealized gain (loss) on investments ................... (0.42)
Net increase (decrease) from investment operations: ...................... $(0.15)
Distributions to shareholders:
Net investment income .................................................... (0.27)
Net realized gain ........................................................ --
Net increase (decrease) in net asset value ............................... $(0.42)
Net asset value, end of period ........................................... $ 9.65
Total return* ............................................................ (1.49%)
Ratios/Supplemental Data
Ratio of net expenses to average net assets .............................. 1.84%**
Ratio of net investment income (loss) to average net assets .............. 4.17%**
Portfolio turnover rate .................................................. 39%
Net assets, end of period (in thousands) ................................. $1,529
Ratios assuming no waiver of management fees by Pioneer and no reduction
for fees paid indirectly:
Net expenses ............................................................. 2.14%**
Net investment income (loss) ............................................. 3.87%**
Ratios assuming waiver of management fees by Pioneer and reduction for
fees paid indirectly:
Net expenses ............................................................. --
Net investment income (loss) ............................................. --
</TABLE>
- --------
(a) Per share data based upon average shares outstanding for the period
presented.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of each period and no sales
charges. Total return would be reduced if sales charges were taken into
account.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
24
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
Pioneer Intermediate Tax-Free Fund
Selected Data for a Class C Share Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
----------------
<S> <C>
Net asset value, beginning of period ....................................... $10.48
Increase (decrease) from investment operations:
Net investment income (loss) ............................................... $ 0.16
Net realized and unrealized gain (loss) on investments ..................... (0.04)
Net increase (decrease) from investment operations: $ 0.12
Distributions to shareholders:
Net investment income ...................................................... (0.18)
In excess of net investment income ......................................... --
Net realized gain .......................................................... --
Net increase (decrease) in net asset value ................................. $(0.06)
Net asset value, end of period ............................................. $10.42
Total return* .............................................................. 1.15%
Ratios/Supplemental Data
Ratio of net expenses to average net assets ................................ 1.95%**+
Ratio of net investment income (loss) to average net assets ................ 3.21%**+
Portfolio turnover rate .................................................... 36%**
Net assets, end of period (in thousands) ................................... $ 170
Ratios assuming no waiver of management fees by Pioneer and no reduction
for fees paid indirectly:
Net expenses ............................................................... 2.17%**
Net investment income (loss) ............................................... 2.99%**
Ratios assuming waiver of management fees by Pioneer and reduction for
fees paid indirectly:
Net expenses ............................................................... 1.94%**
Net investment income (loss) ............................................... 3.22%**
<CAPTION>
For the Year Ended January 31, 1996 to
December 31, 1997 December 31, 1996
------------------ -------------------
<S> <C> <C>
Net asset value, beginning of period ....................................... $10.29 $10.51
Increase (decrease) from investment operations:
Net investment income (loss) ............................................... $ 0.35 $ 0.33
Net realized and unrealized gain (loss) on investments ..................... 0.26 (0.21)
Net increase (decrease) from investment operations: $ 0.61 $ 0.12
Distributions to shareholders:
Net investment income ...................................................... (0.34) (0.33)
In excess of net investment income ......................................... -- (0.01)
Net realized gain .......................................................... (0.08) --
Net increase (decrease) in net asset value ................................. $ 0.19 $(0.22)
Net asset value, end of period ............................................. $10.48 $10.29
Total return* .............................................................. 6.04% 1.22%
Ratios/Supplemental Data
Ratio of net expenses to average net assets ................................ 1.84%+ 1.97%**+
Ratio of net investment income (loss) to average net assets ................ 3.41%+ 3.51%**+
Portfolio turnover rate .................................................... 35% 34%
Net assets, end of period (in thousands) ................................... $ 300 $ 202
Ratios assuming no waiver of management fees by Pioneer and no reduction
for fees paid indirectly:
Net expenses ............................................................... 1.99% 2.08%**
Net investment income (loss) ............................................... 3.26% 3.40%**
Ratios assuming waiver of management fees by Pioneer and reduction for fees
paid indirectly:
Net expenses ............................................................... 1.82% 1.89%**
Net investment income (loss) ............................................... 3.43% 3.59%**
</TABLE>
Pioneer Tax-Free Income Fund
Selected Data for a Class A Share Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
----------------
<S> <C>
Net asset value, beginning of period ............................ $ 12.17
Increase (decrease) from investment operations:
Net investment income (loss) .................................... $ 0.27
Net realized and unrealized gain (loss) on investments .......... 0.03
Net increase (decrease) from investment operations .............. $ 0.30
Distributions to shareholders:
Net investment income ........................................... (0.28)
Net realized gain ............................................... --
Net increase (decrease) in net asset value ...................... $ 0.02
Net asset value, end of period .................................. $ 12.19
Total return* ................................................... 2.46%
Ratios/Supplemental Data
Ratio of net expenses to average net assets ..................... 0.92%**+
Ratio of net investment income (loss) to average net assets ..... 4.57%**+
Portfolio turnover rate ......................................... 66%**
Net assets, end of period (in thousands) ........................ $398,003
Ratios assuming reduction for fees paid indirectly:
Net expenses .................................................... 0.92%**
Net investment income (loss) .................................... 4.57%**
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------
1997 1996 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............................ $ 11.96 $ 12.36 $ 11.24 $ 12.68
Increase (decrease) from investment operations:
Net investment income (loss) .................................... $ 0.59 $ 0.62 $ 0.64 $ 0.64
Net realized and unrealized gain (loss) on investments .......... 0.45 (0.21) 1.21 (1.44)
Net increase (decrease) from investment operations .............. $ 1.04 $ 0.41 $ 1.85 $ (0.80)
Distributions to shareholders:
Net investment income ........................................... (0.59) (0.62) (0.64) (0.64)
Net realized gain ............................................... (0.24) (0.19) (0.09) --
Net increase (decrease) in net asset value ...................... $ 0.21 $ (0.40) $ 1.12 $ (1.44)
Net asset value, end of period .................................. $ 12.17 $ 11.96 $ 12.36 $ 11.24
Total return* ................................................... 8.94% 3.57% 16.84% (6.38%)
Ratios/Supplemental Data
Ratio of net expenses to average net assets ..................... 0.93%+ 0.92%+ 0.91%+ 0.91%
Ratio of net investment income (loss) to average net assets ..... 4.87%+ 5.16%+ 5.37%+ 5.37%
Portfolio turnover rate ......................................... 22% 44% 35% 55%
Net assets, end of period (in thousands) ........................ $413,856 $441,733 $476,584 $452,661
Ratios assuming reduction for fees paid indirectly:
Net expenses .................................................... 0.91% 0.90% 0.89% --
Net investment income (loss) .................................... 4.89% 5.18% 5.39% --
<CAPTION>
For the Year
Ended
December 31,
------------
1993(a)
--------
<S> <C>
Net asset value, beginning of period ............................ $ 12.08
Increase (decrease) from investment operations:
Net investment income (loss) .................................... $ 0.67
Net realized and unrealized gain (loss) on investments .......... 0.87
Net increase (decrease) from investment operations .............. $ 1.54
Distributions to shareholders:
Net investment income ........................................... (0.67)
Net realized gain ............................................... (0.27)
Net increase (decrease) in net asset value ...................... $ 0.60
Net asset value, end of period .................................. $ 12.68
Total return* ................................................... 12.98%
Ratios/Supplemental Data
Ratio of net expenses to average net assets ..................... 0.86%
Ratio of net investment income (loss) to average net assets ..... 5.37%
Portfolio turnover rate ......................................... 58%
Net assets, end of period (in thousands) ........................ $532,491
Ratios assuming reduction for fees paid indirectly:
Net expenses .................................................... --
Net investment income (loss) .................................... --
</TABLE>
- --------
(a) Prior to assumption of management agreement on December 1, 1993 by Pioneer,
the fund was advised by Mutual of Omaha Management Company.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions, the complete redemption of the
investment at net asset value at the end of each period and no sales
charges. Total return would be reduced if sales charges were taken into
account.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
25
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
Pioneer Tax-Free Income Fund
Selected Data for a Class B Share Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
Six Months Ended ------------------ April 28, 1995 to
June 30, 1998 1997 1996 December 31, 1995
---------------- ------ ------ -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............................. $12.09 $11.88 $12.31 $11.81
Increase (decrease) from investment operations:
Net investment income (loss) ..................................... $ 0.23 $ 0.50 $ 0.53 $ 0.35
Net realized and unrealized gain (loss) on investments ........... 0.03 0.44 (0.22) 0.58
Net increase (decrease) from investment operations: .............. $ 0.26 $ 0.94 $ 0.31 $ 0.93
Distributions to shareholders:
Net investment income ............................................ (0.24) (0.49) (0.53) (0.34)
In excess of net investment income ............................... -- -- (0.02) --
Net realized gain ................................................ -- (0.24) (0.19) (0.09)
Net increase (decrease) in net asset value ....................... $ 0.02 $ 0.21 $(0.43) $(0.50)
Net asset value, end of period ................................... $12.11 $12.09 $11.88 $12.31
Total return* .................................................... 2.16 % 8.16% 2.66% 7.94%
Ratios/Supplemental Data
Ratio of net expenses to average net assets ...................... 1.64%**+ 1.68%+ 1.67%+ 1.72%**+
Ratio of net investment income (loss) to average net assets ...... 3.83%**+ 4.12%+ 4.38%+ 4.38%**+
Portfolio turnover rate .......................................... 66%** 22% 44% 35%
Net assets, end of period (in thousands) ......................... $7,284 $5,588 $4,792 $2,069
Ratios assuming reduction for fees paid indirectly:
Net expenses ..................................................... 1.64%** 1.66% 1.65% 1.65%**
Net investment income (loss) ..................................... 3.83%** 4.14% 4.40% 4.45%**
</TABLE>
Pioneer Tax-Free Income Fund
Selected Data for a Class C Share Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
----------------
<S> <C>
Net asset value, beginning of period ................................ $12.11
Increase (decrease) from investment operations:
Net investment income (loss) ........................................ $ 0.23
Net realized and unrealized gain (loss) on investments .............. 0.02
Net increase (decrease) from investment operations: ................. $ 0.25
Distribution to shareholders:
Net investment income ............................................... (0.24)
In excess of net investment income .................................. --
Net realized gain ................................................... --
Net increase (decrease) in net asset value .......................... $ 0.01
Net asset value, end of period ...................................... $12.12
Total return* ....................................................... 2.08%
Ratios/Supplemental Data
Ratio of net expenses to average net assets ......................... 1.59%**+
Ratio of net investment income (loss) to average net assets ......... 3.84%**+
Portfolio turnover rate ............................................. 66%**
Net assets, end of period (in thousands) ............................ $2,593
Ratios assuming reduction for fees paid indirectly:
Net expenses ........................................................ 1.59%**
Net investment income (loss) ........................................ 3.84%**
<CAPTION>
For the Year Ended January 31, 1996 to
December 31, 1997 December 31, 1996
------------------ -------------------
<S> <C> <C>
Net asset value, beginning of period ................................ $11.88 $12.32
Increase (decrease) from investment operations:
Net investment income (loss) ........................................ $ 0.49 $ 0.49
Net realized and unrealized gain (loss) on investments .............. 0.47 (0.24)
Net increase (decrease) from investment operations: ................. $ 0.96 $ 0.25
Distribution to shareholders:
Net investment income ............................................... (0.49) (0.49)
In excess of net investment income .................................. -- (0.01)
Net realized gain ................................................... (0.24) (0.19)
Net increase (decrease) in net asset value .......................... $ 0.23 $(0.44)
Net asset value, end of period ...................................... $12.11 $11.88
Total return* ....................................................... 8.32% 2.19%
Ratios/Supplemental Data
Ratio of net expenses to average net assets ......................... 1.70%+ 1.71%**+
Ratio of net investment income (loss) to average net assets ......... 4.04%+ 4.34%**+
Portfolio turnover rate ............................................. 22% 44%
Net assets, end of period (in thousands) ............................ $1,643 $ 383
Ratios assuming reduction for fees paid indirectly:
Net expenses ........................................................ 1.67% 1.69%**
Net investment income (loss) ........................................ 4.07% 4.36%**
</TABLE>
- --------
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions, the complete redemption for the
investment at net asset value at the end of each period and no sales charges.
Total return would be reduced if sales charges were taken into account.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
26
<PAGE>
INFORMATION CONCERNING THE MEETING
Solicitation of proxies
In addition to the mailing of these proxy materials, proxies may be
solicited by telephone, by fax or in person by the trustees, officers and
employees of your fund; by personnel of Pioneer and the fund's transfer agent,
Pioneering Services Corporation; or by representatives or compensated agents,
including broker-dealer firms. Alamo Direct, a third-party solicitation firm,
has agreed to provide proxy solicitation services to your fund at a cost of
approximately $5,000. The costs of the proxy and solicitation will be borne
jointly by the funds.
Revoking proxies
A fund shareholder signing and returning a proxy has the power to revoke it
at any time before it is exercised:
o By filing a written notice of revocation with Pioneering Services
Corporation, 60 State Street, Boston, Massachusetts 02109, or
o By returning a duly executed proxy with a later date before the time of
the meeting, or
o If a shareholder has executed a proxy but is present at the meeting and
wishes to vote in person, by notifying the secretary of your fund
(without complying with any formalities) at any time before it is voted
Being present at the meeting alone does not revoke a previously executed
and returned proxy.
Outstanding shares and quorum
As of January 29, 1999, 5,524,948 Class A shares, 324,235 Class B shares
and 95,191 Class C shares of beneficial interest of your fund were outstanding.
Only shareholders of record on February 1, 1999 (the record date) are entitled
to notice of and to vote at the meeting. A majority of the outstanding shares of
your fund that are entitled to vote will be considered a quorum for the
transaction of business.
Other business
Your fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposal. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
Adjournments
If a quorum is not present in person or by proxy at the time any session of
the meeting is called to order, the persons named as proxies may vote those
proxies that have been received to adjourn the meeting to a later date. If a
quorum is present but there are not sufficient votes in favor of the proposal,
the persons named as proxies may propose one or more adjournments of the meeting
to permit further solicitation of proxies concerning the proposal. Any
adjournment will require the affirmative vote of a majority of your fund's
shares at the session of the meeting to be adjourned. If an adjournment of the
meeting is proposed because there are not sufficient votes in favor of the
proposal, the persons named as proxies will vote those proxies favoring the
proposal in favor of adjournment, and will vote those proxies against the
reorganization against adjournment.
Telephone voting
In addition to soliciting proxies by mail, by fax or in person, your fund
may also arrange to have votes recorded by telephone by officers and employees
of your fund or by personnel of the adviser or transfer agent. The telephone
voting procedure is designed to verify a shareholder's identity, to allow a
shareholder to authorize the voting of shares in accordance with the
shareholder's instructions and to confirm that the voting instructions have been
properly recorded. If these procedures were subject to a successful legal
challenge, these telephone votes would not be counted at the meeting. Your fund
has not obtained an opinion of counsel about telephone voting, but is currently
not aware of any challenge.
o A shareholder will be called on a recorded line at the telephone number
in the fund's account records and will be asked to provide the
shareholder's social security number or other identifying information
o The shareholder will then be given an opportunity to authorize proxies
to vote his or her shares at the meeting in accordance with the
shareholder's instructions
o To ensure that the shareholder's instructions have been recorded
correctly, the shareholder will also receive a confirmation of the
voting instructions by mail
o A toll-free number will be available in case the voting information
contained in the confirmation is incorrect
27
<PAGE>
o If the shareholder decides after voting by telephone to attend the
meeting, the shareholder can revoke the proxy at that time and vote the
shares at the meeting
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of the fund, as of December 31, 1998, the following
persons owned of record or beneficially 5% or more of the outstanding Class A,
Class B and Class C shares of your fund and Tax-Free Income Fund:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Pro forma ownership of
Tax-Free Income Fund as of
Names and addresses of owners of Intermediate Tax-Free December 31, 1998
more than 5% of shares ----------------------------- -------------------------------
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
for the Sole Benefit of its Customers -- 32.37% 71.63% -- 20.09% 35.37%
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- ---------------------------------------------------------------------------------------------------------
Pioneer Funds Distributor, Inc.
60 State Street -- -- 12.90% -- -- 3.14%
Boston, MA 02109-1800
- ---------------------------------------------------------------------------------------------------------
Alice M. Latella and
Philip A. Latella -- -- 6.01% -- -- 1.46%
1009 Beckwith Place
Utica, NY 13501-5317
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Pro forma ownership of
Names and addresses of owners of Tax-Free Income Fund as of
more than 5% of shares Tax-Free Income Fund December 31, 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
for the Sole Benefit of its Customers -- 14.32% 22.72% -- 20.09% 35.37%
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
- ---------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc.
388 Greenwich Street -- -- 25.31% -- -- 19.97%
New York, NY 10013-2375
- ---------------------------------------------------------------------------------------------------------
Raffaella R. Buonocore
Trustee of Raffaella R. Buonocore
Living Trust dated 4/25/97 -- -- 5.37% -- -- 4.24%
1720 Walnut Street
Chester, PA 19013-5725
- ---------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, the trustees and officers of your fund and
Tax-Free Income Fund, each as a group, owned in the aggregate less than 1% of
the outstanding shares of the respective funds.
EXPERTS
The financial statements and the financial highlights of Intermediate
Tax-Free Fund and Tax-Free Income Fund, each as of December 31, 1997 and June
30, 1998, are incorporated by reference into this proxy statement and
prospectus. The financial statements and highlights have been independently
audited by Arthur Andersen LLP, as stated in their reports appearing in the
statement of additional information. These financial statements and highlights
are included in reliance upon the reports given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and files reports, proxy statements and
other information with the SEC. These reports, proxy statements and other
information can be inspected and copied (at prescribed rates) at the public
reference facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C., and
at the following regional offices: Chicago (500 West Madison Street, Suite 1400,
Chicago, Illinois); and New York (7 World Trade Center, Suite 1300, New York,
New York). Copies of such material can also be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, copies of these documents may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov.
28
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this ___ day of___________, 1999, by and between Pioneer Intermediate Tax-Free
Fund, a Massachusetts business trust with its principal place of business at 60
State Street, Boston, Massachusetts 02109 (the "Acquired Fund"), and Pioneer
Tax-Free Income Fund (the "Acquiring Fund"), a Delaware business trust with its
principal place of business at 60 State Street, Boston, Massachusetts 02109.
This Agreement is intended to be and is adopted as a plan of reorganization
within the meaning of Section 368(a)(1) of the United States Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization will consist of the
transfer of all of the assets of the Acquired Fund to the Acquiring Fund in
exchange for the issuance of Class A, Class B and Class C shares of beneficial
interest of the Acquiring Fund (the "Acquiring Fund Shares") to the Acquired
Fund and the assumption by the Acquiring Fund of the liabilities of the Acquired
Fund, followed by the distribution by the Acquired Fund, on or promptly after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation and termination of the Acquired
Fund as provided herein, all upon the terms and conditions hereinafter set forth
in this Agreement.
In consideration of the premises of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND LIQUIDATION OF THE ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and interest
receivables, cash and other assets), as set forth in the statement of assets and
liabilities referred to in paragraph 7.2 hereof (the "Statement of Assets and
Liabilities"), to the Acquiring Fund free and clear of all liens and
encumbrances, except as otherwise provided herein in exchange for (i) the
assumption by the Acquiring Fund of all known and unknown liabilities of the
Acquired Fund, including the liabilities set forth in the Statement of Assets
and Liabilities, which shall be assigned and transferred to and assumed by the
Acquiring Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund,
for distribution pro rata by the Acquired Fund to its shareholders in proportion
to their respective ownership of Class A, Class B and/or Class C shares of
beneficial interest of the Acquired Fund, as of the close of business on the
closing date (the "Closing Date"), of a number of Acquiring Fund Shares having
an aggregate net asset value equal to the value of the assets, less such
liabilities (herein referred to as the "net value of the assets"), of the
Acquired Fund so transferred, assumed, assigned and delivered, all determined as
provided in paragraph 2 and as of a date and time as specified therein. Such
transactions shall take place at the closing provided for in paragraph 3.1
hereof (the "Closing"). All computations shall be provided by Pioneer Investment
Management, Inc. (the "Administrator"), as administrator for the Acquiring Fund
and for the Acquired Fund and shall be recomputed by Arthur Andersen LLP,
independent auditors of the Acquiring Fund. The determination of the
Administrator, as recomputed by said auditors, shall be conclusive and binding
on all parties in interest.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of execution of
this Agreement. The Acquired Fund reserves the right to sell any of these
securities (except to the extent sales may be limited by representations made in
connection with issuance of the tax opinion described in paragraph 8.7 hereof)
but will not, without the prior approval of the Acquiring Fund, acquire any
additional securities other than securities of the type in which the Acquiring
Fund is permitted to invest.
1.3 Each of the Acquiring Fund and the Acquired Fund shall bear its own
expenses in connection with the transactions contemplated by this Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to shareholders of record ("the Acquired Fund shareholders"), determined as
of the close of regular trading on the New York Stock Exchange on the last day
such Exchange is open for unrestricted trading immediately preceding the Closing
Date (the "Valuation Date"), the Acquiring Fund Shares received by the Acquired
Fund pursuant to paragraph 1.1. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund, to open
accounts on the share records of the Acquiring Fund in the names of the Acquired
Fund shareholders and representing the respective pro rata number of Acquiring
Fund Shares due such shareholders. Acquired Fund shareholders who own Class A
shares of the Acquired Fund will receive Class A Acquiring Fund Shares, Acquired
Fund shareholders who own Class B shares of the Acquired Fund will receive Class
B Acquiring Fund Shares and Acquired Fund shareholders who own Class C shares of
the Acquired Fund will receive Class C Acquiring Fund Shares. The Acquiring Fund
will not issue share certificates representing Acquiring Fund Shares unless a
shareholder specifically requests the Acquiring Fund Shares in certificated form
and, if applicable, in exchange for outstanding certificates representing
Acquired Fund shares, as described in paragraph 1.5.
1.5 The Acquiring Fund shall record the net asset value of all outstanding
Acquired Fund certificated shares in its books and records as of the Closing
Date, in accordance with paragraph 2.2, and daily thereafter, in accordance with
the Acquiring Fund's procedures for
29
<PAGE>
determining net asset value per share. The Acquiring Fund will honor
certificates representing Acquired Fund shares at their net asset value as
determined on the books and records of the Acquiring Fund, and subject to the
Acquiring Fund's normal requirements for redeeming or transferring shares
evidenced by certificates. Acquired Fund shareholders need not surrender such
certificates or deliver affidavits with respect to lost certificates after the
Closing. Any Acquired Fund certificate which remains outstanding on the Closing
Date shall be deemed to be evidence of ownership of the same class of shares of
beneficial interest of the Acquiring Fund.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquiring Fund Shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance and
transfer, be paid by the person to whom such Acquiring Fund Shares are to be
issued and transferred.
1.7 The Acquired Fund shall file an application (on Form N-8F or such other
form deemed appropriate by the Securities and Exchange Commission (the
"Commission")) pursuant to Section 8(f) of the Investment Company Act of 1940,
as amended (the "1940 Act"), as soon as practicable following the Liquidation
Date, and the existence of the Acquired Fund shall be terminated in accordance
with Massachusetts law as promptly as practicable thereafter.
2. VALUATION
2.1 The net asset values of the Class A, Class B and Class C Acquiring Fund
Shares and the net value of the assets and liabilities of the Acquired Fund
attributable to its Class A, Class B and Class C shares to be transferred shall,
in each case, be determined as of the close of the New York Stock Exchange on
the Valuation Date. The net asset value per share of Acquiring Fund Shares shall
be computed by the Administrator in the manner set forth in the Agreement and
Declaration of Trust or By-Laws of the Acquiring Fund and then-current
prospectus and statement of additional information of the Acquiring Fund and
shall be computed to not fewer than six decimal places. The net value of the
assets of the Acquired Fund to be transferred shall be computed by the
Administrator by calculating the value of the assets attributable to each class
of shares transferred by the Acquired Fund and by subtracting therefrom the
amount of the liabilities attributable to each class of shares to be assigned
and transferred to and assumed by the Acquiring Fund on the Closing Date, said
assets and liabilities to be valued in the manner set forth in the Acquired
Fund's most recent prospectus and statement of additional information.
2.2 The number of shares of each class of Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
assets shall be determined by dividing the value of the Acquired Fund assets
attributable to a class, less the liabilities attributable to that class assumed
by the Acquiring Fund, by the Acquiring Fund's net asset value per share of the
same class, all as determined in accordance with paragraph 2.1.
2.3 All computations of value shall be made by the Administrator in
accordance with its regular practice as pricing agent for the Acquiring Fund.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be as of ___________, 1999, or as of such other
date on or before ___________, 1999 as the parties may agree in writing. The
Closing shall be held at 5:00 p.m., Boston time, at the offices of the Acquiring
Fund, 60 State Street, Boston, Massachusetts 02109, or at such other time and/or
place as the parties may agree in writing.
3.2 Portfolio securities that are not held in book-entry form in the name
of Brown Brothers Harriman & Co. (the "Custodian") as record holder for the
Acquired Fund shall be presented by the Acquired Fund to the Custodian for
examination no later than five business days preceding the Valuation Date.
Portfolio securities which are not held in book-entry form shall be delivered by
the Acquired Fund to the Custodian for the account of the Acquiring Fund on the
Closing Date, duly endorsed in proper form for transfer, in such condition as to
constitute good delivery thereof in accordance with the custom of brokers, and
shall be accompanied by all necessary federal and state stock transfer stamps or
a check for the appropriate purchase price thereof. Portfolio securities held of
record by the Custodian in book-entry form on behalf of the Acquired Fund shall
be delivered to the Acquiring Fund by the Custodian by recording the transfer of
ownership thereof on its records. The cash delivered shall be in the form of
currency or by the Custodian crediting the Acquiring Fund's account maintained
with the Custodian with immediately available funds.
3.3 In the event that on the proposed Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored; provided that if
trading shall not be fully resumed and reporting restored on or before
, 1999, this Agreement may be terminated by the Acquiring Fund
or the Acquired Fund upon the giving of written notice to the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding and
nonresident alien withholding status of Acquired Fund shareholders and the
number and percentage ownership of outstanding shares of each class of shares of
beneficial interest of the Acquired Fund owned by each such shareholder, all as
of the close of business on the Valuation Date, certified by its Treasurer,
Secretary or other authorized officer (the "Shareholder List"). The Acquiring
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Fund shall issue and deliver to the Acquired Fund a confirmation evidencing the
Acquiring Fund Shares to be credited on the Liquidation Date, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing each party shall deliver to the other such bills of sale, checks,
assignments, certificates, receipts or other documents as such other party or
its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
(a) The Acquired Fund is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has the power to own all of its properties and assets
and, subject to approval by the shareholders of the Acquired Fund, to
perform its obligations under this Agreement. The Acquired Fund is not
required to qualify to do business in any jurisdiction in which it is not
so qualified or where failure to qualify would not subject it to any
material liability or disability. The Acquired Fund has all necessary
federal, state and local authorizations to own all of its properties and
assets and to carry on its business as now being conducted;
(b) The Acquired Fund is a registered investment company classified as
a management company of the open-end diversified type and its registration
with the Commission as an investment company under the 1940 Act is in full
force and effect;
(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement by the Acquired Fund will not result, in
violation of any provision of the Declaration of Trust or By-Laws of the
Acquired Fund or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Acquired Fund is a party or by which the
Acquired Fund is bound;
(d) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of securities
entered into in the ordinary course of business and consistent with its
obligations under this Agreement) which will not be terminated without
liability to the Acquired Fund at or prior to the Closing Date;
(e) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or
threatened as to the Acquired Fund or any of its properties or assets. The
Acquired Fund knows of no facts which might form the basis for the
institution of such proceedings, and the Acquired Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The statement of assets and liabilities, including the schedule of
portfolio investments, of the Acquired Fund as of December 31, 1998 and the
related statement of operations for the year then ended, and the statements
of changes in net assets for the years ended December 31, 1998 and 1997
(audited by Arthur Andersen LLP, independent public accountants) (copies of
which have been furnished to the Acquiring Fund) present fairly in all
material respects the financial position of the Acquired Fund as of
December 31, 1998 and the results of its operations and changes in net
assets for the respective stated periods in accordance with generally
accepted accounting principles consistently applied, and there were no
known actual or contingent liabilities of the Acquired Fund as of the
respective dates thereof not disclosed therein;
(g) Since December 31, 1998, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or
furnished by such dates shall have been filed, furnished, or extensions of
time for such filing shall have been granted, and all federal, state and
other taxes, interest and penalties shall have been paid so far as due, or
provision shall have been made for the payment thereof, and to the best of
the Acquired Fund's knowledge no such return is currently under audit and
no assessment has been asserted with respect to such returns or reports;
(i) The Acquired Fund has elected to be treated as a regulated
investment company for federal income tax purposes, has qualified as such
for each taxable year of its operation and will qualify as such as of the
Closing Date with respect to its final taxable year ending on the Closing
Date;
(j) The authorized capital of the Acquired Fund consists of an
unlimited number of shares of beneficial interest, no par value. All issued
and outstanding shares of beneficial interest of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid and nonassessable. All of the issued and outstanding shares of
beneficial interest of the Acquired Fund will, at the time of Closing, be
held by the persons and in the amounts set forth in the Shareholder List.
The Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of its shares of beneficial
interest, nor is there outstanding any security convertible into any of its
shares of beneficial interest;
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<PAGE>
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.1, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery and
payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the Securities
Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquired
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquired Fund enforceable in accordance with its terms, subject in each
case to the approval of Acquired Fund shareholders;
(m) The information to be furnished by the Acquired Fund to the
Acquiring Fund for use in applications for orders, registration statements,
proxy materials and other documents which may be necessary in connection
with the transactions contemplated hereby shall be accurate and complete
and shall comply in all material respects with federal securities and other
laws and regulations thereunder applicable thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement")
to be included in the Registration Statement referred to in paragraph 5.7
hereof (other than written information furnished by the Acquiring Fund for
inclusion therein, as covered by the Acquiring Fund's warranty in paragraph
4.2(l) hereof), on the effective date of the Registration Statement, on the
date of the meeting of Acquired Fund shareholders and on the Closing Date,
shall not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of
the Acquired Fund have been offered for sale and sold in conformity with
all applicable federal and state securities laws, except as may have been
previously disclosed in writing to the Acquiring Fund; and
(q) The prospectus of the Acquired Fund dated April 30, 1998, and any
amendments or supplements thereto, previously furnished to the Acquiring
Fund, does not contain any untrue statements of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not misleading.
4.2 The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) The Acquiring Fund is a business trust duly organized, validly
existing and in good standing under the laws of the State of Delaware and
has the power to own all of its properties and assets and to perform its
obligations under this Agreement. The Acquiring Fund is not required to
qualify to do business in any jurisdiction in which it is not so qualified
or where failure to qualify would not subject it to any material liability
or disability. The Acquiring Fund has all necessary federal, state and
local authorizations to own all of its properties and assets and to carry
on its business as now being conducted;
(b) The Acquiring Fund is a registered investment company classified
as a management company of the open-end diversified type and its
registration with the Commission as an investment company under the 1940
Act is in full force and effect;
(c) The prospectus of the Acquiring Fund and statement of additional
information of the Acquiring Fund, dated April 30, 1998, and any amendments
or supplements thereto on or prior to the Closing Date (the "Acquiring Fund
Prospectus") and the Registration Statement to be filed in connection with
this Agreement referred to in paragraph 5.7 hereof (other than written
information furnished by the Acquired Fund for inclusion therein as covered
by the Acquired Fund's warranty in paragraph 4.1(m) hereof) conforms and
will conform at all times on or prior to the Closing Date in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder, the Acquiring
Fund Prospectus does not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
such statements were made, not misleading, and the Registration Statement
will not include an untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
(e) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provisions of the Agreement and Declaration of Trust or By-Laws of the
Acquiring Fund or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Acquiring Fund is a party or by which the
Acquiring Fund is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Acquiring Fund or any of the Acquiring
Fund's properties or assets, except as previously disclosed
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<PAGE>
in writing to the Acquired Fund. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings, and the
Acquiring Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects the Acquiring Fund's business;
(g) The statement of assets and liabilities of the Acquiring Fund, as
of December 31, 1998, and the related statement of operations for the year
then ended, and the statements of changes in net assets for the years ended
December 31, 1998 and 1997 (audited by Arthur Andersen LLP, independent
public accountants) (copies of which have been furnished to the Acquired
Fund) present fairly in all material respects the financial position of the
Acquiring Fund as of December 31, 1998;
(h) The Acquiring Fund or its predecessor has elected to be treated as
a regulated investment company for federal income tax purposes, the
Acquiring Fund and its predecessor have qualified as such for each taxable
year since inception, and the Acquiring Fund will qualify as such as of the
Closing Date and for its taxable year that includes the Closing Date;
(i) The authorized capital of the Acquiring Fund consists of an
unlimited number of shares of beneficial interest, no par value. The shares
of the Acquiring Fund are of divided into three classes, Class A, Class B
and Class C. All issued and outstanding shares of beneficial interest of
the Acquiring Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and nonassessable by the Acquiring Fund.
The Acquiring Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares;
(j) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms;
(k) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial interest of
the Acquiring Fund and will be fully paid and nonassessable by the
Acquiring Fund;
(l) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto; and
(m) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated by the Agreement, except for the
registration of the Acquiring Fund Shares under the 1933 Act, 1940 Act and
under state securities laws.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Acquiring
Fund and the Acquired Fund each shall operate its business in the ordinary
course between the date hereof and the Closing Date, it being understood that
such ordinary course of business will include customary dividends and
distributions and any other distributions necessary or desirable to avoid
federal income or excise taxes.
5.2 The Acquired Fund will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose of making
any distribution thereof other than in accordance with the terms of this
Agreement.
5.4 The Acquired Fund will provide such information within its possession
or reasonably obtainable as the Acquiring Fund requests concerning the
beneficial ownership of the Acquired Fund's shares of beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
the transactions contemplated by this Agreement.
5.6 The Acquired Fund shall furnish to the Acquiring Fund on the Closing
Date the Statement of Assets and Liabilities of the Acquired Fund as of the
Closing Date, which statement shall be prepared in accordance with generally
accepted accounting principles consistently applied and shall be certified by
the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable, but in any case within 60 days after the Closing Date, the Acquired
Fund shall furnish to the Acquiring Fund, in such form as is reasonably
satisfactory to the Acquiring Fund, a statement of the earnings and profits of
the Acquired Fund for federal income tax purposes, and of any capital loss
carryovers and other items that will be carried over to the Acquiring Fund as a
result of Section 381 of the Code, and which statement will be certified by the
President of the Acquired Fund.
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<PAGE>
5.7 The Acquiring Fund will prepare and file with the Commission a
Registration Statement on Form N-14 (the "Registration Statement") in compliance
with the 1933 Act and the 1940 Act in connection with the issuance of the
Acquiring Fund Shares as contemplated herein.
5.8 The Acquired Fund will prepare a Proxy Statement, to be included in the
Registration Statement in compliance with the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the 1940 Act and the rules and regulations
thereunder (collectively, the "Acts") in connection with the special meeting of
Acquired Fund shareholders to consider approval of this Agreement. The Acquiring
Fund agrees to provide the Acquired Fund with information applicable to the
Acquiring Fund required under the Acts for inclusion in the Proxy Statement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be, at its election, subject to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date; and
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form satisfactory to the Acquired Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of the Acquiring Fund made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquired
Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be, at its election, subject to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
7.2 The Acquired Fund shall have delivered to the Acquiring Fund the
Statement of Assets and Liabilities, together with a list of its portfolio
securities showing the federal income tax bases and holding periods of such
securities, as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of the Acquired Fund; and
7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquired Fund in this
Agreement are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquiring Fund shall reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE
ACQUIRING FUND
The obligations of the Acquired Fund hereunder are, at the option of the
Acquiring Fund, and the obligations of the Acquiring Fund hereunder are, at the
option of the Acquired Fund, each subject to the further conditions that on or
before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Acquired Fund in accordance with the provisions of
the Acquired Fund's Declaration of Trust and By-Laws, and certified copies of
the resolutions evidencing such approval by the Acquired Fund's shareholders
shall have been delivered by the Acquired Fund to the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquired Fund to permit consummation, in all material respects,
of the transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of the Acquiring Fund or
the Acquired Fund, provided that either party hereto may waive any such
conditions for itself;
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<PAGE>
8.4 The Registration Statement shall have become effective under the 1933
Act and 1940 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act and 1940 Act;
8.5 The Acquired Fund shall have distributed to its shareholders all of its
investment company taxable income, as defined in Section 852(b)(2) of the Code
(prior to reduction by any dividends paid deduction), and all of its net capital
gain, as such term is used in Section 852(b)(3)(C) of the Code, after reduction
by any capital loss carryforward, and all of the excess of (1) its interest
income excludable from gross income under Section 103(a) of the Code over (2)
the deductions disallowed under Sections 265 and 171(a)(2) of the Code, in each
case for its taxable year ending on the Closing Date;
8.6 After giving effect to the transactions contemplated by this Agreement,
the Acquiring Fund on the Closing Date will be in compliance with the 1940 Act
and the rules promulgated thereunder; and
8.7 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the Acquired Fund and the Acquiring Fund, substantially to the
effect that for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares
to the Acquired Fund and the assumption of all of the Acquired Fund
liabilities by the Acquiring Fund, followed by the distribution by the
Acquired Fund, in liquidation of the Acquired Fund, of Acquiring Fund
Shares to the shareholders of the Acquired Fund in exchange for their
Acquired Fund shares of beneficial interest and the termination of the
Acquired Fund, will constitute a reorganization within the meaning of
Section 368(a)(1) of the Code, and the Acquired Fund and the Acquiring Fund
will each be "a party to a reorganization" within the meaning of Section
368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon (i)
the transfer of all of its assets to the Acquiring Fund solely in exchange
for the issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund liabilities by the Acquiring Fund
and (ii) the distribution by the Acquired Fund of such Acquiring Fund
Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
issuance of Acquiring Fund Shares to the Acquired Fund and the assumption
of all of the Acquired Fund liabilities by the Acquiring Fund;
(d) The basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be, in each instance, the same as the basis of those
assets in the hands of the Acquired Fund immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired Fund in the
hands of the Acquiring Fund will, in each instance, include Acquired Fund's
tax holding period for those assets;
(f) The shareholders of the Acquired Fund will not recognize gain or
loss upon the exchange of all of their shares of beneficial interest of the
Acquired Fund solely for Acquiring Fund Shares as part of the transaction;
(g) The basis of the Acquiring Fund Shares received by the Acquired
Fund shareholders in the transaction will be the same as the basis of the
shares of beneficial interest of the Acquired Fund surrendered in exchange
therefor; and
(h) The tax holding period of the Acquiring Fund Shares received by
the Acquired Fund shareholders will include, for each shareholder, the tax
holding period for the shares of beneficial interest of the Acquired Fund
surrendered in exchange therefor, provided that the Acquired Fund shares
were held as capital assets on the date of the exchange.
Each of the Acquiring Fund and the Acquired Fund agrees to make and provide
representations with respect to itself that are reasonably necessary to enable
Hale and Dorr LLP to deliver an opinion substantially as set forth in this
paragraph 8.7. Notwithstanding anything herein to the contrary, the Acquiring
Fund and the Acquired Fund may not waive in any material respect the conditions
set forth in this paragraph 8.7.
9. BROKERAGE FEES AND EXPENSES
9.1 Each of the Acquiring Fund and the Acquired Fund represents and
warrants to the other that there are no brokers or finders entitled to receive
any payments in connection with the transactions provided for herein.
9.2 Each of the Acquiring Fund and the Acquired Fund shall be liable solely
for its own expenses incurred in connection with entering into and carrying out
the provisions of this Agreement whether or not the transactions contemplated
hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTS
10.1 The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein or referred
to in paragraph 4 hereof or required in connection with paragraph 8.7 hereof and
that this Agreement constitutes the entire agreement between the parties.
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<PAGE>
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Acquired Fund. In addition, either party may at its
option terminate this Agreement at or prior to the Closing Date because of:
(a) a material breach by the other of any representation, warranty or
agreement contained herein to be performed at or prior to the Closing Date;
or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party which has not been met and which reasonably appears
will not or cannot be met.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Acquiring Fund or the Acquired Fund, or their
respective trustees, directors or officers, to the other party or its trustees,
directors or officers, but each shall bear the expenses incurred by it
incidental to the preparation and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of shareholders called by the Acquired Fund pursuant to paragraph 5.2 of
this Agreement, no such amendment may have the effect of changing the provisions
for determining the number of Acquiring Fund Shares to be issued to Acquired
Fund shareholders under this Agreement to the detriment of such shareholders
without their further approval, provided that nothing contained in this Article
12 shall be construed to prohibit the parties from amending this Agreement to
change the Closing Date or the Valuation Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the Acquiring Fund or the
Acquired Fund, each at 60 State Street, Boston, Massachusetts 02109, Attention:
Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 All persons dealing with the Acquiring Fund must look solely to the
property of the Acquiring Fund for the enforcement of any claims against the
Acquiring Fund as neither the Trustees, officers, agents or shareholders of the
Acquiring Fund assume any personal liability for obligations entered into on
behalf of the Acquiring Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President and its seal to be affixed thereto and attested by
its Secretary.
<TABLE>
<S> <C>
Attest: PIONEER INTERMEDIATE TAX-FREE FUND
_____________________________________ By: __________________________________
Attest: PIONEER TAX-FREE INCOME FUND
_____________________________________ By: __________________________________
</TABLE>
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<PAGE>
EXHIBIT B
EXCERPTS FROM EACH FUND'S JUNE 30, 1998 SEMIANNUAL REPORT
---------------------------------------------------------
The mountain chart on the right shows the growth of a $10,000 investment
made in Pioneer Intermediate Tax-Free Fund, compared to the growth of the Lehman
Brothers Municipal Bond Index.
Pioneer Intermediate Tax-Free Fund
Investment Returns (Class A Shares)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Average Annual Total Returns
(As of June 30, 1998)
Period Net Asset Value Public Offering Price*
<S> <C> <C>
10 Years 7.19% 6.80%
5 Years 4.53 3.79
1 Year 6.55 2.84
- ------------------------------------------------------------------------
</TABLE>
* Reflects deduction of the maximum 3.5% sales charge at the beginning of the
period and assumes reinvestment of distributions at net asset value.
[Plot Points for Mountain Chart]
<TABLE>
<CAPTION>
Growth of $10,000
Pioneer Intermediate Lehman Brothers
Tax-Free Fund* Municipal Bond Index
<S> <C> <C>
6/88 9650 10000
10980 11139
6/90 11575 11898
12536 12970
6/92 13941 14497
15447 16231
6/94 15382 16263
16454 17692
6/96 17120 18864
18128 20422
6/98 19316 22188
</TABLE>
Pioneer Intermediate Tax-Free Fund
Investment Returns (Class B Shares)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Average Annual Total Returns
(As of June 30, 1998)
Period If Held If Redeemed*
<S> <C> <C>
Life-of-Fund (4/29/94) 4.88% 4.88%
1 Year 5.72 2.72
- ---------------------------------------------------------
</TABLE>
* Reflects deduction of the maximum applicable contingent deferred sales charge
(CDSC) at the end of the period and assumes reinvestment of distributions. The
maximum CDSC of 3% declines over four years.
[Plot Points for Mountain Chart]
<TABLE>
<CAPTION>
Growth of $10,000
Pioneer Intermediate Lehman Brothers
Tax-Free Fund* Municipal Bond Index
<S> <C> <C>
4/94 10000 10000
6/94 10038 10028
10046 10094
9851 9949
10420 10653
6/95 10636 10909
10832 11223
11102 11686
11980 11543
6/96 10976 11631
11133 11899
11351 12202
11255 12173
6/97 11537 12592
11799 12972
12042 13324
12098 13477
6/98 12197 13682
</TABLE>
Pioneer Intermediate Tax-Free Fund
Investment Returns (Class C Shares)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Average Annual Total Returns
(As of June 30, 1998)
Period If Held If Redeemed*
<S> <C> <C>
Life-of-Fund (1/31/96) 3.47% 3.47%
1 Year 5.51 5.51
- ---------------------------------------------------------
</TABLE>
* Assumes reinvestment of distributions. The 1% contingent deferred sales charge
(CDSC) applies to redemptions made within one year of purchase.
[Plot Points for Mountain Chart]
<TABLE>
<CAPTION>
Growth of $10,000
Pioneer Intermediate Lehman Brothers
Tax-Free Fund* Municipal Bond Index
<S> <C> <C>
1/96 10000 10000
9813 9804
6/96 9809 9879
9930 10106
10122 10363
10037 10338
6/97 10289 10695
10524 10017
10734 11316
10753 11446
6/98 10857 11620
</TABLE>
The Lehman Brothers Municipal Bond Index is an unmanaged measure of
approximately 15,000 municipal bonds. Bonds in the index have a minimum credit
rating of BBB, were part of at least a $50 million issuance made within the past
five years and have a maturity of at least two years. 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.
Past performance does not guarantee future results. Return and share price
fluctuate, and your shares, when redeemed, may be worth more or less than their
original cost.
37
<PAGE>
Pioneer Intermediate Tax-Free Fund
Portfolio Management Discussion 6/30/98
Dear Shareowner,
Pioneer Intermediate Tax-Free Fund closed the first half of its fiscal year
on June 30, 1998. During that time, favorable economic conditions in the United
States and a "flight to quality" in the U.S. Treasury market pushed taxable bond
prices higher and long-term interest rates to historic lows. Even so, an
increased supply of municipal bonds combined with weak demand to restrain the
performance of munis, especially when compared to taxable bonds.
Kathleen D. McClaskey has managed Pioneer Intermediate Tax-Free Fund for
the past 11 years, leading the investment team responsible for the fund's daily
management. In the following discussion, Ms. McClaskey reviews the investment
environment and the strategies that affected your fund's performance and
provides her outlook for the second half of 1998.
Q: How did the fund perform?
A: For the six month period ended June 30, the fund's Class A shares
returned 1.69%, Class B 1.29% and Class C 1.15%, all at net asset value. In
comparison, the 151 intermediate municipal debt funds followed by Lipper
Analytical Services returned 2.05% for the same period. (Returns do not reflect
sales charges.) We attribute your fund's slight lag in performance to its
investment standards. Over the past six months, the fund maintained an emphasis
on higher-rated bonds. Other funds in this category often invest in lower-rated
bonds, which often provide higher returns since they involve greater risk.
The fund's Class A shares provided a tax-free 30-day yield of 3.31% on June
30. That translated into an attractive taxable-equivalent yield of 5.49% for an
investor in the maximum 39.6% tax bracket.
Q: Did the situation in Asia affect U.S. interest rates and bonds?
A: The uncertainty of the Asian crisis kept interest rates, and bond
prices, within a narrow range for most of the period. It also sparked a "flight
to quality." Generally, investors waited for new developments and evidence of
the situation's effect on the U.S. economy. When the crisis worsened this
spring, investors sought the safety and security of U.S. treasuries. This demand
again pushed up prices of taxable bonds and lowered interest rates.
Asia's problems held down U.S. interest rates for another reason, too. Many
investors were concerned that our strong economy eventually might stimulate
inflation and lead the Federal Reserve to raise interest rates. But, because the
United States and Asia are active trading partners, slowing Asian economies
could lessen U.S. economic growth. That would ease inflationary pressures and
reduce the Fed's impetus to change rates.
Q: What was the environment like for municipal bonds over the past six
months?
A: Basically it was a case of supply and demand. The supply of municipal
bonds increased dramatically during the first half of 1998, as many state and
local governments took advantage of lower interest rates to refinance existing
bonds or to finance new projects. In fact, this period included the largest
transaction ever to occur in the tax-exempt market--Long Island Power
Authority's $6.5 billion issue. Ironically, all this good news for
municipalities didn't help municipal bond investors much, since the flood of
supply kept prices from rising. In addition, the continuing economic problems in
Asia increased the popularity of U.S. Treasury bonds, particularly among foreign
investors. Municipal bond prices rose, but not as fast or far as treasuries.
The yield on the benchmark 30-year U.S. Treasury fell from 5.92% on
December 31, 1997 to 5.63% on June 30. In comparison, the yield on the Lehman
Brothers Municipal Bond Index--a good indicator of the municipal bond
market--only fell from 4.70% on December 31 to 4.65% on June 30.
Q: What strategies did you use to manage the fund?
A: We sought to maximize income and total return by maintaining high
standards of quality and emphasizing relative value. During the period,
lower-quality bonds provided little yield advantage over higher rated bonds. In
that scenario, we believed higher-quality bonds represented better relative
value.
As of June 30, 90% of the fund's holdings were rated AA or above,
translating into an average rating of "AA." (Ratings apply to underlying
securities, not fund shares.) The portfolio remained well diversified with 57
holdings spread over 32 states.
We increased total return potential by maintaining the portfolio's
duration--it rose slightly from 6.63 years on December 31 to 6.68 years on June
30. Duration measures a fund's sensitivity to changes in interest rates.
Generally, an investment's price will change 1% for every 1% change in interest
rates. Higher durations mean more potential for both price appreciation when
interest rates fall and price declines when interest rates rise; shorter
durations reduce interest rate sensitivity.
We implemented this strategy by selling bonds with nearing "call dates" and
reinvesting in bonds with 15- to 20-year non-callable maturities. Call
provisions set a predetermined date for an issuer to repurchase a bond from its
holder. Often, this happens when interest
38
<PAGE>
rates decline so that an issuer can refinance the bonds at lower rates. Selling
callable bonds improved the fund's potential for both price appreciation and
long-term income generation for several reasons. Bonds with longer maturities
offer better potential for price appreciation when interest rates decline, and
longer streams of predictable income.
Q: What is your outlook for municipal bonds over the next six months?
A: Over the near-term, we expect many of the trends that were positive for
municipal bonds during the past six months to continue through the end of 1998.
We believe solid economic growth and minimal inflation in the United States can
spur ongoing improvement in the financial health of municipalities. After the
recent flood of offerings, we think issuers are taking a breather, which should
give tax-exempt bond prices a lift. Looking out further, we expect Asia to have
a powerful influence on interest rates. If there is a significant spillover into
the U.S. economy, interest rates could remain stable or move moderately lower.
39
<PAGE>
Pioneer Tax-Free Income Fund
Investment Returns (Class A Shares)
The mountain chart on the right shows the growth of a $10,000 investment
made in Pioneer Tax-Free Income Fund, compared to the growth of the Lehman
Brothers Municipal Bond Index.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Average Annual Total Returns
(As of June 30, 1998)
Period Net Asset Value Public Offering Price*
<S> <C> <C>
10 Years 8.19% 7.70%
5 Years 5.81 4.83
1 Year 8.51 3.58
- ------------------------------------------------------------------------
</TABLE>
* Reflects deduction of the maximum 4.5% sales charge at the beginning of the
period and assumes reinvestment of distributions at net asset value.
[Plot Points for Mountain Chart]
<TABLE>
<CAPTION>
Growth of $10,000
Pioneer Tax-Free Lehman Brothers
Income Fund* Municipal Bond Index
<S> <C> <C>
6/88 9550 10000
10853 11139
6/90 11483 11898
12477 12970
6/92 14076 14497
15831 16231
6/94 15745 16263
17009 17692
6/96 17942 18864
19346 20422
6/98 20991 22188
</TABLE>
Pioneer Tax-Free Income Fund
Investment Returns (Class B Shares)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Average Annual Total Returns
(As of June 30, 1998)
Period If Held If Redeemed*
<S> <C> <C>
Life-of-Fund (4/28/95) 6.57% 5.74%
1 Year 7.71 3.71
- ---------------------------------------------------------
</TABLE>
* Reflects deduction of the maximum applicable contingent deferred sales charge
(CDSC) at the end of the period and assumes reinvestment of distributions. The
maximum CDSC of 4% declines over six years.
[Plot Points for Mountain Chart]
<TABLE>
<CAPTION>
Growth of $10,000
Pioneer Tax-Free Lehman Brothers
Income Fund* Municipal Bond Index
<S> <C> <C>
4/95 10000 10000
6/95 10155 10229
10363 10523
10794 10957
10580 10824
6/96 10616 10906
10858 11157
11080 11441
10994 11414
6/97 11368 11807
11682 12163
11985 12493
12078 12637
6/98 11944 12828
</TABLE>
Pioneer Tax-Free Income Fund
Investment Returns (Class C Shares)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Average Annual Total Returns
(As of June 30, 1998)
Period If Held If Redeemed*
<S> <C> <C>
Life-of-Fund (1/31/96) 5.20% 5.20%
1 Year 7.69 7.69
- ---------------------------------------------------------
</TABLE>
* Assumes reinvestment of distributions. The 1% contingent deferred sales charge
(CDSC) applies to redemptions made within one year of purchase.
[Plot Points for Mountain Chart]
<TABLE>
<CAPTION>
Growth of $10,000
Pioneer Tax-Free Lehman Brothers
Income Fund* Municipal Bond Index
<S> <C> <C>
1/96 10000 10000
9766 9804
6/96 9791 9879
10006 10106
10219 10363
10148 10338
6/97 10493 10695
10792 11017
11070 11316
11138 11446
6/98 11300 11620
</TABLE>
The Lehman Brothers Municipal Bond Index is an unmanaged measure of
approximately 15,000 municipal bonds. Bonds in the index have a minimum credit
rating of BBB, were part of at least a $50 million issuance made within the past
five years and have a maturity of at least two years. 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.
A portion of the fund's income may be subject to the Alternative Minimum
Tax (AMT).
Past performance does not guarantee future results. Return and share price
fluctuate, and your shares, when redeemed, may be worth more or less than their
original cost.
40
<PAGE>
Pioneer Tax-Free Income Fund Portfolio Management Discussion 6/30/98
Dear Shareowner,
Pioneer Tax-Free Income Fund closed the first half of its fiscal year on
June 30, 1998. During that time, favorable economic conditions in the United
States and a "flight to quality" in the U.S. Treasury market pushed taxable bond
prices higher and long-term interest rates to historic lows. Even so, an
increased supply of municipal bonds, combined with weak demand, hurt the
performance of munis, especially when compared to taxable bonds.
Mark L. Winter has managed Pioneer Tax-Free Income Fund for the past 12
years, leading the investment team responsible for the fund's daily activities.
The following discussion with Mr. Winter details the investment environment and
the strategies that affected your fund's performance and provides his outlook
for the second half of 1998.
Q: How did the fund perform in the first half of 1998?
A: Pioneer Tax-Free Income Fund delivered competitive returns. For the six
months, Class A shares returned 2.46%, Class B shares 2.16% and Class C shares
2.08%, all at net asset value. In comparison, the 246 general municipal debt
funds followed by Lipper Analytical Services returned 2.26% for the same period.
(Returns do not reflect sales charges.) Lipper Analytical Services is an
independent company that tracks fund performance.
The fund's Class A shares also provided a tax-free 30-day yield of 3.84% on
June 30. That translated into an attractive taxable-equivalent yield of 6.35%
for an investor in the 39.6% maximum federal tax bracket.
Q: Did the situation in Asia affect U.S. interest rates and bonds?
A: The uncertainty of the Asian crisis kept interest rates, and bond
prices, within a narrow range for most of the period. It also sparked a "flight
to quality." Generally, investors waited for new developments and evidence of
the situation's effect on the U.S. economy. When the crisis worsened this
spring, investors sought the safety and security of U.S. treasuries. This demand
again pushed up prices of taxable bonds and lowered interest rates.
Asia's problems held down U.S. interest rates for another reason, too. Many
investors were concerned that our strong economy eventually might stimulate
inflation and lead the Federal Reserve to raise interest rates. But, because the
United States and Asia are active trading partners, slowing Asian economies
could lessen U.S. economic growth. That would ease inflationary pressures and
reduce the Fed's impetus to change rates.
Q: What was the environment like for municipal bonds over the past six
months?
A: Basically it was a case of supply and demand. The supply of municipal
bonds increased dramatically during the first quarter of 1998, as many state and
local governments took advantage of lower interest rates to refinance
higher-cost bonds or to finance new projects. In fact, this period included the
largest transaction ever to occur in the tax-exempt market--Long Island Power
Authority's $6.5 billion issue. Ironically, all this good news for
municipalities didn't help municipal bond investors much since the flood of
supply kept prices from rising. In addition, the continuing economic problems in
Asia increased the popularity of U.S. Treasury bonds, particularly among foreign
investors. Municipal bond prices rose but not as fast or far as treasuries.
The yield on the benchmark 30-year U.S. Treasury fell from 5.92% on
December 31, 1997 to 5.63% on June 30. In comparison, the yield on the Lehman
Brothers Municipal Bond Index--a good indicator of the municipal bond
market--only fell from 4.70% on December 31 to 4.65% on June 30.
Q: What strategies did you use to manage the fund?
A: We emphasized total return and income by adjusting the fund's
sensitivity to interest rate changes. We also maintained the fund's high
standards of quality and focused on attractive relative value. As of June 30,
54% of the fund's holdings were insured AAA-rated bonds, translating into an
average rating of "AA+." (Ratings apply to underlying securities, not fund
shares.) The portfolio remained well diversified with 178 holdings spread over
41 states.
We increased total return potential by increasing the portfolio's duration
from 6.44 years on December 31 to 7.70 years on June 30. Duration measures a
fund's sensitivity to changes in interest rates. Generally, an investment's
price will change 1% for every 1% change in interest rates. Higher durations
mean more potential for both price appreciation when interest rates fall and
price declines when interest rates rise; shorter durations reduce interest rate
sensitivity.
We implemented this strategy by selling bonds with nearing "call dates" and
reinvesting in bonds with 15 to 20 year maturities because "call" provisions
relate to a predetermined date for an issuer to repurchase a bond from its
holder. Often, this happens when interest rates decline so that an issuer can
refinance the bonds at lower rates. Selling callable bonds improved the fund's
potential for both price appre-
41
<PAGE>
ciation and long-term income generation for several reasons. Bonds with longer
maturities offer better potential for price appreciation when interest rates
decline, and longer streams of predictable income.
Q: What is your outlook for municipal bonds over the next six months?
A: Over the near-term, we expect many of the trends that were positive for
municipal bonds during the past six months to continue through the end of 1998.
We believe solid economic growth and minimal inflation in the United States can
spur ongoing improvement in the financial health of municipalities. After the
recent flood of offerings, we think issuers are taking a breather, which should
give tax-exempt bond prices a lift. Looking out further, we expect Asia to have
a powerful influence on interest rates. If there is a significant spillover into
the U.S. economy, interest rates could remain stable or move moderately lower.
<PAGE>
[landscape oriented on proxy card]
PROXY PROXY
- ----- -----
PIONEER INTERMEDIATE TAX-FREE FUND
PROXY FOR THE MEETING OF SHAREHOLDERS
To be held March 30, 1999
I (we), having received notice of the meeting and management's proxy statement
therefor, and revoking all prior proxies, hereby appoint(s) John F. Cogan, Jr.,
David D. Tripple, Robert P. Nault and Joseph P. Barri, and each of them, my
(our) attorneys (with full power of substitution in them and each of them) for
and in my (our) name(s) to attend the Meeting of Shareholders of my(our) fund to
be held on Tuesday, March 30, 1999, at 2:00 p.m. (Boston time) at the offices of
Hale and Dorr LLP, counsel to the fund, 60 State Street, 26th Floor, Boston,
Massachusetts 02109, and any adjourned session or sessions thereof (the
"Meeting"), and there to vote and act upon the following matter (as more fully
described in the accompanying Proxy Statement) in respect of all shares of the
fund which I (we) will be entitled to vote or act upon, with all the powers I
(we) would possess if personally present:
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
PROPOSAL.
In signing, please write name(s) exactly as
appearing hereon. When signing as attorney,
executor, administrator or other fiduciary,
please give your full title as such. Joint
owners should each sign personally.
[ s i g n a t u r e b l o c k ]
Signature(s)
Dated: , 1999
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF YOUR FUND AND
SHOULD BE RETURNED AS SOON AS POSSIBLE IN THE ENVELOPE PROVIDED.
FOR AGAINST ABSTAIN
1. To approve an Agreement and Plan of [ ] [ ] [ ]
Reorganization between your fund and
Pioneer Tax-Free Income Fund. Under
this Agreement your fund would transfer
all of its assets to Tax-Free Income
Fund in exchange for shares of Tax-Free
Income Fund. These shares would be
distributed proportionately to you and
the other shareholders of your fund.
Tax-Free Income Fund would also assume
your fund's liabilities.
<PAGE>
[ logo
PIONEER]
PIONEER INTERMEDIATE TAX-FREE FUND
60 State Street
Boston, MA 02109
February 1999
Dear Fellow Shareowner,
I am writing to let you know that a meeting will be held March 30, 1999 for
shareowners to vote on an important proposal for Pioneer Intermediate Tax-Free
Fund (the Fund). As a shareowner in the Fund, you have the opportunity to voice
your opinion on this matter.
This package contains information about the proposal, along with a proxy card
for you to vote by mail. Please take a moment to read the enclosed materials and
cast your vote using the proxy card. Your prompt vote will help save money. If a
majority of shareowners have not voted prior to the meeting, we must try to
obtain more votes with additional mailings or phone solicitation. Both of these
are costly processes.
[callout in margin] VOTING YOUR SHARES BY MAIL IS QUICK AND EASY. EVERYTHING YOU
NEED IS ENCLOSED.
The proposal has been reviewed by the Board of Trustees, whose primary role is
to protect your interests as a shareowner. In the Trustees' opinion, the
proposal is fair and reasonable. The Trustees recommend that you vote FOR the
proposal. HERE IS WHAT A FOR VOTE MEANS FOR THE PROPOSAL.
[callout in margin] THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR THE
PROPOSAL.
THE PROPOSAL:
APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN THE FUND AND PIONEER
TAX-FREE INCOME FUND, allowing the Fund to transfer all of its assets and
liabilities to Pioneer Tax-Free Income Fund in exchange for shares of Pioneer
Tax-Free Income Fund.
If the Proposal is approved, shareowners of Pioneer Intermediate Tax-Free Fund
will receive shares of Pioneer Tax-Free Income Fund, of the same class and total
value. The Trustees believe the proposed changes will help current shareowners
by offering them a more diversified investment in a larger fund with a lower
expense ratio. The reorganization will be tax-free for shareowners and the
Funds.
The Funds have similar investment objectives; both seek a high level of current
income exempt from federal income taxes. The Trustees expect that shareowners
will receive the same investment advantages as they currently have, yet with the
potential for higher returns given Pioneer Tax-Free Income Fund's lower
expenses.
[callout in margin] PLEASE VOTE! YOUR VOTE IS EXTREMELY IMPORTANT, NO MATTER HOW
MANY SHARES YOU OWN.
[callout in margin] CAST YOUR VOTE BY COMPLETING AND SIGNING THE PROXY CARD.
PLEASE MAIL YOUR COMPLETED AND SIGNED PROXY AS QUICKLY AS POSSIBLE, USING THE
POSTAGE-PAID ENVELOPE PROVIDED.
Please feel free to call Pioneer at 1-800-622-3265 if you have any questions
about the proposal or the process for voting your shares. Thank you for your
prompt response.
Sincerely,
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.
Chairman and President
0299-6161
